3. Effects of Inflations [on..] Stagnant for almost same level of production No incentive to produce more, Same production Not affected at all Zero inflation Economy squeezes as production falls Producers of inelastic products affected, Production lower for lower demand Affected much, Demand may be lower in many products High Inflation Economy expands as production increase Have incentive to produce more, Higher production Affected but not much, Demand may be same Mild Inflation Economy Producers Consumers

4. UNEMPLOYMENT Under 16 years (70.5 Million) A distribution of Total Population to Labor Force, Employment, and Unemployment Total Population (296.6 Million) Disable or Not in Labor Force (76.8 Million) Employed (141.7 Million) Labor Force (149.3 Million) Unemployed (7.6 Million)

5. Measuring Unemployment L abor force is the sum of the employed and unemployed people able to work. U nemployment rate is defined as the percentage of the labor force that is unemployed. L abor force participation rate is the percentage of the adult population who are in the labor force. Unemployment Rate = Number of Unemployed Labor Force  100 Labor-Force Participation Rate = Labor Force Adult Population  100

7. Unemployment from a Strict Wage Above Equilibrium Labor 0 Wage Surplus of labor = Unemployment Labor supply Labor demand Minimum wage L D L S W E L E

9. The negative relationship between unemployment and GDP is described in Okun’s Law, named after Arthur Okun, the economist who first studied it. It is defined as: Percent change in Real GDP = 3% - 2  Change in Unemployment rate If the unemployment rate remains the same, real GDP grows by about 3 percent. For every point of unemployment rate rises, real GDP growth typically falls by 2 percent. Hence, if the unemployment rate rises from 6 to 8 percent, then real GDP growth would be: Percentage Change in Real GDP = 3% - 2  (8% - 6%) = -1% Okun's Law Okun's Law