V. Finkelshteyn Economics Personal Finance #3

Aim:

How does understanding key economic indicators can help with making decisions about personal finance?

Do Now:

HW Review

Building Key Concepts:Building Key Concepts:

• Why does the government keep careful track of the unemployment rate?

• The rate of unemployment is an important indicator as to the health of the economy

• How does UR gets calculated• Divide the number of people unemployed by the

total labor force and multiply by 100• How do you think these high unemployment

rates affected American families?• Financial difficulties; defaulting on payments;

foreclosures on homes; greater percentage falling below the poverty threshold

Section 1 AssessmentSection 1 Assessment• How do frictional and structural unemployment

differ?• Frictional Unemployment – people taking the

time to find a job, further their education, etc.• Structural unemployment – people’s skills do not

match jobs available– New technology– New resources– Change in consumer demand– Globalization: outsourcing and foreign competition– Lack of education

Section 1 AssessmentSection 1 Assessment

• When does cyclical unemployment take place?

• Cyclical unemployment is connected directly to business cycle and is affected greatly by the economic ups and downs– As demand curve shifts to the left, production

is adjusted to lower levels resulting in need for less labor

Section 1 AssessmentSection 1 Assessment

• Why isn’t full employment the same as zero unemployment?

• Even when an economy is working properly, it will experience frictional, seasonal, and structural unemployment

• Determine the unemployment rate for a month in which 125.4 million people were employed and 7.3 million were unemployed

• 5.5 percent (125.4+7.3=132.7; 7.3/132.7*100=5.5)

Important Terminology:Important Terminology:

• Business Cycles– Fluctuations in the overall rate of national

economic activity with alternating periods of expansion and contraction; these vary in duration and degrees of severity; usually measured by real gross domestic product (GDP).

Important Terminology:Important Terminology: • Inflation

– A rise in the general or average price level of all the goods and services produced in an economy. Can be caused by pressure from the demand side of the market (demand-pull inflation) or pressure from the supply side of the market (cost-push inflation).

• Causes Of Inflation– Too much money chasing too few goods is common cause for

inflation. Additionally, a rise in production costs can also lead to a rise in inflation. International lending and federal taxes can also be causes of inflation, while war is also a leading cause of inflation as well.

• Cost-Push Inflation– Inflation caused by rising costs of production.

• Demand-Pull Inflation– Inflation caused by increasing demand for output or "too much money

chasing too few goods."

Important Terminology:Important Terminology:

• Consumer Price Index (CPI)– A price index that measures the cost of a fixed

basket of consumer goods and services and compares the cost of this basket in one time period with its cost in some base period. Changes in the CPI are used to measure inflation.

What are the key economic What are the key economic indicators telling you?indicators telling you?

Current Key Economic Indicators as of November 5, 2010• Inflation

– The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in September on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.1 percent before seasonal adjustment.

• Employment and Unemployment– U.S. Nonfarm payroll employment increased by 151,000 in October, and the

unemployment rate was unchanged at 9.6 percent, the U.S. Bureau of Labor Statistics reported today. Since December 2009, nonfarm payroll employment has risen by 874,000.

• Real GDP– U.S. real gross domestic product increased at an annual rate of 2.0 percent in

the third quarter of 2010, according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.7 percent.

• Federal Reserve– The FOMC will maintain the target range for the federal funds rate at 0 to 1/4

percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

What to do with my money?What to do with my money?

• When to save???– Where to save ?

• When to invest???– Where to invest?