CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment
Distinguish among four types of unemployment.
Discuss the unemployment rate, and describe how it differs over time and across groups.
Explain who is eligible for unemployment benefits in the United States.
Objectives
CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment
full employmentunderemployment labor forceunemployment rate labor force participation rateunemployment benefits
Key Terms
CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment SLIDE3
Types of UnemploymentFrictional unemploymentStructural unemploymentSeasonal unemploymentCyclical unemploymentFull unemployment
CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment SLIDE4
Frictional UnemploymentThe time required to bring together labor
suppliers and labor demanders creates frictional unemployment.Frictional unemployment does not usually
last long and results in a better match-up between workers and jobs.
CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment SLIDE5
Structural UnemploymentStructural unemployment results when job
seekers do not have the skills demanded.The unemployed may need to retrain to
develop required skills.
CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment SLIDE6
Seasonal UnemploymentUnemployment caused by seasonal
changes in labor demand during the year is called seasonal unemployment.Workers in seasonal jobs know they will
probably be unemployed in the off-season.
CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment SLIDE7
Cyclical UnemploymentCyclical unemployment is the increase in
unemployment caused by the recession phase of the business cycle.Cyclical unemployment increases during
recessions and decreases during expansions.
CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment SLIDE8
Full UnemploymentFull unemployment occurs when there is
no cyclical unemployment; relatively low unemployment.Even when the economy is at full
employment, there will be some frictional, structural, and seasonal unemployment.
CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment SLIDE9Problems with Official
Unemployment Estimates Ignores discouraged workers Ignores underemployment
CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment SLIDE10The Cost and
Measure of UnemploymentUnemployment rateLabor force participation rateChanges in unemployment rateUnemployment for various groups
CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment SLIDE11
Unemployment RateThe labor force consists of those in the
adult population who are either working or looking for work.The unemployment rate equals the
number of people without jobs who are looking for work divided by the number in the labor force.
=Unemployment rateNumber in the labor force
Number unemployed
CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment SLIDE12
Labor Force Participation RateThe labor force participation rate equals
the number in the labor force divided by the adult population.
CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment SLIDE13Composition of Adult Population
(in millions), July 2006
Figure 13.1
CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment SLIDE14Changes in the
Unemployment RateThe unemployment rate increases during
recessions. The unemployment rate falls during
expansions.
CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment SLIDE15
U.S. Unemployment Rate Since 1900
Figure 13.2
CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment SLIDE16
Unemployment for Various GroupsUnemployment rates are higher among
blacks than among whites.Unemployment rates are higher among
teenagers than among those aged 20 and older.
CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment SLIDE17
Unemployment CompensationSocial Security Act of 1935 provides
unemployment insurance financed by a tax on employers.Unemployment benefits—cash transfers
to unemployed workers who actively seek work and who meet other qualifications.
CONTEMPORARY ECONOMICS © Thomson South-Western
13.1 Unemployment SLIDE18Unemployment Benefits
and Work IncentivesUnemployment benefitsMay reduce the incentive to find workAllow for a more careful job searchAllow the unemployed to continue to
spend
CONTEMPORARY ECONOMICS © Thomson South-Western
13.2 Inflation
Describe the types of inflation, and identify two sources of inflation.
Identify the problems that unexpected inflation creates.
Objectives
CONTEMPORARY ECONOMICS © Thomson South-Western
13.2 Inflation
inflationdemand-pull inflationcost-push inflationnominal interest rate real interest rate
Key Terms
CONTEMPORARY ECONOMICS © Thomson South-Western
13.2 Inflation SLIDE3
Inflation Basics Inflation is an increase in the economy’s
general price level.
CONTEMPORARY ECONOMICS © Thomson South-Western
13.2 Inflation SLIDE4
Types of InflationHyperinflation—extremely high inflationDisinflation—a reduction in the rate of
inflationDeflation—a decrease in the general price
level
CONTEMPORARY ECONOMICS © Thomson South-Western
13.2 Inflation SLIDE5
Two Sources of InflationDemand-pull inflation is inflation
resulting from increases in aggregate demand.Cost-push inflation is inflation stemming
from decreases in aggregate supply.
CONTEMPORARY ECONOMICS © Thomson South-Western
13.2 Inflation SLIDE6
Inflation Caused by Shifts of the Aggregate Demand and Aggregate Supply Curves(a) Demand-pull inflation:
inflation caused by an increase of aggregate demand
(b) Cost-push inflation:inflation caused by a decrease of aggregate supply
Figure 13.4
CONTEMPORARY ECONOMICS © Thomson South-Western
13.2 Inflation SLIDE7
Consumer Price Index Since 1913 Despite fluctuations,
the price level, as measured by the consumer price index, was lower in 1940 than in 1920.
Since 1940, the price level has risen almost every year.
Figure 13.5
CONTEMPORARY ECONOMICS © Thomson South-Western
13.2 Inflation SLIDE8
Impact of Inflation Inflation reduces the value of the dollar
and takes away confidence in the value of the dollar over the long term.
CONTEMPORARY ECONOMICS © Thomson South-Western
13.2 Inflation SLIDE9Expected Versus
Unexpected InflationUnexpected inflation creates more
problems for the economy than does expected inflation.To the extent that inflation is higher or
lower than expected, it arbitrarily creates economic winners and losers.
CONTEMPORARY ECONOMICS © Thomson South-Western
13.2 Inflation SLIDE10The Transaction Costs
of Unexpected InflationReduced productivity Increased transaction costs of market
exchange
CONTEMPORARY ECONOMICS © Thomson South-Western
13.2 Inflation SLIDE11
Inflation and Interest Rates Nominal interest rate—the interest rate
expressed in current dollars as a percentage of the amount loaned; the interest rate on the loan agreement.
Real interest rate—the interest rate expressed in dollars of constant purchasing power as a percentage of the amount loaned; the nominal interest rate minus the inflation rate.
Real interest rate = Nominal interest rate – Inflation rate
Top Related