Unit III:
Macroeconomics
Chapters 12: GDP
Chapter 13: Economic Challenges
Macroeconomic Concepts
SSEMA1 The student will illustrate the means by which economic activity is measured.
a. Explain that overall levels of income, employment, and prices are determined by the spending and production decisions of
households, businesses, government, and net exports.
b. Define Gross Domestic Product (GDP), economic growth, unemployment, Consumer Price Index (CPI), inflation, stagflation, and
aggregate supply and aggregate demand.
c. Explain how economic growth, inflation, and unemployment are calculated.
d. Identify structural, cyclical, and frictional unemployment.
e. Define the stages of the business cycle, as well as recession and depression.
f. Describe the difference between the national debt and government deficits.
SSEMA2 The student will explain the role and functions of the Federal Reserve System.
a. Describe the organization of the Federal Reserve System.
b. Define monetary policy.
c. Describe how the Federal Reserve uses the tools of monetary policy to promote price stability, full employment, and economic
growth.
SSEMA3 The student will explain how the government uses fiscal policy to promote price stability, full
employment, and economic growth.
a. Define fiscal policy.
b. Explain the government’s taxing and spending decisions.
Unit III: Macroeconomics
Chapter
Chapter 12
Chapter 13
Chapter 14
Chapter 15
Chapter 16
Standards
EMA1a,b,d,e
EMA1c, EPF3a
EPF 3,b,c
EMA1f, EMA3,a,b
EMA2a,b,c
Standards Update Sheet
Name:________________________________Class:_______________Instructor:___________________
+
mastery
Standard
SSEMA1a
SSEMA1b
SSEMA1c
SSEMA1d
SSEMA1e
SSEMA1f
SSEMA1g
SSEMA2a
SSEMA2b
SSEMA2c
SSEMA3a
SSEMA3b
- needs improvement
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Unit III: Macroeconomics
12: GDP
Vocabulary
FIB Notes
Daily 10
Current Events
Chapter Activity
Written Response
Study Guide
Participation
Total
13: Econ Challenges
Vocabulary
FIB Notes
Daily 10
Current Events
Chapter Activity
Written Response
Study Guide
Participation
Total
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Final Unit II Test
/100
Chapter 12 – Gross Domestic Product
12.1: Gross Domestic Product
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Activator Chapter 12

Macroeconomics – the study of the behavior ______________________________________
o

i.e. –inflation, ________________________________________
Gross Domestic Product (GDP) –the _____________________________________________
__________________________________________________________________________

o
Measures the economy’s _________________________________
o
Total income = _______________________________________
National Income Accounting – a system of ____________________________ and accounts
that keeps track of ______________________________, consumption, saving and
______________________________.
Gross Domestic Product (GDP)
 “Market Dollar Value…” – total of the ____________________________________________
o Apples and ___________________

“…Of All…” –all items _______________________________________________________
o Pears, ____________________, books, _________________________, haircuts, etc.
 “…Final…” –only value of _____________________________________ (excluding
____________________________ products).
o Hallmark card, not ________________________________________
 “…Goods and Services…” –Tangible and __________________________________________
o food and ________________________, cds and ______________________________
 “…Produced…” – only includes __________________________________________________
o GM sells new car vs. ________________________________
 “…Within a country…” –only measures production __________________________________
o Canadian citizen in the U.S., ______________________________________________
 “…In a given period of time…” –measured within a __________________________________
o usually a year or ____________________________________ (___________ months)
Components of GDP
Four components:
GDP (Y) = ___________________________________

Consumption of ________________________________________________(C)
o

Investments by ________________________________________________ (I)
o

Accounts for ____________% of GDP
◦Government purchases of ___________________________________________ (G)
o

Accounts for ____________% of GDP
Accounts for ____________% of GDP
Net exports minus _____________________________________, (NX)
o
*Exports (X) – ___________________________(M)*
o
Accounts for ____________% of GDP
Excluded Products from GDP

Intermediate products________________________________________________________

Second-hand sales ___________________________________________________________

Nonmarket Transactions - transactions that _______________________________________
__________________________________________________________________________

