Measuring and Monitoring Economic Performance
Dr. T. Mitchell
Bonneville High School,
Idaho Falls, Idaho
Chapter 13 Section 1
FACING ECONOMIC CHALLENGES
Stimulating Economic Growth
Thomas Robert
Malthus:
Essay on a natural limit
to economic growth.
As time went on,
agriculture would
produce less food per
person, and millions
would be thrown into
poverty and starvation.
Measuring Unemployment
Unemployment
rate is the
percentage of
labor force that is
jobless and
actively looking for
work.
Measuring Unemployment
Underemployed
are those who
work part-time or
those who work at
a job below their
skill level.
Measuring Unemployment
Full employment
does not mean
zero
unemployment
rate. Even is a
healthy economy
there is some level
of unemployment.
Measuring Unemployment
Full employment
sometimes people
are unemployed
when they move,
sometimes the
available job skills
do not match up to
the worker skills.
Measuring Unemployment
Some segments of
the population,
such as children
younger than 16,
the retired, and
those incapable of
working, are not
counted
unemployed.
Types of Unemployment
Frictional unemployment: temporary unemployment
of people changing jobs.
Seasonal unemployment: unemployment linked to
seasonal work.
Structural unemployment: a situation where jobs
exist but workers looking for work do not have the
necessary skills for these jobs.
Cyclical unemployment: unemployment caused by
a part of the business cycle with decreased
economic activity.
Impact of Unemployment
Efficiency
Inequity
Unemployment is
inefficient. It
wastes human
resources, one of
the key factors of
economic growth
Unemployment
does not follow
equal opportunity
rules. Those with
the least
experience loss
their jobs first.
Discouraged
Workers
Those seeking
jobs may begin
to lose faith in
their abilities to
get a job.
Chapter 13 Section 2
POVERTY AND INCOME DISTRIBUTION
What is Poverty?
Unemployment leads
to poverty, a situation
in which a person
lacks the income and
resources to achieve
a minimum standard
of living.
This standard varies
from country to
country because of
different ways of life.
What is Poverty?
The U. S.
government has
established its own
standard for poverty
based on income
levels.
This poverty level is
the official minimum
income needed for
the basic
necessities of life in
the U. S.
What is Poverty?
The poverty threshold, also called the poverty line is
the amount of income the government has
determined to be necessary to meet basic needs.
The threshold, first formulated in the 1960’s, was
calculated by finding the cost of nutritionally sound
food and then multiplying by three, on the
assumption that food costs are about a third of
person’s expenses.
The threshold differs according to the size of the
household, and is adjusted annually to reflect
changing prices.
What is Poverty?
• The poverty rate is the percentage of people
living in households that have incomes below
the poverty threshold.
• Using census information, the poverty rate
can be estimated for individuals, households,
and segments of the population, such as
African-Americans children or single-parent
homes.
• Poverty, like unemployment, does not hit all
segments of society equally. Children are
especially at risk.
Factors Affecting Poverty
Education
• Usually a direct relationship between level of education and
income
Discrimination
• Certain groups sometimes face wage discrimination or
occupational discrimination
Demographic Trends
• In 1950s only a quarter of marriages ended in divorce, today
half of marriages end in divorce.
Changes in Labor Force
• Labor force has changed from mainly manufacturing to mainly
service industries. Service work pays lower wages.
Income Distribution
The U. S. has one
of the highest
median family
incomes in the
world, yet million
live in poverty.
Income distribution
is the way income is
divided among
people in a nation.
The Lorenz Curve
The Lorenz Curve
graphically illustrates the
degree of inequity in a
nation.
An equal distribution of
income would show a
straight diagonal line.
However, income is not
equally divided. The lower
the Lorenz curve dips
away from the diagonal
line of equity, the greater
the level of income
inequity.
Antipoverty Programs
Welfare, government
economic and social
programs that provide
assistance to the needy.
Some programs are
heavily criticized for
wasting money and
harming recipients.
In the 1980s and 90s, the
government changed to
tax breaks, grants, jobtraining, and other selfhelp initiatives in addition
to cash benefits.
Antipoverty Programs
Food banks
Rent assistance
Housing grants
Food stamps
Energy assistance
Meals on wheels
Welfare-to-work
Workfare
• Temporary Assistance for
Needy Families, has a fiveyear limit.
Chapter 13 Section 3
CAUSES AND CONSEQUENCES OF
INFLATION
What is Inflation and How Is It Measured?
Inflation is a sustained rise in the general price level or a
fall in the purchasing power of money.
Inflation can be measured using two very useful tools”
Consumer Price Index
Producer Price Index
Consumer Price Index
Consumer Price Index (CPI),
is a measure of changes in
the prices of goods and
services commonly
purchased by consumers.
The U. S. government
surveys thousands of people
to find out what goods and
services they buy on a
regular basis.
The government then creates
a “market basket” of about
400 different goods and
services purchased.
Consumer Price Index
The basket is adjusted for
how much of a household’s
budget goes to purchase
each type of item.
Each month, government
workers research the current
prices of the items in the
basket.
Current prices are compared
to prices in the reference
base, which reflects the level
of prices in the three years
since 1982 to 1984.
Those numbers are given the
value of 100.
Producer Price Index
Producers also experience
inflation.
The kind of inflation is
measured in the Producer
Price Index (PPI), a measure
of changes in the wholesale
prices .
The PPI is constructed in
basically the same was as the
CPI, but it reflects the prices
producers receive for their
goods.
Producer Price Index
The difference lies in the fees consumers
pay, such as sales tax or shipping
charges.
Like the CPI, the PPI is tied to a reference
base of producer prices.
The indices are grouped together by stage
of production (finished goods, intermediate
goods, and raw materials).
Because producers tend to encounter
inflation before consumers, PPI tends to
lead CPI as and indicator of inflation.
Economists use CPI and PPI to calculate
the inflation rate, the rate of change in
prices over a set period of time.
What causes Inflation?
Economists generally
distinguish between two
kinds of inflation, each
with a different cause.
When the inflationary
forces are on the demand
side of the economy, the
result is demand-pull
inflation, a situation where
total demand is rising
faster than the production
of goods and services.
What causes Inflation?
When the forces that lead
to inflation originate on the
supply side of the
economy, the result is
cost-push inflation, a
situation where increases
in production costs push
up prices.
Demand-pull Inflation
• In demand-pull inflation, total demand rises faster
than the production of goods and services, creating a
scarcity that then drives up prices.
• It takes producers some time to recognize a rise in
demand and to gear up for higher production.
• If the government creates too much money during the
lag period there will be too much money chasing too
few goods, and prices will rise.
• The creation of excess money is the main reason for
demand-pull inflation.
Cost-Push Inflation
• In cost-push inflation, prices are pushed upward by
rising production costs.
• When production costs increase, producers make less
of a profit. If consumer demand is strong, producers
may raise their prices in order to maintain their profits.
• Cost-push inflation is often the result of supply shocks –
sharp increases in prices of raw material or energy.
• Wages are a large part of the production costs for many
goods, so rising wages can lead to cost-push inflation.
Decreased
Value of the
Dollar
Impact
of
Inflation
Decreasing
Real
Returns on
Savings
Increasing
Interest
Rates
Word!
Live long and prosper.