Transcript Presentation Plus! Economics: Principles and Practices Copyright © by The McGraw-Hill Companies, Inc. Developed by FSCreations, Inc., Cincinnati, Ohio 45202 Send all inquiries.

Presentation Plus! Economics: Principles and Practices
Copyright © by The McGraw-Hill Companies, Inc.
Developed by FSCreations, Inc., Cincinnati, Ohio 45202
Send all inquiries to:
GLENCOE DIVISION
Glencoe/McGraw-Hill
8787 Orion Place
Columbus, Ohio 43240
Chapter 14
Economic Instability
CHAPTER INTRODUCTION
SECTION 1 Business Cycles and
Fluctuations
SECTION 2 Unemployment
SECTION 3 Inflation
SECTION 4 Poverty and the
Distribution of Income
CHAPTER SUMMARY
CHAPTER ASSESSMENT
3
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Press the ESC key at any time to exit the presentation.
Economics and You
Do you worry about the future? If you are
concerned about getting a job, earning a
decent income, or keeping up with
inflation, the concept of economic stability
is important to you.
Click the Speaker button
to listen to Economics
and You.
4
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to display the information.
Chapter Objectives
Section 1: Business Cycles and
Fluctuations
• Explain the phases of the business cycle. 
• Identify five causes of business cycles.
5
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Chapter Objectives
Section 2: Unemployment
• Explain how the Bureau of Labor Statistics
determines if a person is employed. 
• Describe five kinds of unemployment.
6
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Chapter Objectives
Section 3: Inflation
• Explain how inflation is measured. 
• Discuss five causes of inflation. 
• Analyze the destabilizing consequences
of inflation.
7
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Chapter Objectives
Section 4: Poverty and the Distribution
of Income
• Explain how economists measure the
distribution of income. 
• Discuss the reasons for the inequality
of income. 
• Discuss antipoverty programs.
8
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Click the mouse button to return to the Contents slide.
Study Guide
Main Idea
The term “business cycle” refers to alternating
increases and decreases in the level of economic
activity. 
Reading Strategy
Graphic Organizer As you read the section,
complete a graphic organizer similar to the one
on page 375 of your textbook by listing factors
that can cause changes in the business cycle.
10
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information. Section 1 begins on page 375 of your textbook.
Study Guide (cont.)
Key Terms
– business cycle 
– depression scrip 
– business fluctuation 
– econometric model 
– recession 
– index of leading
indicators
– peak 
– trough 
– expansion 
– trend line 
– depression 
11
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information. Section 1 begins on page 375 of your textbook.
Study Guide (cont.)
Objectives
After studying this section, you will be able to: 
– Explain the phases of the business cycle. 
– Identify five causes of business cycles. 
Applying Economic Concepts
Economic Security Do you have a job and a
paycheck on which you depend? How can
economic instability threaten your income?
Click the Speaker button to
listen to the Cover Story.
12
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information. Section 1 begins on page 375 of your textbook.
Introduction
• Economic growth is something that is
beneficial to almost everyone. 
• Sometimes though, economic growth is
interrupted by business cycles–largely
systematic ups and downs of real GDP. 
• At other times economic growth is
interrupted by business
fluctuations–the rise and fall of real
GDP over time in a nonsystematic
manner.
13
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Introduction (cont.)
• Either way, economic growth—even the
record setting expansion that took place
during the 1990s— always comes to a halt
before it begins to take off again. 
• The inevitable ups and downs of the
economy are among the reasons why
economists have developed tools like the
monthly index of leading indicators
featured in the cover story.
14
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Did You Know?
• The average recession in the United
States lasted 15 months and reduced
output by 8.7 percent. The average
expansion lasted 46 months and
increased output by 22.5 percent.
15
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Business Cycles in the United States
• The business cycle consists of two phases:
expansion and recession. 
• Recession begins with a peak and ends
with a trough. 
• Expansion is the recovery from a
recession. 
• If a recession becomes very severe, it can
turn into a depression.
16
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Business Cycles in the United States
(cont.)
• The worst depression in U.S. history was
the Great Depression, which began in
1929. 
• The Great Depression was caused by
various factors, including excessive
borrowing in the 1920s and global
economic conditions. 
• Since the Great Depression, the United
States has experienced several recessions,
but each was short compared with the
recovery that followed.
17
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Business Cycles in the United States
(cont.)
Figure 14.1
18
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Discussion Question
What happens during a depression?
Production slows, output declines,
unemployment rises, and the
standard of living falls.
19
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to display the answer.
Causes of the Business Cycle
• Businesses reduce their capital
expenditures once they decide they have
expanded enough. 
• Businesses cut back their inventories at the
first sign of an economic slowdown. 
• Businesses cut back on investment after an
innovation takes hold. 
• Tight money policies of the Federal
Reserve System slow the economy. 
• External shocks, such as increases in oil
prices and international conflicts, can cause
business cycles.
20
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Discussion Question
Why do businesses cut back on their
inventories when they think the
economy is turning down?
Because they fear sales will decline.