Underground Economy ________________________________________________________

Cash Transfers ______________________________________________________________
o
i.e. Social Security, _____________________________, etc.
Application -Calculating GDP
Product
Quantity
Consumption
Car Sales
Fast Food Sales
Personal Computers
Investment
Tractors
Business Computers
Telecommunications
Government
Military Personnel
Helicopters
Roads
Net Exports
*Figure this amount
by taking Exports
minus Imports*
Price (per 1 unit)
Dollar Value
10
$400
______________
12
$200
______________
50
$100
______________
15
$20
______________
10
$30
______________
45
$200
______________
5
$50,000
______________
2
$200,000
______________
1
$300,000
______________
Total Exports
______________
$10,000
______________
Total Imports
$20,000
Total Gross Domestic Product = ____________________________________
Nominal Versus Real GDP

Nominal GDP –GDP measured in _______________________________________________.

Real GDP –GDP expressed in ___________________________________________________

Calculate the increase in prices based on the GDP Deflator formula

GDP deflator = _______________________________/________________________ X 100
Daily Assignment Questions – pg. 302
Housing Market – GDP
1. When was the house counted towards GDP? __________________________
2. Why was it not counted when it was sold this year? ______________________________
_______________________________________________________________________
3. What can be counted towards GDP that was a service provided as a result of the sale of
the house? ______________________________________________________________
4. What were the lumber, nails, shingles, windows and other items used to build your
neighbors newly built house categorized as? ____________________________________
5. What would be added to GDP? _______________________________________________
Review Components of GDP - Indicate the components of GDP that each of the following
transactions falls under.
1. A family buys a new refrigerator ________________________________________________
2. Ford opens a new plant in Detroit, Michigan _______________________________________
3. Glynn County builds a new middle school _________________________________________
4. China imports commodities from the United States _________________________________
What exclusionary components are affected by the following transactions?
5. A garage sale in your neighborhood _____________________________________________
6. The tires, bolts, and engine for a new automobile _________________________________
7. The illegal sale of imitation purses _____________________________________________
8. Mowing your lawn every other Saturday and being paid an allowance ___________________
__________________________________________________
9. Checks sent to Social Security recipients _________________________________________
Calculating GDP
1. Calculate the GDP deflator using the following figures:

Real GDP 2007 ($13.7 trillion)

Nominal GDP 2008 ($14.6 trillion) using the following formula:
Nominal GDP X 100 = Real GDP
o
_________/___________ =__________X 100 = __________
2. Calculate the nominal GDP for each year, then calculate the GDP deflator for year 2 using
year 1 as a base year.
PRODUCTION AND PRICES
YEAR 1
YEAR 2
GOODS
OUTPUT
PRICES
OUTPUT
PRICES
APRICOTS
10
$50
10
$55
BROCCOLI
10
$25
12
$25
CARROTS
10
$25
9
$30

Nominal GDP X 100 = Real GDP
o
_________/___________ =__________X 100 = __________
12.2: Business Cycles
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
Business Cycle – an economy-wide ______________________________________________

Expansion –period of _________________________________________________________

Peak–when ____________________________________________

Contraction–economic _____________________________________________________

Rise in ______________________________

Trough –“_________________________”, economy reaches its
____________________________________, real GDP ______________________________

Recovery – A period in a business cycle following a _________________________, during
which the _____________________________
Recession

Recession is a _____________________________________________________

Real GDP falls _______________________________________________________________

Rise in ____________________________________________________________________
Depression

