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Economic Instability

Economic Instability. Unemployment. What does it mean to be unemployed ? People available for work who made specific effort to find a job NYS definition:

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Economic Instability

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  1. Economic Instability

  2. Unemployment • What does it mean to be unemployed? • People available for work who made specific effort to find a job • NYS definition: • Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. Actively looking for work may consist of any of the following activities: • Contacting: • An employer directly or having a job interview • A public or private employment agency • Friends or relatives • A school or university employment center • Sending out resumes or filling out applications • Placing or answering advertisements • Checking union or professional registers • Some other means of active job search

  3. Unemployment Rate • Currently • May 2013: 7.6% • April 2014: 6.3% • The number of unemployed individuals divided by the total number of individuals in the civilian workforce • Full employment or natural unemployment • 4%

  4. Inflation • Inflation • A general increase in prices and fall in the purchasing value of money • Price Level • The relative magnitude of prices at one point in time • The inflation rate is measured using the CPI • Consumer Price Index • Prices tend to rise faster during expansions and slower during recessions

  5. Inflation • Degrees of Inflation • Creeping inflation • Inflation in the range of 1 to 3 percent per year • Galloping Inflation • Inflation in the range of 100 to 300 percent per year • Hyperinflation • Inflation in the range of 500 percent or more • Hungary after WWII • 82,000,000,000,000,000,000,000,000,000 (82 octillion) pengos post war equaled 82 pengos pre-war

  6. Causes of Inflation • Prices can be “pulled up” due to excessive demand • Consumers and producers buy more than can be supplied which creates a shortage and causes prices to increase • Deficit Spending • The federal government spends too much which devalues the currency

  7. Causes of Inflation • Rising input costs (factors of production) • A sudden rise in the costs of the factors of production (minimum wage) causes prices of manufactured goods to increase • The Cycle Theory • A self-perpetuating cycle where workers ask for higher wages and prices increase

  8. Causes of Inflation • The final and most popular theory: • Excessive Monetary Growth • Basically, the money supply grows faster than the GDP • How does this happen? • The Federal Reserve System prints too much money into circulation

  9. Consequences of Inflation • The dollar buys less • The purchasing power of the dollar falls as the prices rise • People’s spending habits can change • When prices went up in the 80s and interest rates grew, purchases of durable goods fell dramatically

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