21
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to display the answer.
Predicting Business Cycles
• Econometric models are macroeconomic
model that use algebraic equations to
describe how the economy behaves. 
• The index of leading indicators is a
monthly statistical series that helps
economists predict the direction of future
economic activity.
22
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Predicting Business Cycles (cont.)
Figure 14.2
23
Discussion Question
Why is it important to predict business
cycles?
Businesses and the government are
better able to plan their actions if they
know how the economy is likely to
perform. A business that had
planned to expand its plant, for
example, might delay construction if it
believed the economy was about to
enter a recession.
24
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to display the answer.
Section Assessment
Main Idea Explain the difference
between a business cycle and a
business fluctuation.
Business cycles are systematic
increases and decreases in real
GDP; unsystematic changes are
business fluctuations.
25
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Section Assessment (cont.)
Identify the two main phases of a
business cycle.
The two main phases of a business
cycle are recession and expansion.
26
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to display the answer.
Section Assessment (cont.)
Explain how the Great Depression
compared to other recessionary
periods.
The Great Depression was more
severe than the other recessionary
periods. It was the worst economic
decline in U.S. history.
27
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to display the answer.
Section Assessment (cont.)
List five causes of business cycles.
Five causes of business cycles are:
1. capital expenditures
2. inventory adjustments
3. innovation and imitation
4. monetary factors
5. external shocks
28
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Section Assessment (cont.)
Understanding Cause and Effect If
business inventories are falling, the average
hours worked per week is going up, and there
is an increase in the number of new building
permits, we would expect the economy to be
in an expansion phase of the business cycle.
Explain why each of these indicators would
show that the economy would grow in the
near future.
Falling inventories = many items being produced
and sold. An increased number of hours worked =
more work needed to keep up with increased
demand. An increasing number of building permits
= companies forming and expanding.
29
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Section Close
Are there any measures that you
can take to protect yourself from the
ups and downs of the business
cycle? If so, what are they?
30
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Study Guide
Main Idea
Frictional, structural, cyclical, seasonal, and
technological are the general types of
unemployment. 
Reading Strategy
Graphic Organizer As you read the section,
complete a graphic organizer similar to the one
on page 382 by listing two ways that structural
unemployment takes place.
32
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information. Section 2 begins on page 382 of your textbook.
Study Guide (cont.)
Key Terms
– unemployed 
– unemployment rate 
– frictional unemployment 
– structural unemployment 
– cyclical unemployment 
– seasonal unemployment 
– technological unemployment 
– automation
33
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information. Section 2 begins on page 382 of your textbook.
Study Guide (cont.)
Objectives
After studying this section, you will be able to: 
– Explain how the Bureau of Labor Statistics
determines if a person is employed. 
– Describe five kinds of unemployment. 
Applying Economic Concepts
Employment Did you work for at least one
hour per week for pay or profit last month? How
does your answer to this question determine
your employment status?
Click the Speaker button to
listen to the Cover Story.
34
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information. Section 2 begins on page 382 of your textbook.
Introduction
• Nearly one-half of the population of the
United States belongs to the civilian labor
force, and at any given time millions of
these people are without jobs. 
• This issue is so important that full
employment is one of the seven economic
and social goals of the American
economy.
35
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Did You Know?
• At the peak of the Great Depression, one
out of every four people was unemployed.
Between 1929 and 1933, real net national
product, wholesale prices, and the money
supply all declined by more than one-third.
36
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Measuring Unemployment
• The unemployment rate shows the
percentage of unemployed people divided
by the total number of people in the civilian
labor force. 
• The unemployment rate understates
unemployment because it does not include
“discouraged” workers or people who are
working part-time because they cannot find
full-time work.
37
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Measuring Unemployment (cont.)
Figure 14.3
38
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Discussion Question
What is a “discouraged” worker?
Someone who has given up trying to
find a job and is, therefore, not
included in the unemployment rate.
39
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to display the answer.
Kinds of Unemployment
• Frictional unemployment occurs when
workers are between jobs. 
• Structural unemployment occurs when a
fundamental change in the economy
reduces the demand for workers and their
skills. 
• Cyclical unemployment results from
changes in the weather or changes in
demand for certain products.
40
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Kinds of Unemployment (cont.)
• Seasonal unemployment results from
changes in the weather or changes in
demand for certain products. 
• Technological unemployment results from
technological improvements that make
some jobs obsolete.
41
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Discussion Question
What kinds of unemployment are likely
to affect construction workers?
Cyclical unemployment, because
construction slows in an economic
downturn, and seasonal
unemployment, because construction
slows in the winter.
42
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to display the answer.
The Concept of Full Employment
• Full employment is lowest possible rate
when the economy is growing and all
factors of production are being used as
efficiently as possible. 
• Full employment is achieved when the
unemployment rate falls below 4.5 percent.
43
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The Concept of Full Employment (cont.)
Figure 14.4
44
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Discussion Question
How can the economy be considered
at full employment when some people
are still unemployed?
Some people are always unemployed
because of frictional employment.