A long and _____________________________________________

Severely high ________________________________________________
Stagflation

Stagflation – combines two words, __________________________ and
_____________________________, is a decline in _____________________________
combined with a _______________________________________________
Four Main Economic Variables
•
Business Investment – investing in ________________________ (plants and equipment)
•
Interest Rates and Credit – the cost of __________________________, added to the
principal investment
•
Consumer Expectations – fears of a ________________________________ can cause
consumer ______________________________to fall, cut back on spending
•
External Shocks – conditions in society that affect ______________________________
•
Oil spill in the gulf, ___________________________, hurricanes, etc.
Daily Assignment Questions – pgs. 312 – 316
1. How does businesses investment affect GDP? ___________________________________
________________________________________________________________________
2. What happens when firms cut back on investment spending? _______________________
________________________________________________________________________
3. How does reduced investment affect industries that produce capital goods?
________________________________________________________________________
4. What do consumers in the U.S. use credit to purchase; what is the cost of credit?
________________________________________________________________________
5. How do high interest rates affect consumption and business investment?
________________________________________________________________________
6. How did high interest rates affect the economy in 1980? __________________________
________________________________________________________________________
7. What happened to unemployment as a result of the recession? _____________________
________________________________________________________________________
8. How does a fear of a weakened economy affect spending? ________________________
________________________________________________________________________
9. What effect does reduced spending have on the economy? ________________________
________________________________________________________________________
10.How was this evident in the spring of 2003? ____________________________________
________________________________________________________________________
11.What happens when consumer confidence rises? _________________________________
________________________________________________________________________
12.3: Economic Growth
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Activator
1. Calculate the percentage change in Real GDP from July 2009 ($13.7 trillion) to March
2010 ($14.2 trillion) using the following formula:
New number – Original X 100
Original
_________ / ___________= _______X 100 = _______
2. Calculate Real Per Capita GDP by using the following formula:
Real GDP 2009/Total Pop. 2009
*2009 Real GDP –$13,700,000,000,000
*2009 Total Pop. –304,500,000
_________/___________ =__________
3. Calculate the percentage change in Real GDP from July 2009 ($13.7 trillion) to March
2010 ($14.2 trillion) using the following formula:
New number – Original X 100
Original
_________ / ___________= _______X 100 = _______
4. Calculate Real Per Capita GDP by using the following formula:
Real GDP 2009/Total Pop. 2009
*2009 Real GDP –$13,700,000,000,000
*2009 Total Pop. –304,500,000
_________/___________ =__________
12.3 cont.
•
Real GDP per capita – _________________ divided by the ________________________
•
Per Capita – “____________________________”
•
Average income for __________________________________________________
•
Considered the best measure of a nation’s ________________________________
GDP and Quality of Life
•
Nations with higher per capita GDP enjoy higher quality of life, such as:
•
_________________________________________
•
_________________________________________
•
_________________________________________
•
_________________________________________
•
_________________________________________
Productivity and Economic Growth

Productivity – the amount of ______________________________ produced for
______________________________________________________________
◦
High productivity leads to high _____________________________ = high
_______________________________________

Growth rate - how rapidly _____________________________________ in a typical year
◦
U.S. real GDP ______________ in 1870 and ______________ in 2006;
_____________ growth rate per year
Improving Productivity and Economic Growth
•
Capital deepening – process of increasing the ___________________________________
(labor productivity)
•
Increase ___________________________________________________________
Saving and Investment
◦
Saving and Investment - a society can change __________________________________
◦
Every dollar saved is a _____________________________________________________

Invest in capital today will ___________________________________
(capital deepening)
Technological Progress
•
Technological progress – producing more ______________________________________
•
Technological Knowledge – understanding how to make the _______________________
_________________________________________
Natural Resources

Natural resources – inputs created by nature which are converted into
_______________________________________________________________
o
Provided by nature, such as ________________________,
________________________, and ______________________________________
o
U.S. has a large supply of __________________________________________,
Middle East _____________________________________

Renewable Resources - are natural resources that _______________________________
o
Forest, ________________________, paper, ________________________ (wind,
________________________), etc.

