Bài giảng Economics of Social Issues - Chapter 13 Unemployment and Inflation: Can We Find a Balance?

Chapter 13Unemployment and Inflation:Can We Find a Balance?Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin13-2What Is Unemployment?Not inthe Labor ForceLabor ForceUnemployedPotential Labor Force Population LFPR = # people in labor force # in potential labor force populationUR = # people unemployed # people in labor force13-3Unemployment in a Market EconomyEmployment per unit of timeWage ratesDDSSe0ee1ww113-4Types of UnemploymentFrictional UnemploymentStructural UnemploymentCyclical UnemploymentFull Employment Unemployment Rate13-5Annual Unemployment Rate 1960-200813-6What Is Inflation?Inflation – a continuing rise in the general level of pricesDynamic, self-sustainingSuppressed inflationHow Is Inflation Measured? The inflation rate between year 0 and year 1 is calculated as follows:If CPI in year 0 = 100 and CPI in Year 1 = 108, then:Inflation Rate in Year 1 = 108 – 100 * 100 = 8% 100Inflation rate in year 1 = CPI in Year 1 – CPI in Year 0 * 100 CPI in Year 013-713-8Price IndexesConsumer Price Index (CPI) = cost-of-living indexImplicit price deflator13-9Year01PCostPCost40 lbs grapes$2.00$80.00$2.10$84.00120 Knitting Needles$1.00$120.00$1.10$132.00Cost of Market Basket$200.00$216.00Constructing the Consumer Price IndexHow the Consumer Price IndexIs CalculatedChoose a Base Year Index = Cost of Market Basket year i * 100 Cost of Market Basket in base year Index(Year 0) = ($200/$200) * 100 = 100 Index(Year 1) = ($216/$200) * 100 = 108 13-10Problems in Measuring the Cost of LivingTypical householdSubstitution biasIntroduction of new goodsUnmeasured quality changes13-1113-12The Rate of Inflation Over Time13-13Equity EffectsPeople on relatively fixed incomesCreditors and DebtorsInflationLoan TermsNominal ValueReal Value0% inflation$1,000 @ 5%$1,050$1,05010% inflation$1,000 @ 5%$1,050$95010% inflation $1,000 @ 15%$1,150$1,05013-14Efficiency EffectsImpact on resource allocationCosts of adjusting to inflation13-15Output EffectsPositive effect of mild inflationNegative effect of runaway or hyperinflationPure inflation13-16Circular Flow of Economic ActivityProducersHouseholdsFlow of final goods and servicesFlow of money payments(consumption)Demand for goodsSupply of goodsFlow of productive servicesFlow of money paymentsSupply of resourcesDemand for resourcesProductMarketResourceMarket13-17Aggregate DemandAD = C + I + G + (X – M)Consumer SpendingMPCMPSPsychological law of consumptionInvestment SpendingGovernment PurchasesExports and ImportsTrade deficitTrade surplusThe Spending MultiplierPrice level (p)DDpp1200400Output demanded per year (q)13-18Short-Run Aggregate SupplyDeterminants of ASResource pricesTechniques of production Price level (p)p0qq1qfOutput supplied per year (q)p2p1SS13-19Long-Run Aggregate SupplyPrice level (p)p0q0Output supplied per year (q)p1SS0Full Employment Output13-20The Short-Run and Long-Run Aggregate Supply CurvesPrice level (p)p0q0Output supplied per year (q)p1S1S10q1S0S013-21Aggregate Demand and Aggregate SupplyPrice level (p)p0q0Output supplied per year (q)p2S1S10q1S0q2S0D0D0D1D1D2D2p1p313-22Reasons for Deficient Aggregate DemandConsumptionInvestmentGovernment PurchasesExports and Imports13-23Circular Flow of Economic ActivityProducersHouseholdsFlow of final goodsConsumer spendingFlow of productive servicesFlow of money paymentsInvestmentGovernmentSpendingExportsSavingsTaxesImportsLeakagesInjections13-24Weakness in Aggregate SupplyPrice level (p)p0q0Output supplied per year (q)p10q1S0S0D0D0S1S1Possible Trade-offs and Policy OptionsThe Phillips CurveExpansionary policiesContractionary policiesPolicy Problems13-25Unemployment rateInflationRate1010 5 5acb