When a two-income family moves, for
example, both spouses do not always
find jobs right away.
45
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to display the answer.
Section Assessment
Main Idea Why is structural
unemployment a more difficult problem
for the economy and for individual
workers than other types of
unemployment?
Structural unemployment causes
long-term unemployment and the
unemployed must learn new skills.
46
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Section Assessment (cont.)
Describe how the government collects
monthly data on unemployment.
The Census Bureau surveys and
turns data over to the Bureau of
Labor Statistics for analysis.
47
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Section Assessment (cont.)
Differentiate between the five major
kinds of unemployment.
The five kinds of unemployment are
frictional, structural, cyclical,
seasonal, and technological.
48
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Section Assessment (cont.)
Drawing Inferences What factors
make it difficult to determine the
unemployment rate?
The unemployment rate does not
count part-time workers or those too
discouraged to look for work.
49
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Section Assessment (cont.)
Categorizing Information Make a list
of three reasons that could cause a
person to become a discouraged
worker.
Answers will vary.
50
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Section Close
Write a paragraph explaining the
kind of unemployment that provides
the greatest challenge for the
economy and why.
51
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Study Guide
Main Idea
“Inflation” is a rise in the general level of prices. 
Reading Strategy
Graphic Organizer As you read this section,
complete a graphic organizer similar to the one
on page 389 of your textbook by identifying the
steps in a wage-price spiral.
53
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information. Section 3 begins on page 389 of your textbook.
Study Guide (cont.)
Key Terms
– price level 
– deflation 
– creeping inflation 
– galloping inflation 
– hyperinflation
54
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information. Section 3 begins on page 389 of your textbook.
Study Guide (cont.)
Objectives
After studying this section, you will be able to: 
– Explain how inflation is measured. 
– Discuss five causes of inflation. 
– Analyze the destabilizing consequences of
inflation. 
Applying Economic Concepts
Inflation Have you ever wondered if you
should buy something before the price of the
item goes up? How does inflation change our
spending habits?
Click the Speaker button to
listen to the Cover Story.
55
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information. Section 3 begins on page 389 of your textbook.
Introduction
• Inflation is a special kind of economic
instability, one that deals with changes in
the level of prices rather than the level of
employment and output. 
• Even so, changes in prices, employment,
and output are all linked.
56
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Did You Know?
• Hyperinflation was so sever in Germany
in the 1920s that it completely wiped out
the savings of many middle-class
Germans. By the end of 1923, $1 was
worth four trillion German marks.
57
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Inflation in the United States
• The inflation rate is determined by
comparing the price level at the beginning
and end of a period. 
• Sometimes deflation can occur when there
is a decrease in the general price level. 
• Creeping inflation is inflation in a range of 1
to 3 percent annually. 
• Galloping inflation is when inflation can go
as high as 100 to 300 percent annually. 
• Inflation of more than 500 percent a year is
known as hyperinflation.
58
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Inflation in the United States (cont.)
Figure 14.5
59
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Discussion Question
What are some of the consequences
of hyperinflation?
Money loses its value, people have
difficulty comparing prices, and
bartering takes place.
60
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Causes of Inflation
• Demand-pull inflation occurs when all
sectors of the economy try to buy more
goods and services than the economy can
produce. 
• Sometimes demand-pull inflation is caused
by the federal government’s deficit
spending. 
• Cost-push inflation occurs when input
costs, especially labor, drive production
costs up.
61
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Causes of Inflation (cont.)
• The wage-price spiral occurs when higher
prices force workers to demand higher
wages, forcing producers to raise their
prices even more. 
• Excessive monetary growth can cause
inflation.
62
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Discussion Question
How can demands for higher wages by
unions contribute to inflation?
Higher wages increase a company’s
production costs, forcing it to raise its
prices.
63
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Consequences of Inflation
• When inflation occurs the dollar buys less.

• Inflation hurts people with fixed incomes. 
• Inflation can cause people to change their
spending habits, which disrupts the
economy. 
• Inflation tempts some people to speculate
heavily to take advantage of the higher
price level. 
• Inflation alters the distribution of income.
64
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Consequences of Inflation (cont.)
Figure 14.6
65
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Discussion Question
Why does inflation hurt people on fixed
incomes more than other people?
People who earn wages or salaries
see their incomes rise when prices
go up. In contrast, people on fixed
incomes must pay more for the things
they buy without an increase in their
incomes.
66
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Section Assessment
Main Idea What is the difference
between the price level and the rate of
inflation?
The price level is the relative
magnitude of prices at one point in
time and is the starting point for
measuring the rate of inflation. The
rate of inflation is the rate of change
in the level of prices.
67
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Section Assessment (cont.)
Describe how the CPI is used to
compute the inflation rate.
Change in the price level is divided
by the beginning price level, then
multiplied by 100.
68
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to display the answer.
Section Assessment (cont.)
List five explanations for the causes of
inflation.
The causes of inflation are:
1. demand-pull
2. government deficit
3. cost-push
4. wage-spiral
5. excessive monetary growth
69
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Section Assessment (cont.)