Nonrenewable Resources - are natural resources ________________________________
o
Coal, ________________________, _______________, etc.
Population and Government
•
Population Growth – can affect _______________________________________________
•
Ex. India, ___________________________________, equals low wages and
__________________________________
•
Ex. United States, ___________________________________, high capital growth,
leads to ___________________________________
•
Government – government policies can affect _________________________________
•
Increased taxes, ___________________________________ takes money away
from private investing
Chapter 12 – Gross Domestic Product and Growth
Word Bank: Macroeconomics, Gross Domestic Product, National Income Accounting, CIGNX, Intermediate Products,
Second Hand Sales, Nonmarket Transactions, Underground Economy, Nominal GDP, Real GDP, Aggregate Demand,
Aggregate Supply, Gross National Product, Real GDP Per Capita, Per Capita, Capital Deepening, Saving, Trade Deficit, Net
Exports, Consumption, Investment, Government, Depression, External Shock, Credit
ACROSS
1 The total amount of goods and services in the
economy that will be available at all possible
price levels
4 GDP expressed in constant, unchanging, prices
5 Buying a pair of brand new shoes would be an
example of this component of GDP
8 Real GDP divided by the total population
10 Transactions that do not take place in the
marketplace, for example fixing your car,
mowing your lawn, etc.
12 Letters that represent the formula used to
calculate Gross Domestic Product
16 Is income not used for consumption
18 The market value of all final goods and
services produced within a country’s borders
in a given period of time
19 Many consumers in the United States make
“big ticket” purchases using this form of
purchasing power
20 The total amount of goods and services in the
economy that will be purchased at all possible
price levels
21 The annual income earned by U.S. owned
firms and U.S. citizens, a measurement of the
market value of all goods and services
produced by Americans in one year
22 A business purchase of new computers would
be an example of this component of GDP
23 Refers to the sales of used goods.
DOWN
2 The paving of streets in an area would be an
example of this component of GDP
3 Illegal activities, gambling, drugs, prostitution,
smuggling, etc.
5 Process of increasing the amount of capital
per worker
6 A system of statistics and accounts that keeps
track of production, consumption, saving and
investment
7 The study of the behavior and decision making
of the economy as a whole
9 Whenever an outside force influences the
growth of the economy it experiences this
10 GDP measured in current prices
11 Products which are inputs used to produce
final goods and services
13 When a country’s imports are higher than its
exports
14 Long periods of prolonged recessions can lead
to this
15 Defined as “for each person” in economics
17 The dollar value relative to the amount of
exports minus the imports
Chapter 12: Study Guide
Chapter 12 – Gross Domestic Product and Growth, pgs. 301 – 324
Section 1 – Gross Domestic Product
1. The study of the behavior and decision making of the economy as a whole is
________________________________
2. The dollar market value of all final goods and services produced within a country’s borders in a given period
of time is known as
____________________________________________________________________________________
3. National income accounting is
_____________________________________________________________________
4. Describe each of the components of GDP:
a. Consumption
(C)______________________________________________________________________________
b. Investment (I)
________________________________________________________________________________
c. Government (G)
______________________________________________________________________________
d. Net Exports (NX)
______________________________________________________________________________
5. Describe the following phrases found in GDP’s calculated definition (pg. 301):
a. “Market Dollar Value…”
________________________________________________________________________
b.
“…Final Goods and Services…”
__________________________________________________________________
c.
“…Within a country’s borders…”
_________________________________________________________________
6. Fill in the blanks for each of the following excluded products of GDP:
Excluded Component
Definition
Example
Intermediate Products
Second Hand Sales
Nonmarket Transactions
Underground Economy
7. What components or exclusionary components of GDP would each of the following transactions affect?
a. A family buys a house built in 2007
_______________________________________________________________
b. Glynn County builds the Sidney Lanier bridge
_______________________________________________________
c. Apple opens a new store in the St. John’s Town Center
_______________________________________________
d. You change your neighbors tire for 10 dollars
_______________________________________________________
e. An illegal gambling circuit offers bets on College football
_____________________________________________
f. Your friend treats you to lunch at Taco
Bell_________________________________________________________
g. The United States ships Soybeans to India
_________________________________________________________
h. A local McDonalds orders buns, fries and burger patties
______________________________________________
8. Determine the GDP for the following country’s economy:
Product
Consumption New home sales
Fast Food Sales
Investment
10
12
50
Tractors
15
10
Blackberry Phones
Net Exports
Price (per 1 unit)
Personal Computers
Plane Tickets
Government
Quantity
45
Dollar Value
$200,000 _______________________________
_______________________________
$10,000
_______________________________
$1000
$10000 _______________________________
_______________________________
$90
_______________________________
$400
Garbage Collection
50
Newly Hired Agents
Police
500
$5,000 _______________________________
_______________________________
$60,000 _______________________________
100
$50,000
*Figure this amount
by taking Exports
minus Imports*
Total Exports
$10,000
Total Imports
$20,000
_______________
- _______________
= _______________________________
_______________
Total Gross Domestic Product = ____________________________________
Section 2 – Business Cycles
9. A period of economic growth as measured by a rise in real GDP is known as
_________________________________
10. When real GDP stops rising, the economy has reached its _____________________________________
11. After reaching its peak, the economy enters a period of economic decline, or
_______________________________
12. When the economy has “bottomed out”, it has reached the lowest point, or
________________________________
13. An economy experiences a _____________________________________________ if it has experienced a fall
in GDP two consecutive quarters.
14. Long and severe periods of recessionary markets can lead to a _____________________________________.
15. _____________________________________ is when an economy has a decline in real GDP along with a rise
in price level.
16. What phase of the business cycle is an economy likely in for each of the following scenarios?
a. Businesses downsize and lay off workers; unemployment begins to
rise__________________________________
b. GDP reports very minimal % gains over 4 quarters
_______________________________________________
c. GDP reports have stopped falling and unemployment has leveled
off____________________________________
d. New jobs are available and at high wage levels; unemployment
falls_____________________________________
17. Provide an example of how each of the following can affect GDP:
Contributing Factors
Example of increase in GDP
Example of decrease in GDP
Business Investment
Interest Rates and Credit
