ppt

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

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

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

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

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

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

7. 7
What is covered
employment ?
Employment
that qualifies
for full benefits

8. 8
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

9. 9
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

10. 10
What about
part-time workers?
Part-time workers are
considered fully
employed

11. 11
What is
underemployment?
A situation in which
workers are
overqualified for their
jobs or work fewer hours
than they would prefer

12. 12
What is the labor force
participation rate?
The ratio of the number
in the labor force to the
adult population

13. 13
What percentage of the
labor force is female?
Almost half

14. 14
What are the types of
unemployment?
Frictional unemployment
Structural unemployment
Seasonal unemployment
Cyclical unemployment

15. 15
What is
frictional unemployment?
Unemployment that arises
because of the time
needed to match job
seekers with job openings

16. 16
Why will people be
looking for work even
in the best of times?
school graduates
job advancement
downsizing
weak markets

17. 17
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

18. 18
What is
seasonal unemployment?
Unemployment caused by
seasonal shifts in labor
supply and demand

19. 19
What is
cyclical unemployment?
Unemployment that
fluctuates with the
business cycle, increasing
during recessions and
decreasing during
expansions

20. 20
What is full
employment?
The level of employment
when there is no
cyclical unemployment

21. 21
What is considered
full employment?
4 to 6% unemployment
is considered full
employment

22. 22
Why 4 to 6%?
Because even in the
best of times some
people are always
looking for work

23. 23
What would make
unemployment
increase beyond 6%
Excessive inventories

24. What is the current
unemployment rate?
http://www.forecast-
chart.com/forecast-
unemployment-rate.html

25. 25
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

26. 26
What was the
unemployment rate
at the worst of the
Great Depression?
In 1932 there was
25% unemployment

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

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

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

30. 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

31. 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
• Foreign Account Tax
Compliance Act (FATCA)

32. 32
How does the Health
Care Bill Work?
• Must cover everyone who
applies
• Everyone must purchase
insurance or pay a fine ($750
individual $2,250 per family)
• Companies with 50+
employees must offer health
insurance or $750 per worker

33. 33
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

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

35. 35
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

36. 36
How does FATCA Work?
Foreign banks must identify
Americans and provide
financial information to the
IRS or face a 30% of the
banks U.S. income

37. 37
What affect of big
government on
national debt?
•40% of national budget is
borrowed money
•70% of federal securities
are purchased by the Fed

38. 38
What are
unemployment benefits?
Cash transfers provided
to unemployed workers
who actively seek
employment and who
meet other qualifications

39. 39
What is the
Phillips Curve?
Shows an inverse
relationship between
inflation and
unemployment

40. 40
What is stagflation?
Unemployment and
inflation increase at
the same time

41. 41
Why is stagflation
a dilemma for
policy makers?
By using typical Keynesian
tools whatever you do to
fight one problem the
other gets worse

42. 42
What is a conflict?
Fiscal and monetary
policies can move in
opposite directions

43. 43
What is the Full
Employment and
Balanced Growth Act
of 1978?
Mandated the Fed to
ensure full employment
and stable prices

44. 44
What is the cycle
imposed by monetary
and fiscal policies?
Choices are made and
then reversed as each
problem gets better
and worse again

45. 45
Decrease in Supply Early 1970s
0
Q2 Q1
D
S'
P2
P1
S
Higher Prices and More Unemployment

46. 46
What caused the
supply curve to shift to
the left in the early
1970s?
OPEC
Unions

47. 47
What is fine tuning and
stable policy settings?
•Demand management
•Policy rules

48. 48
What is the difference
in opinion concerning
the equilibrium?
•Fine tuning – less than
full employment
equilibrium
•Rules – full employment
equilibrium

49. 49
What happened
in 1980-1981?
• President Reagan lowered
taxes on business
• Paul Volcker, chairman of
the Fed, decreased the
money supply for a long time

50. 50
What agreement
between those who
favor rules and a more
active approach?
• Attention to lag effects
•Policy stability
•Long term effects

51. END