Chapter 9. Unemployment and Stagflation. These slides supplement the textbook, but should not replace reading the textbook

Transcription

1 Chapter 9 Unemployment and Stagflation These slides supplement the textbook, but should not replace reading the textbook

2 What is the labor force? All non-institutionalized individuals 16 years of age and older who are either working or looking for work 2

3 Who is unemployed? Anyone 16 years of age or older who is actively seeking employment 3

4 What is the unemployment rate? The number of unemployed individuals expressed as a percentage of the labor force 4

5 How do we measure unemployment? The number of unemployed divided by the labor force 5

6 Who measures unemployment? The Bureau of Labor Statistics surveys 60,000 households each month 6

7 What is a discouraged worker? A person who has dropped out of the labor force due to a lack of success in finding a job 7

8 Are discouraged workers considered a part of the labor force? No, people who quit looking for work are not considered a part of the labor force 8

9 What about part-time workers? Part-time workers are considered fully employed 9

10 What is underemployment? A situation in which workers are overqualified for their jobs or work fewer hours than they would prefer 10

11 What is the labor force participation rate? The ratio of the number in the labor force to the adult population 11

12 What percentage of the labor force is female? Almost half 12

13 What are the types of unemployment? Frictional unemployment Structural unemployment Seasonal unemployment Cyclical unemployment 13

14 What is frictional unemployment? Unemployment that arises because of the time needed to match job seekers with job openings 14

15 Why will people be looking for work even in the best of times? school graduates job advancement downsizing weak markets 15

16 What is structural unemployment? Unemployment that arises because: the skills demanded by employers do not match those of the unemployed or the unemployed do not live where the jobs are 16

17 What is seasonal unemployment? Unemployment caused by seasonal shifts in labor supply and demand 17

18 What is cyclical unemployment? Unemployment that fluctuates with the business cycle, increasing during recessions and decreasing during expansions 18

19 What is full employment? The level of employment when there is no cyclical unemployment 19

20 What is considered full employment? 4 to 6% unemployment is considered full employment 20

21 Why 4 to 6%? Because even in the best of times some people are always looking for work 21

22 What would make unemployment increase beyond 6% Excessive inventories 22

23 What is the current unemployment rate?

24 Is the unemployment rate valid? Yes, as long as it is calculated consistently, we can get an accurate comparison from one time period to the next 24

25 What was the unemployment rate at the worst of the Great Depression? In 1932 there was 25% unemployment 25

26 Tell me more about the Great Depression of the 1930 s eosearch?q=great+depre ssion+1929&emb=0&aq= 2&oq=Great+Depressio# 26

27 What caused the buildup of excessive inventories in the late 1920 s? Business owners keeping prices high and wages low 27

28 What caused the severity of unemployment in 1932? The Smoot Hawley Tariff Higher taxes Decrease of money supply 28

29 What are the two types of fiscal policy? Discretionary Automatic stabilizers 29

30 What are failings of discretionary fiscal policies? Time lags Knowing the multiplier Politics world viewpoint Structural changes Accurate forecasting International events Ignorance of economics 30

31 What are some recent laws that change the economy structurally? Health care bill (2700 pgs) Financial Reform bill (2100 pgs) Consumer Financial Protection Bureau 31

32 How does the Financial Reform law protect big business? Identifies which nonbank financial institutions might cause instability if they fail if so stringent regulation by the Fed in exchange for protection 32

33 What is the Consumer Financial Protection Bureau? Established by the Dodd-Frank Financial Reform law Under the Fed but not responsible to the Fed Impose rules on banks Not approved by Senate Receive 10% combined earnings of the Fed 33

34 Which firms can get preferential treatment? Participants in rent seeking leading to a symbiotic relationship between politicians and business 34

35 What affect of big government on national debt? 40% of national budget is borrowed money 70% of federal securities are purchased by the Fed 35

36 What are unemployment benefits? Cash transfers provided to unemployed workers who actively seek employment and who meet other qualifications 36

37 What is the Phillips Curve? Shows an inverse relationship between inflation and unemployment 37

38 What is stagflation? Unemployment and inflation increase at the same time 38

39 Why is stagflation a dilemma for policy makers? By using typical Keynesian tools whatever you do to fight one problem the other gets worse 39

40 What is a conflict? Fiscal and monetary policies can move in opposite directions 40

41 What is the Full Employment and Balanced Growth Act of 1978? Mandated the Fed to ensure full employment and stable prices 41

42 What is the cycle imposed by monetary and fiscal policies? Choices are made and then reversed as each problem gets better and worse again 42

43 Decrease in Supply Early 1970s P2 P1 Higher Prices and More Unemployment S' S D 0 Q2 Q1 43

44 What caused the supply curve to shift to the left in the early 1970s? OPEC Unions 44

45 What is fine tuning and stable policy settings? Demand management Policy rules 45

46 What is the difference in opinion concerning the equilibrium? Fine tuning less than full employment equilibrium Rules full employment equilibrium 46

47 What happened in ? President Reagan lowered taxes on business Paul Volcker, chairman of the Fed, decreased the money supply for a long time 47

48 What agreement between those who favor rules and a more active approach? Attention to lag effects Policy stability Long term effects 48

49 END