Unemployment and Inflation | My Assignment Tutor

7/12/20201Diploma of BusinessWUCB162/DSSC108 – Economics and SocietyWeek 8Unemployment and Inflation1Emailing your Lecturers/Tutors• In the subject line always include:• Your full name (and English name)• Student number• Subject code2Assessment scheduleTask Date Due Weighting• Class Test 1 Wk 6 20%• Class Test 2 Wk 11 20%• Tutorial Preparation Weeks 1-10 10%• Final Assessment Task Wk 13 50%(Note: The tutorial preparation mark will be based on theparticipation and completion of tutorial exercises)31 2 37/12/20202Remember…• The lecture slides provide a summary• You need to• take your own notes in lectures• attempt tutorial questions• take your own notes in tutorials• To gain all the knowledge you need for thissubject you must listen, add your ownnotes, and apply by attempting thetutorials questions4The Macroeconomy• Macroeconomics• The study of the economy as a whole. e.g.economic growth, inflation andunemployment.• Microeconomics• The study of individual aspects within thetotal economy. e.g.individual markets, costsof production, profit maximization etc.© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 5The Macroeconomy• Gross domestic product (GDP)• Total output in an economy GDP• is a monetary measure of the market value ofall the final goods and services produced in aspecific time period (normally a year).© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 64 5 67/12/20203The Macroeconomy• Recession• A decline in a nation’s GDP (output)• Technically, there must be a decline in real GDP of at leasttwo consecutive quarters.• Normally associated with a rise inunemployment• As production falls there is generally less labour requiredto produce that lower output.© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 7Unemployment• Labour force• Legal working age population (15 years oldand older in Australia) who are working forpay or actively seeking employment.• In other words the labour force is the sum ofemployed and unemployed.• Labour force participation rate• The ratio of the number of people in thelabour force compared to the working agepopulation (irrespective of employment status).© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 8© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 9U.S. labor force participation rates for men and women,individually and combined, selected years7 8 97/12/20204Unemployment• Unemployment rate• The percentage of the labour force that isunemployed• Unemployed person• Person of legal working age who is activelyseeking employment but is unable to find ajob• In other words…• Only jobseekers are classified as unemployed© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 10© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 11U.S. unemployment rates, selected yearsaUnemployment• Australia’s unemployment data• 4.0% in 2008 – all time recent low• 9.6% in 2010 – GFC effects• 5.2% in March 2020 (before COVID-19 effects)• Higher for men than women• High unemployment rate for teenagers• Rising underemployment• Less than half of the employed are full time. Thereis said to be increasing casualization of the labourforce in Australia© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 121011127/12/20205 Not in the labourforce6.782 million5.798 millionAvailable forwork, but notcurrently looking0.984 million Working agepopulation19.121millionEmployed11.592 millionUnemployed0.747 millionNot available forworkNot currently lookingfor work due toother reasons0.858 millionDiscouragedworkers0.126 millionThe employment status of the population, Australia, September 2014Labour force12.339 million13 (Source: Hubbard et al, 2016)So u rce : C reate d from Au stralian B ure au of Statistics (201 4), La bou r Fo rce, Australia, C at. No. 620 2.0, Time Se rie s Workb ook, Tab le 0 1, Lab o ur Fo rce Statu s b y Sex-Tre nd at , viewed 10No ve mb e r 20 14.14Gr owth in employment in Austr alia, 1978 – 20142 0004 0006 0008 00010 00012 00014 0001978 1983 1988 1993 1998 2003 2008 2013Thousands of persons Part-timeemploymentFull-time employment Copyright ©2016 Pearson Australia (a division of Pearson Australia Group Pty Ltd) –9781486022847/Hubbard Ess entials of Economic s/3eSource: Created from Australian Bureau of Statistics (2014), Labour Force, Australia,Detailed—Electronic Delivery, Cat No. 6291.0.55.001, Table 01, at ,viewed 10 November 2014.15Unemployment rate by age, 20148 6 4 2 010121416182015-19 20-24 25-34 35-44 45-54 55-59 60-64 65 andoverPer centAge1314157/12/20206Unemployment• Problems in Measuring Unemployment• Unemployment rate understates the trueextent of economic hardship fromunemployment• Part time workers who want to work full time• Discouraged workers• People who would like to work but havebecome so discouraged in the job search thatthey have stopped actively seekingemployment© 2016 Cengage Learning. All Rights Reserved. May not be s