Consumer Expectations
External Shocks
Prices and Quantities
Year
Price of Oranges
Quantity of Oranges
Price of Video Games
Quantity of Video Games
2005
2006
2007
$1
$2
$3
50
100
150
$10
$15
$20
5
10
15
Calculating Nominal GDP
2005
2006
2007
$_______ per orange ×________ oranges = $________
$_______ per orange ×________ oranges = $________
$_______ per orange ×________ oranges =$ ________
$_____ per video game ×______ video games =$_______
$_____ per video game ×______ video games =$_______
$_____ per video game ×______ video games =$_______
2005
2006
2007
Total Market Value for Oranges $__________ + Total Market Value for Video Games $ __________ = $___________
Total Market Value for Oranges $__________ + Total Market Value for Video Games $ __________ = $___________
Total Market Value for Oranges $__________ + Total Market Value for Video Games $ __________ = $___________
Calculating Real GDP (base year 2005 prices)
2005
2006
2007
$_______ per orange ×________ oranges = $________
$_______ per orange ×________ oranges = $________
$_______ per orange ×________ oranges =$ ________
$_____ per video game ×______ video games =$_______
$_____ per video game ×______ video games =$_______
$_____ per video game ×______ video games =$_______
2005
2006
2007
Total Market Value for Oranges $__________ + Total Market Value for Video Games $ __________ = $___________
Total Market Value for Oranges $__________ + Total Market Value for Video Games $ __________ = $___________
Total Market Value for Oranges $__________ + Total Market Value for Video Games $ __________ = $___________
GDP deflator = Nominal GDP/Real GDP × 100
2005
2006
2007
Nominal GDP__________/ Real GDP __________ = _________× 100 = _________ or ________ % increase in prices
Nominal GDP__________/ Real GDP __________ = _________× 100 = _________ or ________ % increase in prices
Nominal GDP__________/ Real GDP __________ = _________× 100 = _________ or ________ % increase in prices
Section 3 – Economic Growth
18. Calculate the Nominal and Real GDP for Oranges and Video Games, then use the GDP Deflator to calculate
inflation.
19. Calculate the percentage change in Real GDP from 1990 ($6.7 billion) to 2000 ($9.3 billion) using the
following formula:
2000 – 1990 X 100 = ________________________
1990
* You can use 6.7 and 9.3 without numbers in billions*
20. Calculate Real Per Capita GDP by using the following formula:
Real GDP 2000 X 1000 = _____________________________
Total Pop. 2000
*2000 Real GDP – $9,300.0
*2000 Total Pop. – 281.0
21. When a company invests in physical capital and human capital they are able to increase output as a result of
Capital ______________________________________________________
22. What happens when population grows and capital remains constant?
_____________________________________
23. How does government taxation for consumption spending affect saving?
___________________________________
24. If a countries imports are higher than its exports than that country has a
___________________________________
25. _____________________________progress is an increase in efficiency gained by producing more output
without using more inputs
CHAPTER 13 – Economic Challenges
13.1: Unemployment
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Use the following formula to calculate the unemployment rate:
Unemployment rate = Number of people unemployed X100
labor force
1. 2006, the number of people unemployed = 9.4 million
Number of people in the civilian labor force = 147.1 million
_________ ÷ _________ = _________ x 100 = __________
2. In March 2010, the number of people unemployed = 15.2 million
Number of people in the civilian labor force = 156.2 million
_________ ÷ _________ =_________ x 100 = __________
Section 1 - Unemployment
 Employed – people work as ________________________________, own their
________________________________, unpaid workers in a ________________________________, people
who had jobs but ________________________________
 Full-time and ________________________________workers
 Unemployed – workers without ______________________, were available for work and tried to
________________________________________________________________
 Not in labor force – do not fit in previous two categories, ________________________________,
________________________________, ________________________________
Labor Force
 Labor force – total number of workers; ________________________________+
________________________________ workers.
 2007, labor force = ________ + _______ = _________ million
 Unemployment rate = (________/________) X 100 = ________%
Types of Unemployment
1. Frictional Unemployment – always _________________________________, resulting from
_________________________________made by workers and employers; occurs when
__________________________________________________________________
 Job search – the process by which workers
____________________________________________________
2. Seasonal Unemployment – occurs as a result of ___________________________,
____________________________, or when industries
_________________________________________________
3. Structural Unemployment – workers
________________________________________________________________
4. Cyclical Unemployment – rises during _________________________________and falls when the
_________________________________
Measuring Employment
 Number of ________________________________divided by the ________________________________
multiplied by 100
 Unemployment rate – percentage of the nations’
______________________________________________________
 Unemployment rate is one major indication of the
______________________________________________
Full Employment
 Natural rate of unemployment – normal rate of _________________________________around which the
__________________________________________________________________
 Zero unemployment is __________________________________________________________________
 Unemployment rate of ______ to ______ percent is considered a
_________________________________
 Underemployment – working at a job for which __________________________________________, or working
_________________________________when _________________________________is desired
 Discouraged workers – a person who _________________________________, but has given up looking (do not
_________________________________)
Review - Unemployment Statistics
The country of Ecoland has collected the following information:
Population 240,000
Employed 180,000
Unemployed 30,000
Determine the following:
1. Labor Force = __________ + _______ = _____________
2. Unemployment rate = (_________/_________) X 100% = ______
3. Labor-force participation rate = (_______/_______) X 100% = _______
Unemployment Chart
Unemployed
1. A computer programmer is laid off because of a recession.
2. A literary editor leaves her job in New York to look for a job in
San Francisco.
3. An unemployed college graduate is looking for his first job.
4. Advances in technology make the assembly-line worker’s job
obsolete.
5. Slumping sales lead to a cashier being laid off.
6. Workers are laid off when the local manufacturing plant closes
because of a downturn in the economy.
7. A high school graduate lacks the skills necessary for a particular
job.
8. Summer ends and local teens lose their jobs.
Type of Unemployment
Unemployment Insurance
 Unemployment insurance - government program that ______________________________________________
when they become ________________________________________
 Eligible – people who are
__________________________________________________________________
 Ineligible – people who _________________, were fired _____________________, or just
________________________________________
 U.I. can increase ________________________________________
○ 1985 case study in Illinois showed people not receiving checks were unemployed by a 7%
shorter period
13.2: Inflation
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



