ECONOMIC

CHALLENGES
Less Developed Countries Video
Bangladesh LDC website
Sustainable Development Goals website
Unemployment Video
Inflation Video
Philips Curve
UNEMPLOYMENT
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 UNEMPLOYMENT’S CONSEQUENCES
IN THE ECONOMY

1. Loss of Goods and Services

2. Loss of Sales for Businesses due to loss of household
income
3. Increased expense for supporting poverty for government

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CLASSIFYING WORKERS FOR MEASURING
UNEMPLOYMENT
Employed Unemployed

• Worked for pay/profit for one • Do not meet any of the

or more hours in the week “employed criteria”
measured • Have actively sought
• Worked without pay in a employment in the last four
family business 15 or more weeks
hours in the week measured .
• Have a job but did not work
due to illness, weather,
vacation or strike.
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 UNEMPLOYMENT RATE
Percentage of people in civilian labor force who are unemployed.
• Lagging Indicator…helps predict duration of contraction
• Grows during recession … Decreases during expansion.

Problems with Unemployment Rate

1. Doesn’t indicate the intensity of job search
2. Discourage Workers (Given up looking) are not counted
3. Doesn’t indicate underemployment (working but at a lesser
job)
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 FULL EMPLOYMENT
Helps stabilize the economy.
Does NOT mean there is no unemployment as it is naturally part
of the economy. 95% is considered full employment.

Extremely high employment can cause inflation.

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 Insert or Drag & Drop your photo

TYPES OF UNEMPLOYMENT
• Frictional Unemployment: Typical unemployment when
people are choosing to change jobs. This is normal
unemployment in a healthy economy.
• Structural Unemployment: Unemployment created by
changes in technology or consumer preferences that reduces
jobs in related industries.
• Seasonal Unemployment: Unemployment that reflects
predictable fluctuations related to particular times of year.
• Cyclical Unemployment: Unemployment related to
expansion and contraction of the economy. Most concerning
to economists as it harms GDP most significantly.
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INFLATION
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 INFLATION’S CONSEQUENCES IN THE
ECONOMY

Inflation is the increase in the average price level of all

products in the economy
1. Primary Consequence – Loss of Purchasing Power of
Money … Decreased Real Wage/Income
2. Secondary Consequence:
a) Interest rates tend to increase
b) Decreased savings and investing
c) Increased production costs

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 PRICE FLUCTUATIONS
We are now looking at the entire economy rather than a single
product or market.
• Referred to as Aggregate Supply and Aggregate Demand
• Price levels refer to general prices throughout the economy at
a particular time and are a useful indicator of the economy’s
health
Price Levels behave similarly in response to supply and
demand
• QD > QS = Price Increases
• AD grows faster than AS = Inflation
• QS > QD = Price Decreases
• AD decreases more rapidly than AS = Deflation WOODGROVE
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TYPES OF INFLATION
Demand - Pull
• Results when the AD
increases faster than the
productive capacity of the
economy.
• Related many times to
increases in the money
supply or use of credit (lower
interest rates)
• “Too much money chasing
too few goods”
Cost - Push
• Results from producers
experiencing increased costs of
production
• Supply shocks are events that lead
to increase in cost of production
• Examples: crop failures, natural
disasters, political upheavals.
• Wage-price spiral occurs when
wages are increased and the
producers pass on the increase to
the price of products. WOODGROVE 11
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 MEASURING INFLATION RATE
Inflation rate is the percentage change in prices in a period
of time: [(Price level in Year 2 – Price level in Year 1)/Price
level Year 1] x 100

Generally, the market basket concept is used to measure

inflation. A representative sample of commonly purchase
items are determined and their prices are compared
periodically.

Bangladesh Inflation Rates

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 POVERTY &
DISTRIBUTION OF
INCOME
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 POVERTY’S CONSEQUENCES IN THE
ECONOMY

1. Limits the potential demand represented by the population

living below the poverty line.
2. Compromises the labor markets access to potential
workers due to poor health and education/training
3. Diverts government revenues to government support
programs, such as food programs, housing programs,
unemployment payments, healthcare programs
4. Costs in the criminal justice system due to poverty driven
crimes (not all crime is from the poor!)
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 DISTRIBUTION OF INCOME
Distribution of income describe the manner in which the
income generated by the economy is shared among
population of a country.
• Inequality reflects in the standard of living experienced by
the different groups in society.
• Tends to create a vicious cycle that may lead to increased
disparity
In Bangladesh, trends show that distribution of income is:
• Growing in disparity despite improving GDP
• Varies north vs. south
• Varies urban vs. rural WOODGROVE 15
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 MEASURING DISTRIBUTION OF
INCOME
Poverty Rate: Percentage of individuals or families in the
total population living below the poverty line.
Lorenz Curve: Visual display illustrating the amount that a
nation’s distribution of income varies from a perfectly
proportional distribution.
Gini Index: A statistical measure providing a coefficient to
express the rate of inequal distribution between O (perfect
equal distribution) and 100 (absolute concentration in one
family).

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 ECONOMIC DEVELOPMENT
Economic development refers to the ability a nation’s industrial,
service, technical and agricultural sectors to provide a sufficient
standard of living relative to the rest of the world.
Economic development usually reflects
1. How natural forces impact resources availability
• Climate
• Availability of water
• Availability of mineral deposits or arable land
2. How historical forces impact the use of resources.
• Conflict
• Colonialism
• Trade
• Traditions, political/economic systems WOODGROVE 17
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 CHALLENGES TO ECONOMIC
DEVELOPMENT
• Diversifying economic activities – Tendency to be reliant on one
or a few crops, resources, or industry. Encouraged by trade
• Coping with the challenges of high populations – Shifting from
supporting people to equipping the people as skilled producers
and providing ample employment opportunities.
• Avoiding “Brain Drain” when most qualified immigrate
• Establishing a stable capital and financial market by overcoming
demand for sustaining basic needs of people, national security
and convincing foreign investors of profitability
• Establishing infrastructure in transportation, communication,
banking, education and legal institutions.
• Finding enterprises that are compatible with society structures
and culture traditions. WOODGROVE
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