chapter 8copyright ©2010 by south-western, a division of cengage learning. all rights reserved econ...
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Chapter 8 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
ECON
Designed byAmy McGuire, B-books, Ltd.
McEachern 2010-2011
8CHAPTERUnemployment and Inflation
Macro
Chapter 8 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
LO1
Unemployment Unemployment Personal cost Cost on the economy Measuring unemployment Civilian non-institutional adult
population Labor force Employed + Unemployed Unemployment rate Percentage of unemployed in the labor
force
Chapter 8 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
LO1
Adult population Employed Working full time or part time Not working Unemployed (looking for work) Not in labor force Retired; students; don’t want to work Discouraged workers
Unemployment
Chapter 8 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
LO1
Labor force participation rate Number in labor force / Adult population Unemployment over time Rise during contractions Fall during expansions Overall downward trend (1980s to
2000) Growing economy Fewer teenagers in workforce
Unemployment
Chapter 8 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
LO1
The U.S. Unemployment Rate Since 1900
Exhibit 2
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Unemployment Rates for Various Groups
LO1 Exhibit 3(a)
Chapter 8 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
Unemployment Rates for Various Groups
LO1 Exhibit 3(b)
Chapter 8 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved Unem
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Chapter 8 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
LO1
Sources of Unemployment Frictional unemployment
Bring together employers and job seekers
Doesn’t last long
Better match workers and jobs
Seasonal unemployment
Seasonal changes
Chapter 8 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
LO1
Sources of Unemployment Structural unemployment
Mismatch of skills or geographic location
Problem
Cyclical unemployment
Increases during recessions
Decreases during expansions
Chapter 8 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
LO1
Full Employment Full employment
No cyclical unemployment
Some unemployment
Frictional
Structural
Seasonal
Estimates: 4-6%
Chapter 8 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
LO1
Unemployment Compensation Unemployment benefits
Half of the unemployed
Criteria
Lost job
Looking for work
Time limit: 6 months
40% of wages
May reduce the incentive to find work
Chapter 8 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
Inflation
LO2
Inflation Sustained increase in price level Annual inflation rate Percentage increase in price level Hyperinflation Extremely high inflation Deflation Sustained decrease in price level Disinflation Decrease in inflation
Chapter 8 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
Two Sources of Inflation
LO2
Increase in AD Demand-pull inflation Increased government spending Social programs Decrease in AS Cost-push inflation Increase cost of production Push up the price level Stagflation
Chapter 8 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
Inflation Caused by Shifts of Aggregate Demand and Aggregate Supply Curves
Aggregate output0
Pricelevel
P’
P
AS
AD’
AD
(a)Demand-pull inflation: inflation caused by an increase of aggregate demand
An outward shift of the aggregate demand to AD’ “pulls” the price level up from P to P’.
Aggregate output0
Pricelevel
P’
P
AS
AD
(b) Cost-push inflation: inflation caused by a decrease of aggregate supply
A decrease of aggregate supply to AS’ “pushes” the price level up from P to P’.
AS’
LO2 Exhibit 6
Chapter 8 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
Inflation Since 1913
LO2 Exhibit 7(b)
Chapter 8 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved Avera
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Chapter 8 Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved
Why is Inflation Unpopular?
LO2
Pay higher prices Inflation = Penalty Receive higher receipts Higher income ‘Well-deserved’ reward Fixed nominal income Unadjusted for inflation Social Security Adjusted for inflation (COLA)