Identify four ways inflation destabilizes
the economy.
The dollar buys less, spending habits
change, speculation increases, and
the distribution of income is altered.
70
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Section Assessment (cont.)
Categorizing Information What kind
of inflation might be described as “too
many dollars chasing too few goods”?
Answers may include demand-pull or
excessive monetary growth.
71
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Section Assessment (cont.)
Understanding Cause and Effect In
1974 the price of crude oil increased
greatly. Which type of inflation did this
cause?
This caused cost-push inflation.
72
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Section Close
Debate the following:
In a free enterprise economy,
economic growth automatically
means rising prices.
73
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Click the mouse button to return to the Contents slide.
Study Guide
Main Idea
Reasons for income inequality include ability
differences, education and training, and
discrimination. 
Reading Strategy
Graphic Organizer As you read the section,
complete a graphic organizer like the one on
page 394 of your textbook by listing three
explanations for a growing income gap.
75
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information. Section 4 begins on page 394 of your textbook.
Study Guide (cont.)
Key Terms
– Lorenz curve 
– poverty guidelines

– welfare 
– food stamps 
– Earned Income Tax Credits (EITC) 
– enterprise zone 
– workfare 
– negative income tax
76
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information. Section 4 begins on page 394 of your textbook.
Study Guide (cont.)
Objectives
After studying this section, you will be able to: 
– Explain how economists measure the
distribution of income. 
– Discuss the reasons for the inequality of
income. 
– Discuss antipoverty programs. 
Applying Economic Concepts
Distribution of Income Do you compare what
you make to the earnings of others? Find out
more about how income is distributed in the
United States.
Click the Speaker button to
listen to the Cover Story.
77
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information. Section 4 begins on page 394 of your textbook.
Introduction
• In the United States, as in other parts of the
world, people do not all have the same
income. 
• A large number of people live in poverty
despite the efforts of programs.
78
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Did You Know?
• In 1999, the U.S. poverty guidelines for a
family of four set a maximum income level
of $20,880 for people living in Alaska,
$19,210 for people living in Hawaii, and
$16,700 for people living in the 48
contiguous states and the District of
Columbia.
79
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The Distribution of Income
• The Lorenz curve shows how the actual
distribution of income differs from an equal
distribution. 
• Since 1980 the distribution of income in the
United States has become more unequal.
80
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The Distribution of Income (cont.)
Figure 14.7a&b
81
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Discussion Question
What are some of the possible
negative consequences of a very
unequal distribution of income?
Crime can increase, and poor people
can become bitter and disillusioned.
82
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to display the answer.
Reasons for Income Inequity
• Level of education affects people’s ability to
get high-paying jobs. 
• Differences in wealth lead to difference in
income. 
• Discrimination reduces the incomes of
women and minorities. 
• Differences in abilities allow some people to
earn more than others. 
• Monopoly power allows some groups, such
as doctors, to maintain high incomes.
83
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Discussion Question
What are some of the reasons why a
person from a lower-income family
might end up earning less than a
person from a higher-income family?
The lower-income person might receive
less education or they might face
discrimination based on gender or
ethnicity.
84
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to display the answer.
Poverty
• Poverty is defined as having an income
below a certain level (poverty guidelines). 
• Poverty in America is extensive: more than
13 percent of the population lives in
poverty. 
• Poverty has increased as a result of the
growing gap in the distribution of income
because of structural changes from a
goods production to a service production
economy, the widening gap between welleducated and poorly educated workers,
declining unionism, and the changing
structure of the American family.
85
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Poverty (cont.)
86
Figure 14.8
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Discussion Question
Why do poverty guidelines vary across
different parts of the country?
The cost of living differs. On average,
it is more expensive to live in Hawaii
and Alaska than in the rest of the
United States.
87
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to display the answer.
Antipoverty Programs
• Income assistance provides cash to people
in need. 
• General assistance provides noncash
assistance, such as food stamps, to people
in need. 
• Social service programs provide assistance
with family planning, job training, child
abuse prevention, and other problems
affecting lower-income people. 
• The earned income tax credit provides
federal tax credits and/or cash to lowincome workers.
88
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Antipoverty Programs
• Enterprise zones provide jobs in poor
neighborhoods. 
• Workfare programs require welfare
recipients to work in order to receive
benefits. 
• A negative income tax would replace
welfare programs by providing cash to
people living below the poverty line.
89
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Antipoverty Programs (cont.)
Figure 14.9 a
90
Antipoverty Programs (cont.)
Figure 14.9b
91
Antipoverty Programs (cont.)
Figure 14.9c
92
Discussion Question
Do you think people who receive
government assistance should have to
work in order to receive benefits?
Answers will vary, but students should
consider all aspects of these programs
and the people who use them when
making their arguments.
93
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to display the answer.
Section Assessment
Main Idea Using your notes from the
graphic organizer activity on page 394,
list the reasons for the growing income
gap.
