HOW LOW UNEMPLOYMENT AFFECTS OUR ECONOMY
HOW LOW UNEMPLOYMENT AFFECTS OUR ECONOMY "Economists always keep tabs on wage and job growth. ... As of January 2000, the unemployment rate was at 4 percent, the lowest percentage in 30 years. Will this unemployment rate raise the nations inflation as most economists fear it would or will the Federal Reserve have to raise the interest rates to slow down the red-hot economy? In this report, I will identify and define the five categories of unemployment and explain how the Federal Reserves prime rate affects the United States unemployment rate. I will also discuss the relationship between unemployment and inflation, using the Phillips Curve. Finally, I will identify the nations current status of low unemployment and its negative affects on our economy. Everyone is focusing on the positive aspects of the nations historic 30 year low, 4 percent, unemployment rate. ... And the negative side to all of this needs to be identified so that our economy knows whats really going on. To truly understand the relationship between unemployment and inflation, you must first understand the definition of unemployment as defined by The Bureau of Labor and Statistics. There are five catagories of unemployment: underemployed workers, discouraged workers, cyclic unemployment, structural unemployment, and frictional unemployment. ... Cyclical unemployment is unemployment associated with the downturn and recession phases of the business cycle. ... Structural unemployment is an unemployment that results from fundamental technological changes in production, or from the substitution of new goods for customary ones. ... Frictional unemployment are brief periods of unemployment caused by people deciding to voluntarily quit work in order to seek more attractive employment. ... So, when the Bureau of Labor Statistics release the nations unemployment rate, who are they really considering? ... So, when defining unemployment, we need to look at the reasons why people may not have jobs. How does the Federal Reserves prime rate affect the nations unemployment rate? ... The prime rate will be increased if the economy is growing to rapidly. The increase in rate is to help stabilize or slow down the economy, keeping inflation under control. The chain that leads down to unemployment starts at the Federal Reserve. ... So, the fluctuation of the prime rate affects a companys decision on productivity, in which affects the unemployment rate. ... "Whenever unemployment is low, inflation tends to be high.