Inflation – a _____________________________________________________________
Inflation rate – percentage __________________________________________________
Normal rate is about____________
Hyperinflation – rapid ____________________________, inflation that is
__________________________________________
 Deflation – sustained _____________________________________________________
 Purchasing power – the ability to _____________________________________________
Causes of Inflation
 Quantity Theory – too much __________________________________________________
 Demand-Pull Theory – inflation occurs when ______________________________________ exceeds
_____________________________________________
 Cost – Push Theory – inflation occurs ___________________________________________ in order to meet
______________________________________________________
Inflation Chart
Scenario
Term
1. Prices for meat, poultry and pork increase as a result of an increase in the
price for corn.
2. Prices rise in the United States as a result of successive stimulus packages
3. Real Estate prices in the mid-2000’s increased exponentially as a result of
significant increases in demand.
4. Zimbabwe experienced out of control price increases in their economy.
5. In 2009 the general price level decreased.
6. A teacher makes $60,000 dollars per year; paid once per month.
7. Prices go up and a person on a fixed income loses the ability to consume
at the same rate.
Consumer Price Index
 Consumer Price Index – a measure of ___________________________________________
bought by the______________________________________________________________
 Computed each month by the ___________________________________ (BLS), part of the
___________________________________________
 Market Basket – metaphorical object to represent __________________________________