The reasons for the growing income
gap are: structural change in the
economy as industry changes from
goods production to service production,
the gap between educated and poorly
educated workers, declining unionism,
and the changing structure of families.
94
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Section Assessment (cont.)
Describe how the distribution of
income is measured.
Incomes are ranked by families from
lowest to highest, then divided into
quintiles. Quintile data is then plotted
as a Lorenz curve.
95
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Section Assessment (cont.)
List the five main reasons for
inequality of income.
Inequality of income exists because
of education, wealth, discrimination,
ability, and monopoly power.
96
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to display the answer.
Section Assessment (cont.)
Identify the major programs and
proposals designed to alleviate the
problem of poverty.
TANF; SSI; food stamps; medicaid;
social service programs such as child
abuse prevention, foster care, family
planning; enterprise zones; workfare
97
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Section Assessment (cont.)
Analyzing Information Some people
have said that “the rich got richer” in
the 1990s. What factors can you cite to
explain that what actually happened
was more complex than this simple
statement?
98
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Section Close
Imagine that you will be designing a
time capsule to be opened in the
year 2100.
Select 12 items to include in the
time capsule that would tell people
of the future about unemployment,
inflation, and poverty in the 1990s
and 2000s.
99
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Section 1: Business Cycles and
Fluctuations
• Business cycles are systematic increases and
decreases in real GDP; unsystematic changes are
business fluctuations. 
• The two phases of the cycle are recession and
expansion; a peak is when the expansion ends,
while a trough is when the recession ends. 
• The Great Depression of the 1930s was the worst
economic decline in U.S. history; income
distribution inequalities, risky credit practices,
weak international economic conditions, and tariff
wars all contributed to the Depression.
101
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Section 1: Business Cycles and
Fluctuations (cont.)
• Several short, mild recessions have occurred
since WWII. 
• Business cycles are caused by changes in capital
and inventory spending by businesses, stimuli
supplied by innovations and imitations, monetary
factors, and external shocks. 
• Econometric models and the index of leading
indicators are used to predict changes in future
economic activity.
102
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Section 2: Unemployment
• Unemployed persons are identified monthly by
the Census Bureau. The number of unemployed
is divided by the civilian labor force to arrive at the
unemployment rate. 
• The unemployment rate does not count
dropouts, nor does it distinguish between fulland part-time employment. 
• Frictional, structural, cyclical, seasonal, and
technological are different forms of
unemployment.
103
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Section 3: Inflation
• Inflation is the rate of change in the price level as
measured by the CPI. 
• Terms used to describe the severity of inflation are
creeping inflation, galloping inflation, and
hyperinflation. 
• Generous credit conditions and excessive growth
of the money supply allow demand-pull, deficit
spending, cost-push, and wage-price spiral
inflation to take place. 
• Inflation erodes the value of the dollar, makes life
difficult for people on fixed incomes, changes the
spending habits of consumers and businesses,
and alters the distribution of income in favor of
debtors.
104
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Section 4: Poverty and the
Distribution of Income
• The distribution of income is measured by ranking
family incomes from lowest to highest and then
dividing the ranking into quintiles. The income
earned by each quintile is then compared to other
quintiles. 
• The Lorenz curve shows that incomes are not
evenly distributed, and that they are becoming
less equal. 
• Factors accounting for the unequal distribution of
income include educational levels, wealth,
discrimination, ability, and monopoly power.
105
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Section 4: Poverty and the
Distribution of Income (cont.)
• Poverty is determined by comparing the amount of
income earned by families to measures called the
poverty guidelines. 
• The growing income gap is due to the increased
importance of the service industry, the widening
workers’ skills gap, the decline of union influence,
and the changing composition of the American
family.
106
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Identifying Key Terms
Identify the letter of the key term that best matches each definition
below.
F
___
marks the end of a recession
D
___
an example of a welfare program
J annual benchmark used to evaluate the money
___
income that families receive
A.
B.
C.
D.
E.
F.
G.
H.
108
trend line
cyclical unemployment
unemployed
food stamps
frictional unemployment
peak
trough
inflation
I. Lorenz curve
J. poverty guidelines
K. price level
L. seasonal unemployment
M. structural unemployment
N. technological unemployment
O. recession
P. workfare
Click the mouse button or press the Space Bar to display the
answer. The Chapter Assessment is on pages 402–403.
Identifying Key Terms (cont.)
Identify the letter of the key term that best matches each definition
below.
M caused by a shift in demand or a change in the way
___
the economy operates
L caused by annual changes in weather and holiday
___
seasons
B caused by periodic swings in business activity
___
A.
B.
C.
D.
E.
F.
G.
H.
109
trend line
cyclical unemployment
unemployed
food stamps
frictional unemployment
peak
trough
inflation
I. Lorenz curve
J. poverty guidelines
K. price level
L. seasonal unemployment
M. structural unemployment
N. technological unemployment
O. recession
P. workfare
Click the mouse button or press the Space Bar
to display the answer.
Identifying Key Terms (cont.)
Identify the letter of the key term that best matches each definition
below.
