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Economic ChallengesEconomic ChallengesSECTION 1: Unemployment

SECTION 2: Inflation

SECTION 3: Poverty and Income Distribution

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Objectives:Objectives:What is the unemployment rate?What are the four major types of

unemployment?What are the main economic costs of high

unemployment?

UnemploymentUnemploymentSECTION 1

3

Unemployment rateUnemployment ratea labor force statistic the percentage of people in the nonmilitary

labor force who are unemployed

UnemploymentUnemploymentSECTION 1

4

Four major types of unemployment:Four major types of unemployment: frictional structural seasonalcyclical

UnemploymentUnemploymentSECTION 1

5

Economic costs of high Economic costs of high unemployment:unemployment: reduced production of goods and services reduced business sales increased need for federal support of the

unemployed

UnemploymentUnemploymentSECTION 1

6

Objectives:Objectives:What do economists look at when evaluating

price changes over time?What causes inflation?What are the two main price indexes that

economists use to measure inflation?How does inflation affect the economy?

InflationInflationSECTION 2

7

What economists examine when What economists examine when evaluating price fluctuations:evaluating price fluctuations:price levels inflationdeflation

InflationInflationSECTION 2

8

Causes of inflation:Causes of inflation:demand-pull inflation—when demand

surpasses productioncost-push inflation—when producers

increase prices to cover higher resource costs

future price expectations

InflationInflationSECTION 2

9

Main price indexes that economists Main price indexes that economists use to measure inflation:use to measure inflation:consumer price indexproducer price index

InflationInflationSECTION 2

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Effects of inflation:Effects of inflation:decreased purchasing power of the dollardecreased value of real wagesdecreased saving and investing increased interest rates increased production costs

InflationInflationSECTION 2

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Objectives:Objectives:How do economists determine the number

of poor people in the United States?How do economists measure the distribution

of income?What policies does the U.S. government use

to reduce the income gap and decrease poverty?

Poverty and Income DistributionPoverty and Income Distribution

SECTION 3

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The poverty threshold—the lowest The poverty threshold—the lowest income that a household of a certain income that a household of a certain size or composition needs to maintain size or composition needs to maintain a basic standard of living—is used to a basic standard of living—is used to determine the poverty rate in the determine the poverty rate in the United States.United States.

Poverty and Income DistributionPoverty and Income Distribution

SECTION 3

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How economists measure the How economists measure the distribution of income:distribution of income:Lorenz CurveGini Index

Poverty and Income DistributionPoverty and Income Distribution

SECTION 3

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Federal policies to reduce the income Federal policies to reduce the income gap and decrease poverty:gap and decrease poverty: increasing access to educational resources providing training for low-skilled workers redistributing income raising minimum wage setting wage levels prohibiting companies from building in foreign

countries where labor is cheaper

Poverty and Income DistributionPoverty and Income Distribution

SECTION 3

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1.1. Which type of unemployment is most damaging to the U.S. economy? Explain your answer.

2.2. Explain the concept of full employment.

3.3. Identify the following as examples of demand-pull inflation or cost-push inflation:a.a. an increase in the price of a popular toy at Christmas

when the stores are sold out of the productb.b. an increase in the price of orange juice because of a

drought in Floridac.c. an increase in the price of Chunky Chicken products

because of a union-negotiated wage increase for production workers

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4.4. Calculate the consumer price index using the following hypothetical information, and determine the percentage of change in the price level from 1998 to 2000: 1998 market basket ($7,000), 2000 market basket ($10,000).

5.5. What are some of the limitations of income distribution measurements?

6.6. What is the relationship between the Lorenz Curve and the Gini Index?

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CHAPTER 11