canned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 16Unemployment• Mismeasurement of unemployment rate –serious ramifications• Macroeconomic policies for our economy• Based on the unemployment rate• Must acknowledge the issues ofunderemployment – technical definition ofemployed is if you work at all – even if it isone hour a week© 2016 Cengage Learning. All Rights Reserved. May not be s canned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 17Unemployment• Effects of unemployment• Personal effects• Lower income (Government benefits)• Loss of employer-related benefits such as leaveentitlements and superannuation• Loss of on-the-job experience• Increase in domestic violence, divorce, alcoholism,child abuse, and suicide• Macroeconomic effects• Reduction in the nation’s output• Govt budget effects: Reduction in tax revenue andhigher govt transfer payments© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 181617187/12/20207© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 19Production possibilities curveThree types of unemployment1. Frictional unemployment• Temporary unemployment• Caused by a normal time delay when a person:• Seeks a first job• Changes jobs• Re-enters the labor force after an absence2. Structural unemployment• Results from structural changes in economy• Such as changes in demand or technology© 2016 Cengage Learning. All Rights Reserved. May not be s canned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 20Three types of unemployment3. Cyclical unemployment• Results from a drop in economic activity in oureconomy as a wholeWhat is full employment?• There is no cyclical unemployment• All unemployment is frictional or structural• An official measure of approximately 4% isconsidered full employment– Note 4% matches the all time recent low© 2016 Cengage Learning. All Rights Reserved. May not be s canned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 211920217/12/20208Unemployment and Immigration• Employment and wage effects of immigration• Polar attitudes toward immigrant workers:• “Immigrants work for next to nothing and takejobs away from native-born Americans”• “Immigrants work hard and only take jobs thatnative-born workers wouldn’t want anyway”© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 22Unemployment and Immigration• Large-scale immigration of low-skill workers• Labor-market effects• Increasing supply of low-skilled labor• Decreasing wage rate in low-skilled labormarkets• Lower production cost for businesses• Economic growth• More employment© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 23© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 24U.S. labor market for low-skilled workers with andwithout immigrationThe quantity of labor (the number of workers) is shown along the horizontal axis, and the priceof labor (the wage rate) is shown along the vertical axis. The demand curve D is the demandfor low-skilled workers, and S is the supply of native-born U.S. workers who offer their laborservices to the low-skill labor market.The equilibrium wage rate is $6 perhour, and the equilibrium number ofU.S. workers is 100,000. Theimmigration of low-skilled workersincreases the supply of labor to S’,thereby lowering the wage rate to $4per hour. As a result, the number ofnative-born workers is just 50,000workers, while the total number ofworkers is 200,000. (Note that theincrease in supply and decrease inthe wage rate are exaggerated in thisexample in order to show thetheoretical result.)2223247/12/20209Immigration Considerations• Immigrants• Consumers:• Higher demand of consumption goods• More likely to start a business• Many are high skilled and educated• Real solution to illegal immigration• Reduction in poverty in other countries• Countries benefit from greater culturaldiversity© 2016 Cengage Learning. All Rights Reserved. May not be s canned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 25Unemployment and the Minimum Wage• The Minimum Wage• Legally imposed minimum price for labor• Above the equilibrium wage• Effects of the minimum wage• Disequilibrium: surplus of labor• Some unemployment• Benefited some workers• Harmed other workers• Business firms—forced to pay higher wages© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 26© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 27The minimum wage in a market for low-skilled workersThe quantity of labor (the number of workers) is shown along the horizontal axis. The demandcurve D is the demand for low-skilled labor, and the supply curve S is the supply of low-skilledlabor. The equilibrium wage rate is $5 per hour, and the number of workers is 100,000. Aminimum wage of $7.25 results in a quantity of labor supplied of 110,000 workers and aquantity of labor demanded of 90,000 workers. The result is a surplus of 20,000 workers.2526277/12/202010Inflation• Inflation• A rise in the average price level• Deflation• A