E caused by workers who are “between jobs” for short
___
periods
P describes the requirement that welfare recipients
___
exchange labor for benefits
___
N happens when workers face the threat of automation
A.
B.
C.
D.
E.
F.
G.
H.
110
trend line
cyclical unemployment
unemployed
food stamps
frictional unemployment
peak
trough
inflation
I. Lorenz curve
J. poverty guidelines
K. price level
L. seasonal unemployment
M. structural unemployment
N. technological unemployment
O. recession
P. workfare
Click the mouse button or press the Space Bar
to display the answer.
Identifying Key Terms (cont.)
Identify the letter of the key term that best matches each definition
below.
A growth path in absence of recession or expansion
___
H measured by changes in the CPI
___
G lowest point of the business cycle
___
K measured by the CPI
___
A.
B.
C.
D.
E.
F.
G.
H.
111
trend line
cyclical unemployment
unemployed
food stamps
frictional unemployment
peak
trough
inflation
I. Lorenz curve
J. poverty guidelines
K. price level
L. seasonal unemployment
M. structural unemployment
N. technological unemployment
O. recession
P. workfare
Click the mouse button or press the Space Bar
to display the answer.
Identifying Key Terms (cont.)
Identify the letter of the key term that best matches each definition
below.
I
___
shows how much the actual distribution of income
differs from an equal distribution
O real GDP declines two consecutive quarters
___
C works less than one hour per week for pay or profit
___
A.
B.
C.
D.
E.
F.
G.
H.
112
trend line
cyclical unemployment
unemployed
food stamps
frictional unemployment
peak
trough
inflation
I. Lorenz curve
J. poverty guidelines
K. price level
L. seasonal unemployment
M. structural unemployment
N. technological unemployment
O. recession
P. workfare
Click the mouse button or press the Space Bar
to display the answer.
Reviewing the Facts
Describe the Great Depression.
It was the worst economic decline in
U.S. history, resulting in income
distribution inequalities, risky credit
practices, weak international
economic conditions, and tariff wars.
113
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Reviewing the Facts (cont.)
Distinguish between depressions
and recessions.
depression: phase of business cycle
characterized by high unemployment,
acute shortages, and excess capacity
in plants; recession: phase of
business cycle that occurs when the
real GDP declines for two consecutive
quarters
114
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Reviewing the Facts (cont.)
Analyze two methods economists
use to predict business cycles.
econometric models, index of leading
indicators
115
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to display the answer.
Reviewing the Facts (cont.)
Describe how the unemployment
rate is computed.
It is the number of unemployed
individuals divided by the total number
of persons in the civilian labor force.
116
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to display the answer.
Reviewing the Facts (cont.)
Identify the major types of
unemployment.
frictional, structural, cyclical,
seasonal, technological
117
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Reviewing the Facts (cont.)
Analyze what is meant by full
employment.
It is reached when the unemployment
rate drops below 4.5 percent.
118
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to display the answer.
Reviewing the Facts (cont.)
Compare the difference between the
price level and inflation.
The price level refers to the relative
magnitude of prices at one point in
time. Inflation is a rise in the general
price level and is generally reported in
terms of annual rates of change.
119
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Reviewing the Facts (cont.)
Identify the five causes of inflation.
demand-pull, the government deficit,
cost-push, wage-price spiral, and
excessive monetary growth
120
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Reviewing the Facts (cont.)
List four destabilizing effects of
inflation.
The dollar buys less, spending habits
change, speculation increases, and
the distribution of income is altered.
121
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Reviewing the Facts (cont.)
Explain what is meant by the
distribution of income.
the way income is distributed among
individuals, families, households, and
other groups
122
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to display the answer.
Reviewing the Facts (cont.)
Identify five major reasons for
inequality in the distribution of
income.
education, wealth, discrimination,
ability, and monopoly power
123
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to display the answer.
Reviewing the Facts (cont.)
Explain how the Lorenz curve is
used to show the inequality of
income distribution.
Family incomes are ranked from
lowest to highest, then the ranking is
divided into quintiles. This information,
plotted as a Lorenz curve, shows how
much the actual distribution of income
varies from an equal distribution.
124
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to display the answer.
Reviewing the Facts (cont.)
Name seven antipoverty programs.
income assistance, general
assistance, social service programs,
tax credits, enterprise zones, workfare
programs, and any specific programs
under these general headings
125
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Thinking Critically
Analyzing Information Why is it
important to understand the impact
of business cycles?
Answers will vary.
126
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Thinking Critically
Drawing Conclusions Why might a
government statistic about the
number of employed people be
misleading?
Answers will vary.
127
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to display the answer.
Thinking Critically (cont.)
Understanding Cause and Effect
Explain the effect that inflation has on
the financial positions of borrowers
and lenders. Use a chart similar to the
one on page 403 of your textbook to
help you organize your answer. If you
managed a bank, what interest rate
would you charge to overcome the
disadvantage of long-term inflation?
Lenders need to raise interest rates,
leading to borrowers borrowing less;
borrowers generally benefit because the
money they pay back is worth less.
