- Slides: 26
Coming Soon…. • Extended Bellringer
Extended Bellringer • Create a visual in which you outline the four types of unemployment • Define unemployment • What are three phases of the business cycle? • Between what percentage points is unemployment “normal”? • Why is high unemployment dangerous to our economy?
Extended Bellringer Seasonal Structural Laid off for season, employment will resume at a future time Unable to find employment because skills don’t match job market Not counted in unemployment Cyclical Laid off because company is having economic issues Frictional Choosing to be unemployed while searching for a new job
Extended Bellringer • Define unemployment • Employable yet unemployed; actively seeking employment • What are three phases of the business cycle? • Recession, depression, recovery • Between what percentage points is unemployment “normal”? • 4 -6% • Why is high unemployment dangerous to our economy? • Reduces demand across country which diminishes economic production which causes more job loss
Unemployment Article • Read the article that was published Friday • Answer the following questions in your notebook (not being turned in)
Unemployment Questions • How many jobs have been added in • • • November? What is the unemployment rate right now? How do interest rates affect the economy? What sectors added the most employees? Why? “Many people without jobs have stopped looking for one and are no longer counted as unemployed” What kind of workers are these? “higher-priced services such as body waxing and facials” are normal goods or inferior goods?
Inflation Essential Learning: Economic Indicators
Economic Indicators • After the Great Depression, economists set out to find a way to predict if our economy would significantly downturn ever again • There are three that you must know: • Inflation • Unemployment • GDP (Gross Domestic Product)
Inflation • Inflation: General increase in prices OR general decrease in purchase power • Deflation: general decrease in prices or increase in purchase power • Not a bad thing if kept within reason. Adam Smith claimed it was naturally occurring. • Economists agree that if the rate of inflation stays between 1 -3% (2 -4) our economy is doing fine
Examples • Cost of a brand new car 1958: $3, 000 • Cost of a brand new car 2013: $20, 000 • Average cost of a home 1950: 15, 000 • Average cost of a home 2013: $215, 000
Two ways to look at inflation • Something you own will increase in value over time because of inflation (ex: homes). This increase in value evolves with the rate of inflation so you don’t lose money by owning a home • Purchasing power: As inflation rises, a dollar is not worth as much. In other words, If you could buy 5 lollipops for $1 today, then next year you might only be able to buy 3. Your purchasing power (because of the value of a dollar) has decreased
How do economists figure it out? • The Bureau of Labor Statistics (BLS) is responsible for calculating inflation • They use the Consumer Price Index (CPI) • Price Index: measurement that shows how the average price of a group of goods has changed over time
CPI • There are 8 categories of goods that the BLS monitors: • Food and Drink • Housing • Apparel and upkeep • Transportation • Medical Care • Entertainment • Education and communication • Other Goods and services (haircuts, cosmetics, bank fees, etc…)
CPI • The costs of all the goods within these categories is monitored by BLS • They compare the costs of these goods month-to-month and year-to-year to determine the rate of inflation • Inflation Rate: percentage rate of change in price level over time
Calculating Inflation • CPI for year A minus CPI for year B divided by the CPI for year B and multiplied by 100 CPI Year A – CPI Year B X 100 CPI Year B CPI Year A: 180 CPI Year B: 178
Good v. Bad Inflation • If inflation rate stays between 1 -3% (2 -4) we are in good shape • If inflation rate exceeds 5% we may be in trouble and the economy is deemed “unpredictable” • People will stop investing • May stop using banks as often • Employment may be jeopardized (lack of expansion) • Hyperinflation: inflation that is out of control. 100 -500% in a month.
Hyperinflation • Hyperinflation occurred in Germany after WWII
Causes of Inflation • There are three theories you need to know: • Quantity Theory • Demand-Pull Theory • Cost-Push Theory
Quantity Theory • This theory states that inflation occurs when there is too much money in the economy • This is why we have the Federal Reserve – to regulate how much money is printed • This is why we can’t just “print more money” because we are in debt • If US dollars were everywhere and easy to come by they wouldn’t have value (hyperinflation or excessive inflation)
Demand-Pull Theory • This theory states that inflation occurs when demand for goods and services exceeds existing supplies • Example: During a war, the government has a huge demand for certain goods (ie: steel). This heavy demand makes the items more valuable and thus more expensive • Remember supply and demand? ! Determinants! When demand is high, prices go higher! As prices go higher, supply will increase!
Cost-Push Theory • This theory states that inflation occurs when producers raise prices to meet increased costs • The home prices have gone up because all the building materials have gone up (wood, metals, plastics) • Cost of fast food increases because cost of food itself increases and wages of workers increase
Effects of Inflation • Purchasing power is reduced • Income • Most salaried careers offer a 2% annual increase to keep up with inflation • Most hourly paying jobs do not. If you do not get a raise, inflation will outpace your earnings • Interest rates • The interest you earn from investments decreases by the inflation rate because now the money you earn is worth less
Exit Ticket • • What is cost-push inflation? What is quantity inflation? What is demand-pull inflation? Within what percentage points is inflation normal? • What is super crazy high inflation called? • Define inflation
Exit Ticket • What is cost-push inflation? • Resource costs go up, cost pushed onto consumer – costs rise • What is quantity inflation? • There is too much money in economy which devalues currency • What is demand-pull inflation? • There is a shortage of something, so prices are raised • Within what percentage points is inflation normal? • 1 -3% • What is super crazy high inflation called? • Hyperinflation • Define inflation • General increase in prices