Econ Ch17 Economic Challenges


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Econ Ch17 Economic Challenges

  1. 1. Chapter Economic Challenges 17
  2. 2. Objective: <ul><li>Students identify economic challenges that persist in free markets. </li></ul>
  3. 3. Inflation <ul><li>Inflation is not occurring every time prices go up. Inflation is an increase in the average level of price, not a change in a specific price. </li></ul>
  4. 4. Causes of Inflation <ul><li>Demand-Pull Inflation: shortages lead to price increases </li></ul><ul><li>Hyperinflation: more than 500% inflation; often caused by over printing money (Germany in the 1920s) </li></ul><ul><li>Cost-Push Inflation: Rising cost of goods/services sets off a chain reaction </li></ul>
  5. 5. Significant inflation is almost always associated with slower growth in real GDP.
  6. 6. The Costs of Inflation <ul><li>The amount of goods/services people can buy decreases . This hurts people with fixed incomes the most. </li></ul><ul><li>Inflation makes it harder to judge the value of goods and services from one year to the next. </li></ul><ul><li>Makes it difficult to plan spending . </li></ul><ul><li>Inflation hurts savers/hoarders but helps borrowers . This still hurts lenders. </li></ul>
  7. 8. Government Strategies: <ul><li>The Federal Reserve is responsible for the nation’s monetary policy. </li></ul><ul><li>Its helps control inflation by limiting the amount of money in circulation and by controlling the amount of interest banks pay for their loans. </li></ul>
  8. 9. Unemployment <ul><li>unemployment rate : the percentage of individuals in the civilian labor force who actively looked for a job that month but could not find one. </li></ul><ul><li>In June 2005, the unemployment rate was about 5 percent—a relatively low number. </li></ul><ul><li>Misleading because: </li></ul><ul><ul><li>The Bureau of Labor Statistics does not count people who are too discouraged to continue to look for a job. </li></ul></ul><ul><ul><li>The government considers people employed even if the only work they can find is a part-time job that pays very little. </li></ul></ul>
  9. 11. Types of Unemployment <ul><li>Frictional unemployment: occurs whenever people leave their old jobs and before they have found new jobs. Rises in the spring. Can you guess why? </li></ul><ul><li>Structural unemployment: a change in the economy that reduces the demand for a particular group of workers and their skills. </li></ul><ul><li>Cyclical unemployment: there are not enough jobs to go around. Directly related to fluctuations in the business cycle </li></ul><ul><li>Seasonal unemployment: caused by seasonal changes in the weather or in the demand for certain products. </li></ul>
  10. 12. The Limits of Full Employment <ul><li>Full employment does not mean zero unemployment. It means the lowest possible unemployment rate in a growing economy with all factors of production used as efficiently as possible. </li></ul><ul><li>When unemployment rate drops below 4.5% economists consider there to be full employment. </li></ul>
  11. 13. Government Policies: <ul><li>no easy solutions for unemployment </li></ul><ul><li>Automatic Stabilizers: automatically provide benefits if the economy threatens the income of individual workers. </li></ul><ul><ul><li>Unemployment Insurance: a federal program that provides cash benefits for a specific period of time to workers who have lost their jobs through no fault of their own. </li></ul></ul><ul><ul><li>Other examples: Welfare, Social Security, & Medicare. </li></ul></ul>
  12. 14. Poverty <ul><li>Poverty is usually defined as not having enough income to buy the essentials—food, shelter, clothing, and other basic needs. </li></ul>
  13. 17. Measuring Poverty <ul><li>Poverty thresholds are dollar estimates of the amount of annual income needed to support families of various sizes. </li></ul><ul><li>Poverty guidelines: a simplified version of poverty thresholds issued by the Department of Health and Human Services to determine who is eligible for various federal programs designed to help families in need. </li></ul>
  14. 18. Poverty Line
  15. 19. Poverty & Ethnicity: <ul><li>In 2003, 24.4 percent of African Americans and 25.5 percent of Hispanics lived in poverty compared to 12.5 percent of the total population. </li></ul><ul><li>Poverty rates were highest for families headed by single women , particularly if they were African- American or Hispanic. </li></ul><ul><li>Economic principles cannot explain why there is more poverty among some groups than others. </li></ul><ul><li>The answer lies in past patterns of social behavior—particularly in the history of discrimination. </li></ul>
  16. 20. Causes & Effects of Poverty <ul><li>unfavorable economic conditions, </li></ul><ul><li>unstable home environments, </li></ul><ul><li>illness or disability, </li></ul><ul><li>substance abuse, </li></ul><ul><li>discrimination, </li></ul><ul><li>and inadequate education. </li></ul><ul><li>Vicious Cycle: They are poor because they do not have the skills to be productive, but because they are poor, they don’t have the money to acquire the skills necessary to get a good job. To make matters worse, they also lack the money to provide their children with the kind of education that will help them find good-paying jobs in the future. </li></ul>
  17. 21. Government Anti-Poverty Programs <ul><li>Welfare programs: Local, state, and federal governments have created a number of programs to help the poor. </li></ul><ul><li>Temporary Aid to Needy Families ( TANF ) is a monthly cash assistance program for poor families with children under the age of eighteen. </li></ul><ul><li>The food stamp program allows needy individuals to exchange stamps for food products at authorized stores. In some places, the Electronic Benefits Transfer ( EBT ) has replaced actual food stamps with a debit card. </li></ul>
  18. 22. Government Anti-Poverty Programs <ul><li>The Child and Adult Care Food Program ( CACFP ), which provides federal grants of money and food to nonprofit elementary and secondary schools and child-care institutions so that they can serve milk, well-balanced meals, and snacks to children. </li></ul><ul><li>The Special Supplemental Food Program for Women, Infants, and Children ( WIC ) provides food for pregnant and nursing women, as well as for infants and children under the age of five. </li></ul><ul><li>Earned Income Tax Credit ( EITC ) is a reduction in the amount of income tax a worker owes. </li></ul>
  19. 23. Can You Answer? <ul><li>How does inflation differ from other price increases? </li></ul><ul><li>What methods do governments use to reduce inflation? Unemployment? Poverty? </li></ul><ul><li>What are three reasons for inequality in income? </li></ul>