decrease in the average price level• Consumer price index (CPI)• Weighted average of the prices of a fixedbasket of goods and services• Purchased by a typical urban household© 2016 Cengage Learning. All Rights Reserved. May not be s canned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 28Inflation• Inaccuracy of the Inflation Rate• CPI tends to overstate the true problem ofinflation• Fixed basket of goods—doesn’t account for:• Substitution in consumption• Changes in quality of the goods• Cost-of-living adjustment (COLA)• Adjustment—automatically increases incomesor benefits when average price level rises© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 29© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 30U.S. and Australia inflation rates, selected yearsAustralia3.210.57.54.52.93.31.72.52014 2.52015 1.52016 1.32017 1.92018 1.62019 1.72829307/12/202011Effects of Inflation• Purchasing power• Ability to buy goods and services• When income increases by the samepercentage level as the price level, there is noharm by inflation• Effects of Inflation: Redistribution• Inflation can cause an increase or decrease inpurchasing power• Some people will benefit and some will lose© 2016 Cengage Learning. All Rights Reserved. May not be s canned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 31Effects of Inflation• Redistribution• Some people will gain• Workers protected by powerful unions—incomesrise more rapidly than the average price level• Some people will lose• Retirees on private pensions• Workers in a long-term labor contract (fixedwages)• Welfare recipients (on fixed payments)• Some people will be unaffected• Social security beneficiaries (adjusted to inflation)© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 32Effects of Inflation• Redistribution• If inflation is unanticipated• Borrowers gain• Lenders lose• Uncertainty• Inefficiency – from uncertainty about prices• Risk aversion – prefer not to undertake risks• Choose to do nothing© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 333132337/12/202012Effects of Inflation• Menu Costs• Costs associated with• Reprinting menus• Revising cost schedules• Adjusting telephones, vending machines, etc.• International Effects• Prices higher than in other countries• Increasing imports, reducing exports• Inflation—spread to other countries© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 34Types of Inflation• Demand-pull inflation• Occurs when any sectors of the economyincrease their demand for goods and services• Cost-push inflation• Occurs as a result of increases in the costs ofproduction• Profit-push inflation• Occurs when businesses use market power torestrict output: pushes up prices and profits© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 35Which Problem Is More Serious:Unemployment or Inflation?• Trade-off• One policy will reduce unemployment whileincreasing inflation, and vice versa• Combating unemployment• Stimulate the economy• Inflation• Combating inflation• Contract the economy• Increases unemployment© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 363435367/12/202013© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 37Unemployment rates in selected countries, 2012a© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 38Inflation rates in selected countries, 2013aHyperinflation Around the World• Hyperinflation• Extremely high inflation, whereby moneybecomes almost worthless• 1980s and 1990s inflation rates:• Brazil: 2,739%• Argentina: 3,080%• Peru: 7,650%• Nicaragua: 14,316%• Russia: 1,353%© 2010 Cengage Learning. All Rights Reserved. May not be s canned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 393738397/12/202014Hyperinflation Around the World• Hyperinflation• 498% in Zimbabwe from 2000–2007• Monthly inflation rate—in the hundreds ofthousands percent• No incentive to save• Barter• The direct exchange of goods and services forother goods and services rather than formoney© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 40Construction of Consumer Price Indexand Measuring Inflation• Choose a baseyear• Measure the cost of a typical basket of goodsand services each year.• Divide by the cost of the basket by the base yearcost x 100 to obtain the CPI• CPI for the base year = 100• Inflation calculated as the percentage change inCPI:This period’s CPI – Last period’s CPI x 100Last period’s CPI© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 41Tutorials• It is essential to complete the requiredproblems and reading before your tutorial sothat you can participate fully in the discussion.• Please type and upload your tutorial workthrough the relevant Turnitin submission boxon Moodle.• Please note the submission box on Moodlecloses at 12:25pm on Wednesday for allstudents.© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible We b site, in whole or in part. 42404142

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