Prs Econ Ch22 9e

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth
PowerPoint Lectures for

Principles of Economics,
9e
; ;
By
Karl E. Case,
Ray C. Fair &
Sharon M. Oster
2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
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PART IV CONCEPTS AND PROBLEMS

IN MACROECONOMICS
22
Unemployment,
Inflation, and
Long-Run Growth
Prepared by:
Fernando & Yvonn Quijano
PART IV CONCEPTS AND PROBLEMS
IN MACROECONOMICS
22
11
Unemployment,
Inflation, and
Long-Run Growth
CHAPTER OUTLINE
Unemployment
Measuring Unemployment
Components of the Unemployment Rate
The Costs of Unemployment
Inflation
The Consumer Price Index
The Costs of Inflation
Long-Run Growth
Output and Productivity Growth
Looking Ahead
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Unemployment
employed Any person 16 years old or older (1)

who works for pay, either for someone else or in
his or her own business for 1 or more hours per
week, (2) who works without pay for 15 or more
hours per week in a family enterprise, or (3) who
has a job but has been temporarily absent with or
without pay.
unemployed A person 16 years old or older who
is not working, is available for work, and has made
specific efforts to find work during the previous 4
weeks.
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Unemployment
not in the labor force A person who is not

looking for work because he or she does not want
a job or has given up looking.
labor force The number of people employed plus
the number of unemployed.
labor force = employed + unemployed
population = labor force + not in labor force
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Unemployment
unemployment rate The ratio of the number of

people unemployed to the total number of people
in the labor force.
unemployment rate =
unemployed
employed + unemployed
labor force participation rate The ratio of the

labor force to the total population 16 years old or
older.
labor force participation rate =
labor force
population
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A person not looking for work, because he or she either does not
want a job or has given up looking, is classified as:
a.
Unemployed.
b.
Not in the labor force.
c.
In the labor force but not currently employed.
d. In the labor force participation rate, but not in the labor force.
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A person not looking for work, because he or she either does not
want a job or has given up looking, is classified as:
a.
Unemployed.
b. Not in the labor force.
c.
In the labor force but not currently employed.
d. In the labor force participation rate, but not in the labor force.
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Unemployment
TABLE 22.1 Employed, Unemployed, and the Labor Force, 19532007

(1)
Population
16 Years
Old Or Over
(Millions)
(2)
Labor
Force
(Millions)
(3)
(4)
(5)
(6)
Employed
(Millions)
Unemployed
(Millions)
Labor Force
Participation
Rate
(Percentage
Points)
Unemployment
Rate
(Percentage
Points)
1953
107.1
63.0
61.2
1.8
58.9
2.9
1960
117.2
69.6
65.8
3.9
59.4
5.5
1970
137.1
82.8
78.7
4.1
60.4
4.9
1980
167.7
106.9
99.3
7.6
63.8
7.1
1982
172.3
110.2
99.5
10.7
64.0
9.7
1990
189.2
125.8
118.8
7.0
66.5
5.6
2000
212.6
142.6
136.9
5.7
67.1
4.0
2007
231.9
153.1
146.0
7.1
66.0
4.6
Note: Figures are civilian only (military excluded).

Source: Economic Report of the President, 2008, Table B-35.
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Unemployment
Unemployment Rates for Different Demographic Groups

TABLE 22.2 Unemployment Rates by Demographic Group, 1982 and 2008
Years
Total
White
Men
Women
Both sexes
African-American
Men
Women
Both sexes
Nov. 1982
March 2008
20+
20+
1619
10.8
9.6
9.0
8.1
21.3
5.2
4.5
4.1
4.1
13.2
20+
20+
1619
20.2
19.3
16.5
49.5
9.0
8.4
7.5
31.3
Source: U.S. Department of Labor, Bureau of Labor Statistics. Data are not seasonally adjusted.
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Unemployment
Unemployment Rates in States and Regions

TABLE 22.3 Regional Differences in Unemployment, 1975, 1982, 1991, and 2003
U.S. avg.
Cal.
Fla.
Ill.
Mass.
Mich.
N.J.
N.Y.
N.C.
Ohio
Tex.
1975
8.5
9.9
10.7
7.1
11.2
12.5
10.2
9.5
8.6
9.1
5.6
1982
9.7
9.9
8.2
11.3
7.9
15.5
9.0
8.6
9.0
12.5
6.9
1991
6.7
7.5
7.3
7.1
9.0
9.2
6.6
7.2
5.8
6.4
6.6
2003
6.0
6.7
5.1
6.7
5.8
7.3
5.9
6.3
6.5
6.1
6.8
Sources: Statistical Abstract of the United States, various editions.
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Unemployment rates in states and regions across the United

States reveal that:
a.
States and regions in the United States generally display the
same levels of unemployment.
b.
The labor force in the United States is almost completely
mobile, with workers taking advantage of job opportunities
clear across the country.
c.
A low national rate of unemployment does not mean that the
entire nation is growing and producing at the same rate.
d.
All of the above.
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Unemployment rates in states and regions across the United