128
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Applying Economic Concepts
Unemployment rate If we were to
enter a period of recession, what
would likely happen to the
unemployment rate? The inflation
rate? The poverty rate?
inflation would fall, others rise
129
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to display the answer.
Applying Economic Concepts (cont.)
Inflation Explain why inflation
cannot take place without an
expansion of the money supply.
If the money supply stayed the same,
people would buy the same amount of
products, and prices would remain at
their equilibrium. The money supply
must expand for inflation to occur. An
expanding money supply causes
people to purchase more products,
which results in higher prices.
130
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to display the answer.
Applying Economic Concepts (cont.)
Lorenz curve Suppose that a new
government program reduced the
level of poverty in the country. How
would this affect the Lorenz curve?
Reduction of poverty would raise the
left side of the Lorenz curve, which
shows the percentage of total income
received by families in the lowest
quintiles.
131
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to display the answer.
Find the unemployment rate under
the following circumstances: The
civilian labor force numbers 15,000;
there are 945 people available and
looking for work; 20 of these people
worked more than 3 hours last week;
another 10 worked more than 15
hours last week in a family business.
[945 - 20 - 10]  15,000 X 100 = 6.10
132
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Continued on next slide.
Continued on next slide.
Continued on next slide.
Continued on next slide.
Monitor television newscasts, newspapers,
and current affairs magazines for stories on
unemployment, inflation, and poverty. Then
write a report summarizing these stories,
paying special attention to the causes and
solutions discussed.
Explore online information about the
topics introduced in this chapter.
Click on the Connect button to launch your browser and go to
the Economics: Principles and Practices Web site. At this site,
you will find interactive activities, current events information,
and Web sites correlated with the chapters and units in the
textbook. When you finish exploring, exit the browser program
to return to this presentation. If you experience difficulty
connecting to the Web site, manually launch your Web browser
and go to
http://epp.glencoe.com/sec/socialstudies/economics/econ
principles2005/index.php
Explore online information about the
topics introduced in this chapter.
Click on the Connect button to launch your browser and go to the
BusinessWeek Web site. At this site, you will find up-to-date
information dealing with all aspects of economics. When you
finish exploring, exit the browser program to return to this
presentation. If you experience difficulty connecting to the Web
site, manually launch your Web browser and go to
http://www.businessweek.com
The Business Cycle The term “business
cycle” describes economy-wide fluctuations in
output, incomes, and employment. Generally,
periods of expansion follow periods of low
output.
Rubles? Who Needs Rubles? Across the
world from Russia in a society that still
subscribes to communist principles, Cubans
carry on another form of barter. They cannot
legally buy or sell a house or an apartment. If
they want to move, they find other homeowners
who will agree to swap accommodations.
Responsible Tourism Americans can affect the
levels of employment in other countries, according to
a group called the Center for Responsible Tourism.
Its members urge American visitors in foreign
countries to patronize cafes and guest houses
owned by indigenous peoples. In this way, tourists
support native workers rather than international
travel consortiums, which often exploit native
workers by paying low wages. The center also
advises “bargaining with compassion” when buying
souvenirs from the local merchants.
In March 1930, about five months after
“Black Tuesday,” President Herbert Hoover
predicted: “The crisis will be over in sixty
days.” In fact, the Great Depression dragged
on for ten more years.
Some European countries, worried by rising
unemployment rates, have called for the
institution of a four-day workweek. Although it
would mean a cut in workers’ wages, many
unions support the idea. In Italy, unions are
campaigning with the slogan: “Work less, and
everyone works.”
More About . . . Working in the New Economy A great
source for information on employment trends is the
Occupational Outlook Handbook printed by the Bureau
of Labor Statistics. According to the Handbook, 246
industries employed 140,513,683 American workers in
1998. The ten industries with the most workers were
education, public and private; self-employed workers;
eating and drinking establishments; hospitals, public
and private; local government, except education and
hospitals; wholesale trade; personnel supply services;
grocery stores; department stores; and state
government, except education and hospitals.
Continued on the next slide.
Together these industries employed about 54
million people. The occupational outlook for the
year 2008 is a little different. Supposedly, computer
and data processing services will replace grocery
stores as the eighth largest employer in the nation.
Also, hospitals will have more employees than local
governments, and the need for doctors will increase
more than the need for workers in state
government. Why? Most likely because the
population will be aging as well as becoming more
technologically proficient.
Interactive Economics Northwestern Mutual
Life Insurance has set up a Web site
(themint.org) for high school students. The site
has several interactive sections. Visitors to
Learning and Earning, for example, learn about
how finishing high school helps them to get
ahead financially.
This Time, It Really Is
a New Economy
Can we safely put away our books on the Great
Depression, 19th century deflations, and Japanese
economic history? Hardly. Deflation isn’t a
temporary consequence of the 2000-03 downturn.
It’s a signal that the age of inflation is over.
Read the BusinessWeek Newsclip article on page
388 of your textbook.
Continued on next slide.
