Date: Block # Economics Guided Notes Unit Four Day #2 CPI, Unemployment and the Business Cycle

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1 Name: Date: Block # Economics Guided Notes Unit Four Day #2 CPI, Unemployment and the Business Cycle Directions Activity listen and view today s PowerPoint lesson. As you view each slide, write in any missing words or phrases. Today s Learning Standard SSEMA1 The student will illustrate the means by which economic activity is measured o Explain that overall levels of income, employment, and prices are determined by the spending and production decisions of households, businesses, government, and net exports o Define Gross Domestic Product (GDP), economic growth, unemployment, Consumer Price Index (CPI), inflation, stagflation, and aggregate supply and aggregate demand. o Explain how economic growth, inflation, and unemployment are calculated. o Identify structural, cyclical, and frictional unemployment o Define the stages of the business cycle, as well as recession and depression. Consumer Price Index The (CPI) is a measure of the in in an economy Economists add up the total price of a of typical items bought by the average family in a month Then, they the total price of these goods to the total price of the same items during a base period (or previous year) by dividing the total by the base Then, they multiply the result by 100 to have an for comparison purposes CPI = cost of today s market basket cost of a market basket in previous time X 100 Let s Look at an Example Let s say that in 2006, a year that we would like to serve as our year, the market basket cost $960 Then, we measure the same goods again in 2007 and find that they cost $1000 So, it works out like this: CPI = 1000 X CPI = 1.04 X 100 CPI = 104 Remember, this number is an figure. By itself, it doesn t tell us much. We compare it to 100 (the base number integer that is always used) to figure out the percentage change!

2 Calculating Percentage Change So, when we compare to our base integer of 100, we see that there has been a 4% increase in prices: We end up with 4/100, or 4% o If in this same year, GDP rose by only 4%, then we know that there was no growth the change was only due to o However, if it grew by more than 4%, then the economy did actually! Inflation and Growth On the other hand, if prices but the economy does not grow, a condition called occurs. Stagflation is when there is high inflation, the economic growth rate slows and unemployment remains high. High inflation wage earners because the money they make is now worth less Some businesses may offer adjustments for their employees to balance out the effects of inflation Unemployment To again monitor the health of our economy, economists measure the. Each month, they survey certain Americans to find out their employment status. The U.S. Government defines employed as people meeting one or more of the following criteria. Criteria to be considered Employed 1. Working or profit for 1 or more hours this week. 2. Working in a family business 15 or more hours. 3. Having a job, but being due to illness, weather, vacation, etc. The U.S. Government defines Unemployed" as: 1. NOT meeting any of the criteria above AND 2. looking for work during the past 4 weeks. The most closely watched and highly publicized labor force statistic is the UNEMPLOYMENT RATE=the percentage of people in the civilian labor force who are UNEMPLOYED.

3 Why is there Unemployment? In the end, unemployment depends on supply and demand the of able workers and the by businesses for those employees Some, but not all, unemployment is the result of a in the economy a in supply or demand Economists classify different types of unemployment Structural Frictional STRUCTURAL Unemployment Unemployment that occurs as a result of changes in, consumer, or in the way the economy is STRUCTURED. o EX: Many TV repairmen had to find new work as televisions are now built with transistors instead of tubes. CYCLICAL Unemployment This unemployment results from in the economy. This type of unemployment the economy more than any other types of unemployment. o During the, the unemployment rate reached an all time high of about 25%. o As recently as 2009 and 2010, the unemployment rate reached 10.2%. FRICTIONAL Unemployment People who have decided to leave one job and LOOK for another typically. Also, new entrants and re-entrants into the. Economists consider frictional unemployment as a part of a healthy and changing ECONOMY. SEASONAL Unemployment This unemployment fluctuates as a result of HOLIDAYS, school breaks, and industry PRODUCTION schedules.

4 The Business Cycle Unemployment is more severe when the economy goes through a o Economies go through a cycle of good times and bad times alternating periods of growth ( ) and recession ( ) o This is called the Changes on the Business Cycle As Aggregate Supply and Aggregate Demand, consumers and producers notice the effects of either or prices in the economy o Keep in mind, there is a effect as consumers see prices, they buy, so producers less, so they lay off workers (so, then people spend even less or business try to save money and lower costs..) o o Do you see where this is going? The reason this happens is because everything in the economy is!!!!!!! So, What Causes a Recession? Economic downturns occur when there is some kind of to the economic system o This could be a natural disaster, a war, a sudden rise in taxes or interest rates, etc o This causes AD to shift (decrease!), which begins a downturn in the economy! In a smaller market, producers would just try lowering their prices but, remember, Aggregate Supply doesn t respond! o When this occurs for 6 months or more, economists say we are experiencing a It will last until producers can lower and as well as start to rise again! Recovery and Depression When the economy starts to pick up again, economists call this a o It is the first sign of an upturn after a long period of decline If the economy experiences a recession that lasts a long time or has a severe decrease in GDP, economists say we are experiencing a o A depression usually involves extreme levels of, severe decrease in Aggregate, and a drastic decrease in.

5 Checkpoint Questions A recession is when: a. Unemployment decreases b. Real GDP is increasing c. The economy is in a contraction for at least 6 months d. Interest rates and prices are on the increase Which price index is the broadest measure of price changes in our economy? a. Consumer Price Index b. Producer Price Index c. The implicit price deflator d. Industrial Averages Index Questions for Reflection Which phase of a business cycle can lead an economy into recession? Summarize the ways in which economists measure economic growth.