States reveal that:
a.
States and regions in the United States generally display the
same levels of unemployment.
b.
The labor force in the United States is almost completely
mobile, with workers taking advantage of job opportunities
clear across the country.
c.
A low national rate of unemployment does not mean that
the entire nation is growing and producing at the same
rate.
d. All of the above.
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Unemployment
Unemployment Rates in States and Regions
A Quiet Revolution:
Women Join the Labor
Force
If you are interested in learning
more about the economic
history of American women,
read the book Understanding
the Gender Gap: An Economic History of American
Women by Harvard University economist Claudia Goldin.
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Unemployment
Discouraged-Worker Effects
discouraged-worker effect The decline in the

measured unemployment rate that results when
people who want to work but cannot find jobs grow
discouraged and stop looking, thus dropping out of
the ranks of the unemployed and the labor force.
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Unemployment
The Duration of Unemployment

TABLE 22.4 Average Duration of Unemployment, 19792007
Weeks
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
10.8
11.9
13.7
15.6
20.0
18.2
15.6
15.0
14.5
13.5
11.9
12.0
13.7
17.7
Weeks
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
18.0
18.8
16.6
16.7
15.8
14.5
13.4
12.6
13.1
16.6
19.2
19.6
18.4
16.8
16.8
Sources: U.S. Department of Labor, Bureau of Labor Statistics.
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When an unemployed worker becomes discouraged about finding

work and stops looking, the unemployment rate will:
a.
Rise.
b.
Fall.
c.
Remain unchanged.
d.
Increase only if the worker falls out of the labor force.
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When an unemployed worker becomes discouraged about finding

work and stops looking, the unemployment rate will:
a.
Rise.
b. Fall.
c.
Remain unchanged.
d.
Increase only if the worker falls out of the labor force.
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Unemployment
Some Unemployment Is Inevitable

When we consider the various costs of
unemployment, it is useful to categorize
unemployment into three types:
Frictional unemployment
Structural unemployment
Cyclical unemployment
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Unemployment
Frictional, Structural, and Cyclical Unemployment
frictional unemployment The portion of

unemployment that is due to the normal working of
the labor market; used to denote short-run job/skill
matching problems.
structural unemployment The portion of
unemployment that is due to changes in the
structure of the economy that result in a significant
loss of jobs in certain industries.
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Unemployment
Frictional, Structural, and Cyclical Unemployment
natural rate of unemployment The

unemployment that occurs as a normal part of the
functioning of the economy. Sometimes taken as
the sum of frictional unemployment and structural
unemployment.
cyclical unemployment The increase in
unemployment that occurs during recessions and
depressions.
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Unemployment
Social Consequences
In addition to economic hardship, prolonged

unemployment may also bring with it social and
personal ills: anxiety, depression, deterioration of
physical and psychological health, drug abuse
(including alcoholism), and suicide.
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Inflation
consumer price index (CPI) A price index

computed each month by the Bureau of Labor
Statistics using a bundle that is meant to represent
the market basket purchased monthly by the
typical urban consumer.
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Inflation
FIGURE 22.1 The CPI Market Basket

The CPI market basket shows how a typical consumer divides his or her money among various goods and
services. Most of a consumers money goes toward housing, transportation, and food and beverages.
Source: The Bureau of Labor Statistics
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The CPI market basket shows that most of a typical consumers

money goes toward:
a.
Recreation, medical care, and education.
b.
Food and beverage, apparel, and other goods and services.
c.
Housing, transportation, and food and beverages.
d.
None of the above. The typical consumer spends about the
same amount of money on each of the categories listed in
the choices above.
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The CPI market basket shows that most of a typical consumers

money goes toward:
a.
Recreation, medical care, and education.
b.
Food and beverage, apparel, and other goods and services.
c.
Housing, transportation, and food and beverages.
d.
None of the above. The typical consumer spends about the
same amount of money on each of the categories listed in
the choices above.
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Inflation
TABLE 22.5 The CPI, 19502007
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
Percentage
Change
in CPI
1.3
7.9
1.9
0.8
0.7
-0.4
1.5
3.3
2.8
0.7
1.7
1.0
1.0
1.3
1.3
1.6
2.9
3.1
4.2
CPI
24.1
26.0
26.5
26.7
26.9
26.8
27.2
28.1
28.9
29.1
29.6
29.9
30.2
30.6
31.0
31.5
32.4
33.4
34.8
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
Percentage
Change
in CPI
5.5
5.7
4.4
3.2
6.2
11.0
9.1
5.8
6.5
7.6
11.3
13.5
10.3
6.2
3.2
4.3
3.6
1.9
3.6
CPI
36.7
38.8
40.5
41.8
44.4
49.3
53.8
56.9
60.6
65.2
72.6
82.4
90.9
96.5
99.6
103.9
107.6
109.6
113.6
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Percentage
Change
in CPI
4.1
4.8
5.4
4.2
3.0
3.0
2.6
2.8
3.0
2.3
1.6
2.2
3.4
2.8
1.6
2.3
2.7
3.4
3.2
2.8
CPI
118.3
124.0
130.7
136.2
140.3
144.5
148.2
152.4
156.9
160.5
163.0
166.6
172.2
177.1
179.9
184.0
188.9
195.3
201.6
207.3
Sources: Bureau of Labor Statistics, U.S. Department of Labor.
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Inflation
producer price indexes (PPIs) Measures of