This feature is found on page 388 of your textbook. Click
the Speaker button to listen to an audio introduction.
This Time, It Really Is
a New Economy
Analyzing Information With a strong
recovery, what may be the new threat to
the economy?
Persistent deflation.
Continued on next slide.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 388 of your textbook.
This Time, It Really Is
a New Economy
Analyzing Information What is
preventing resurgence in inflation?
Global financial markets and the ability of
consumers to shop worldwide.
Continued on next slide.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 388 of your textbook.
This Time, It Really Is
a New Economy
Drawing Conclusions From 1776 to
1965, why were price levels in
America flat?
The technology didn’t exist to support a
global, deflated economy.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 388 of your textbook.
Economics and You
Video 21: Fighting
Unemployment, Inflation,
and Poverty
After viewing Fighting Unemployment, Inflation, and Poverty,
you should be able to: 
• Define unemployment and discuss its impact on
individuals and families. 
• Describe the effects of inflation on businesses and
individual consumers. 
• Identify at least two strategies that are used by the
government and its agencies to control inflation and
unemployment.
Continued on next slide.
Click the mouse button or press the Space Bar
to display the information.
Economics and You
Video 21: Fighting
Unemployment, Inflation, and
Poverty
Side 2
Disc 1
Chapter 21
Click the Videodisc button
anytime throughout this
section to play the complete
video if you have a videodisc
player attached to your
computer.
Click the Forward button to
view the discussion questions
and other related slides.
Click inside the box to play the preview.
Continued on next slide.
Economics and You
Video 21: Fighting
Unemployment, Inflation, and
Poverty
What problems are associated with
unemployment?
It is a sign of a troubled economy.
It reduces living standards, and
can disrupt families and reduce
individuals’ self-respect.
Side 2
Disc 1
Chapter 21
Click the mouse button or press the Space Bar
to display the answer.
Using the Internet
To learn more about almost any topic imaginable,
use the Internet–a global network of computers.
Many features, such as E-mail, interactive
educational classes, and shopping services are
offered on the Net. To get on the Internet, you need
three things: (a) a personal computer, (b) a modem
(a device that connects your computer to a
telephone line), and (c) an account with an Internet
Service Provider (ISP). An ISP, such as America
Online, is a company that enables you to log on to
Continued on next slide.
the Internet, usually for a fee.
This feature is found on page 393 of your textbook.
Using the Internet
Learning the Skill
• After you are connected, the easiest way to access
Internet sites is to use a “Web browser,” a program
that lets you view and explore information on the
World Wide Web. 
• The Web consists of many documents called “Web
sites,” each of which has its own address, or
Uniform Resource Locator (URL). Many URLs start
with the keystrokes http://
Continued on next slide.
Click the mouse button or press the Space Bar to display the
information. This feature is found on page 393 of your textbook.
Using the Internet
Learning the Skill (cont.)
• If you don’t know the exact URL of a site, commercial
“search engines” such as Yahoo! or AltaVista, can
help you find information. 
• Type a subject or name into the “search” box, then
press Enter. 
• The search engine lists available sites that may have
the information you are looking for.
Continued on next slide.
Click the mouse button or press the Space Bar to display the
information. This feature is found on page 393 of your textbook.
Using the Internet
Practicing the Skill
• Follow these steps to learn more about the
inflation rate. 
1. Log on to the Internet and choose a search
engine to use. 
2. Search by selecting one of the listed categories or
by typing in the subject you want to find, such as
“inflation” or “the inflation rate.”
Continued on next slide.
Click the mouse button or press the Space Bar to display the
information. This feature is found on page 393 of your textbook.
Using the Internet
Practicing the Skill (cont.)
3. Continue your search by scrolling down the
list that appears on your screen. When you
select an entry, click on it to access the
information. Sometimes the information you
first access will not be exactly what you need.
If so, continue searching until you find the
information that you want.
Continued on next slide.
This feature is found on page 393 of your textbook.
Using the Internet
Practicing the Skill (cont.)
4. If you get “lost” on the Internet, click on the
back-arrow key at the top of the screen until
you find a site that looks familiar. 
5. Continue selecting sites until you have enough
information to write a short report on inflation
trends over the past three months.
Click the mouse button or press the Space Bar to display the
information. This feature is found on page 393 of your textbook.
Walter E. Williams
1936–
Click the picture to learn
more about Walter E.
Williams. Be prepared to
answer the questions that
appear on the next two
slides.
Continued on next slide.
This feature is found on page 381 of your
textbook.
Walter E. Williams
1936–
Summarizing Information Write a short
paragraph that identifies and describes
Williams’s basic views.
Answers will vary.
Continued on next slide.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 381 of your textbook.
Walter E. Williams
1936–
Applying the Writing Process Write a
response to what Williams said about
unemployment levels among white and
African American teenagers. Explain
why you agree or disagree with his
analysis.
Answers will vary.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 381 of your textbook.
End of Custom Shows
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shows and return to the main presentation.
Click the mouse button to return to the Contents slide.