Derived of more than _____________ sub-categories, arranged into __________major groups

Weighted based on _____________________________________________
Price Index
 Price Index – shows how the
______________________________________________________________________
 Cost of living - The average cost of the basic necessities of life, such as _______________________,
_______________________, and _______________________.
Eight Categories
1. ____________________________________________________(breakfast cereal, milk, coffee, chicken, wine, full
service meals, snacks)
2. __________________________________ (rent of primary residence, owners' equivalent rent, fuel oil, bedroom
furniture)
3. __________________________________ (men's shirts and sweaters, women's dresses, jewelry)
4. _______________________________________ (new vehicles, airline fares, gasoline, motor vehicle insurance)
5. _______________________________________ (prescription drugs and medical supplies, physicians' services,
eyeglasses and eye care, hospital services)
6. _______________________________________ (televisions, toys, pets and pet products, sports equipment,
admissions)
7. ______________________________________________ (college tuition, postage, telephone services, computer
software and accessories)
8. ________________________________________________ (tobacco and smoking products, haircuts and other
personal services, funeral expenses).

Market Basket for Products 2008 – $_______________________
Determining Consumer Price Index
 CPI = Price of basket of goods and services in current year X 100
Price of basket in base year period
 Base Period is between 1982 – 1984
 1982-1984 – $1792.00
Market Basket for Products
 2008 – $3858.18
 ___________________/___________________ = _______________________
 __________________ X100 = _____________________
 2008 CPI = ______________________
•
Prices have inflated by 115.30% from base period (1982-1984) to 2008
Determining inflation
•
•
•
Inflation = CPI in year 2 – CPI in year 1
CPI in year 1
2008 CPI – 215.30
2007 CPI – 207.34
X 100
215.30 – 207.342 = 7.958
•
______________/_______________ = ______________
•
_______________ X 100 = ________________%
•
Prices have inflated by ________________ from 2007 to 2008
Section 3 – Poverty
Definition
Describe
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I think
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I think
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Definition
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I think
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 Poverty - lack of basic ________________________________________, such as _______________________,
nutrition, _______________________, education, _______________________ and _______________________,
because of the inability to ____________________________________
 Poverty threshold - is an income level
_______________________________________________________________ families or households.
 Poverty rate – percentage of people who _________________________________________________________
(2010 – _____________)
 Poor – low income _________________________, unemployed, ___________________________, children
Antipoverty Policies
 1996 – President Clinton signed __________________________________________
 Block Grants – __________________________________________________ states to assist poor, _______ year
limit to receipt of benefits, show employment within ____________________
 Workfare – program requiring _________________________ in exchange for
__________________________________________
 Enterprise zones – areas where companies can gain ______________________________ from local,
____________________________ and _______________________________________________government