prices that producers receive for products at all
stages in the production process.
The indexes are calculated separately for various
stages in the production process. The three main
categories are finished goods, intermediate
materials, and crude materials, although there are
subcategories within each of these categories.
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Inflation
Inflation May Change the Distribution of Income
real interest rate The difference between the

interest rate on a loan and the inflation rate.
The indexes are calculated separately for various
stages in the production process. The three main
categories are finished goods, intermediate
materials, and crude materials, although there are
subcategories within each of these categories.
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The interest rate stated in a loan contract is:

a.
The real rate of interest.
b.
The nominal rate of interest minus the rate of inflation.
c.
The real rate of interest plus the rate of inflation.
d.
The same as the rate of inflation.
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The interest rate stated in a loan contract is:

a.
The real rate of interest.
b.
The nominal rate of interest minus the rate of inflation.
c.
The real rate of interest plus the rate of inflation.
d.
The same as the rate of inflation.
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Inflation
Administrative Costs and Inefficiencies
There may also be costs associated even with

anticipated inflation. One is the administrative cost
associated with simply keeping up.
Public Enemy Number One?

Economists have debated the seriousness of the
costs of inflation for decades.
No matter what the real economic cost of inflation,
people do not like it.
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Long-Run Growth
output growth The growth rate of the output of

the entire economy.
per-capita output growth The growth rate of

output per person in the economy.
productivity growth The growth rate of output

per worker.
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Which of the following is part of an ideal economy?

a.
Rapid growth of output per worker.
b.
Low unemployment.
c.
Low inflation.
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Which of the following is part of an ideal economy?

a.
Rapid growth of output per worker.
b.
Low unemployment.
c.
Low inflation.
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Long-Run Growth
FIGURE 22.2 Output per Worker Hour (Productivity), 1952 I2007 IV

Productivity grew much faster in the 1950s and 1960s than since.
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The two features immediately clear when you examine the trend in
productivity in the United States over the past fifty years are:
a.
An upward trend and fairly sizable fluctuations around that
trend.
b.
An upward trend and relatively small fluctuations around that
trend.
c.
A downward trend and fairly sizable fluctuations around that
trend.
d.
A downward trend and relatively small fluctuations around
that trend.
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The two features immediately clear when you examine the trend in
productivity in the United States over the past fifty years are:
a.
An upward trend and fairly sizable fluctuations around
that trend.
b.
An upward trend and relatively small fluctuations around that
trend.
c.
A downward trend and fairly sizable fluctuations around that
trend.
d.
A downward trend and relatively small fluctuations around
that trend.
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Long-Run Growth
FIGURE 22.3 Capital per Worker, 1952 I2007 IV

Capital per worker grew until about 1980 and then leveled off somewhat.
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REVIEW TERMS AND CONCEPTS
consumer price index (CPI)
producer price indexes (PPIs)
cyclical unemployment
productivity growth
discouraged-worker effect
real interest rate
employed
structural unemployment
frictional unemployment
unemployed
labor force
unemployment rate
labor force participation rate
1. Labor force = employed + unemployed
natural rate of unemployment
2. Population = labor force + not in labor force
not in the labor force

output growth
3. Unemployment rate
unemployed
employed unemployed
per-capita output growth

4. Labor force participation rate labor force
population
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CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

PowerPoint Lectures for

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

PART IV CONCEPTS AND PROBLEMS

PART IV CONCEPTS AND PROBLEMS

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

employed Any person 16 years old or older (1)

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

not in the labor force A person who is not

labor force = employed + unemployed

population = labor force + not in labor force

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

unemployment rate The ratio of the number of

labor force participation rate The ratio of the

labor force participation rate =

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

TABLE 22.1 Employed, Unemployed, and the Labor Force, 19532007

Note: Figures are civilian only (military excluded).

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

Unemployment Rates for Different Demographic Groups

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

Unemployment Rates in States and Regions

Sources: Statistical Abstract of the United States, various editions.

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

Unemployment rates in states and regions across the United

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

Unemployment rates in states and regions across the United

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

Unemployment Rates in States and Regions

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

discouraged-worker effect The decline in the

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

The Duration of Unemployment

Sources: U.S. Department of Labor, Bureau of Labor Statistics.

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

When an unemployed worker becomes discouraged about finding

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

When an unemployed worker becomes discouraged about finding

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

Some Unemployment Is Inevitable

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

Frictional, Structural, and Cyclical Unemployment

frictional unemployment The portion of

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

Frictional, Structural, and Cyclical Unemployment

natural rate of unemployment The

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

In addition to economic hardship, prolonged

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

The Consumer Price Index

consumer price index (CPI) A price index

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

The Consumer Price Index

FIGURE 22.1 The CPI Market Basket

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

The CPI market basket shows that most of a typical consumers

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

The CPI market basket shows that most of a typical consumers

CHAPTER 22 Unemployment, Inflation, and Long-Run Growth

TABLE 22.5 The CPI, 19502007