Revitalization projects in __________________________________
 Employment assistance – job training programs to deal with _______________________________________;
_________________________________ laws.
Chapter 13 – Economic Challenges
Word Bank: Frictional, Seasonal, Structural, Cyclical, Unemployment Rate, Full Employment, Underemployment,
Discouraged Workers, Inflation, Inflation Rate, Hyperinflation, Deflation, Purchasing Power, Consumer Price Index,
Market Basket, Quantity Theory, Demand Pull Theory, Cost Push Theory, Fixed Income, Poverty Threshold, Poverty Rate,
Workfare
ACROSS
4 One of the theories as to why inflation occurs, says
that if there is too much money in circulation then
inflation will occur
5 Unemployment that is always present in the
economy, resulting from temporary transitions
made by workers and employers; occurs when
people take time to find a job
7 Is the income level below which income is
insufficient to support a family or threshold
8 A sustained drop in the price levels
10 Computed each month by the Bureau of Labor
Statistics, is a measure of the average change over
time in the prices paid for a market basket of
consumer goods and services
16 One of the theories as to why inflation occurs, says
that if there is demand for products the price will
increase
18 A program requiring work in exchange for
temporary assistance.
19 The percentage rate of change in price levels over
time
20 Is a representative collection of goods and services
that is used to calculate CPI
21 Unemployment that occurs as a result of season,
vacations, or when industries slow or shut down
for a season
22 Inflation that is out of control
DOWN
1 A person who wants a job, but has given up
looking, they do not count towards unemployment
rate
2 Percentage of the nations’ labor force that is
unemployed
3 Unemployment that rises during economic
downturns and falls when the economy improves
6 One of the theories as to why inflation occurs, says
that if the cost of inputs increase then the cost of
outputs will subsequently increase
9 Working at a job for which one is overqualified, or
working part-time when full-time work is desired
11 The ability to purchase goods and services
12 Income that does not increase even when prices
go up, people living on this lose purchasing power
when inflation occurs
13 Unemployment where workers skills do not match
the jobs that are available
14 Is the percentage of people who live in households
with income below the official poverty threshold
15 The level of employment reached when no cyclical
unemployment exists
17 A general increase in prices
Chapter 13 – Economic Challenges, pgs. 331 to 350
Section 1 – Unemployment
18. Give an example of each of the types of unemployment:
a. Frictional______________________________________________________________________________
________
b. Seasonal
______________________________________________________________________________________
c. Structural
_____________________________________________________________________________________
d. Cyclical
______________________________________________________________________________________
19. The unemployment rate measures the
________________________________________________________________
20. To calculate the unemployment rate, one must use the following formula
____________________________________
21. Calculate the unemployment rate for September 2009 using the following figures:
a. In August 2009, the number of people unemployed = 15.5 million
Number of people in the civilian labor force = 156.2 million
___________ ÷ ___________ = ___________ x 100 = __________
22. The normal rate of unemployment is
__________________________________________________________________
23. Give an example of an underemployed worker
_________________________________________________________
24. A person who wants a job but has given up looking is categorized as a
_______________________________________
Section 2 – Inflation
25. A general increase in the price of products is known as
___________________________________________________
26. The most popular measurement that shows how the average price of a standard group of products change
over time is known as the
___________________________________________________________________________________
27. The CPI is computed each month by the
_______________________________________________________________
28. The CPI is determined by measuring a standard group of goods meant to represent a
_______________________________________________________ of a typical urban consumer
29. The eight categories of the “market basket” are
1) ___________________________________________________
2) ___________________________________________________
3) ___________________________________________________
4) ___________________________________________________
5) ___________________________________________________
6) ___________________________________________________
7) ___________________________________________________
8) ___________________________________________________
30. The percentage rate of change in price level over time is known as the
_______________________________________
31. The formula for determining the CPI for a given year is:
a. CPI = ___________________÷ ______________________X 100
32. Determine the CPI for September of 2009 (base year 1982 – 1984 = 1792)
a. In September 2009, the market basket of goods was equal to 3870.16.
b. 2009 CPI = ___________________÷ ___________________ = _________________X 100 =
__________________
33. The formula for calculating the inflation rate is:
a. Inflation = ___________________ - ___________________ ÷___________________ X 100
34. Determine the Inflation rate from July 2009 (CPI = 215.31) to August 2009 (CPI = 215.8)
a. Inflation rate = _____________ - ______________ = ______________ ÷________________ =
_____________ X100 = ________________%
35. The worst kind of inflation is ______________________________________, which is inflation that is out of
control.
36. The three theories of inflation:
a. The ________________________________ theory of inflation states that too much money in the
economy causes inflation.
b. The _________________________________ theory states that inflation occurs when demand for goods
and services exceeds supplies.
c. The __________________________________ theory states that inflation occurs when producers raise
prices in order to compensate for increased costs of inputs.
Section 3 – Poverty
37. According to the government, the __________________________________________________ is the
income level below which is necessary to support a family or household.
38. The percentage of people who live in households with income below the official poverty threshold is the
________________________________________________________
39. Describe how each of the following affect the poverty rates:
a. Race and ethnic
origin____________________________________________________________________________
b. Type of
family_________________________________________________________________________________
c. Age
______________________________________________________________________________________
d. Residence_____________________________________________________________________________
40. Briefly describe the causes of poverty:
a. Lack of Education
_______________________________________________________________________________
b. Location
______________________________________________________________________________________
c. Racial and Gender
Discrimination___________________________________________________________________
d. Economic Shifts
________________________________________________________________________________
e. Shifts in Family Structure
_________________________________________________________________________
41. Even though the United States has a high per capita gdp, it still experiences
___________________________________ inequality as a result of income distribution among the
population.
42. How do differences in skills and education affect the income gap?
__________________________________________
43. ____________________________________________ are areas where companies can locate free of certain
state, local, and federal taxes and restrictions.
44. How did workfare change the policies of the federal government?
__________________________________________