Unit 3: Understanding Poverty

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Unit 3 Understanding Poverty

• Chapter 13 - 15

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GDP

• One of the most commonly used acronyms in
  economics, GDP stands for Gross Domestic Product.
• This is the dollar amount of all final good and
  services produced within a countries national
  borders in a year.
• Everything that is produced in the United States
  regardless of whether or not it is a U.S. owned
  business counts but U.S. owned businesses outside
  of the United States are not counted.

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GNP

• GNP stands for Gross National Product and is a
  measure of our national income.
• It is the dollar value of all final goods,
  services, and structures produced in one year by
  a countrys residents
• To find out the GNP in the U.S. in one year you
  must add up the income of all Americans and then
  subtract what we paid to other countries.

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Business Cycles

• The GDP tends to fluctuate. Business cycles is
  systematic to ups and downs and many economist
  study the trends within the system.
• There a two phases of a business cycle. The
  first phase is a recession, a period during which
  the GDP declines for two quarters (six months) or
  more. It begins when the economy reaches a peak,
  or the point when the GDP stops going up. The
  turnaround point is called a trough and occurs
  when the GDP stops going down.

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Business Cycles, Cont.

• If a recession becomes very severe, it may turn
  into a depression, a state of the economy with a
  large number of people out of work. The economy
  continues until it reaches a new peak.
• When the decline ends the second phase of the
  cycle begins, expansion, a period of recovery
  from a recession.

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The Great Depression

• The worst and most prolonged downturn in the
  economy was the Great Depression with occurred
  after the stock market crash on October 29, 1929,
  Black Tuesday.
• Most economists agree that this has been the only
  U.S. depression and in the years to follow the
  crash the GDP declined nearly 50 percent and the
  unemployment rate went up 800 percent for 1.6
  million out of work to 12.8 million.
• Banks failed and depositors were not protected.
  To prevent panic the U.S. government declared a
  bank holiday in March 1933 and all banks closed
  for several days, some never reopened again.

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Causes of the Great Depression

• Disparity in the Distribution of Income A great
  number of Rich and Poor. (The poor could not
  contribute to the economy and the rich were busy
  playing the stock market.)
• Easy and plentiful Credit Many people borrowed
  heavily in the late 1920s. This created high
  interest rates and even business fluctuations.
  Many people that were in debt had little to fall
  back on.
• Global Conditions The U.S. was loaning many
  countries money but when they pulled back these
  countries could not buy American goods so exports
  fell sharply.
• American Tariffs The U.S. increased taxes on
  foreign goods to encourage citizens to buy
  American made goods. This hurt many foreign
  businesses that depended on American markets and
  the Depression eventually spread to other
  countries.

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Business Cycles since World War II

• Massive government spending during World War II
  added a huge stimulant to the economy for most of
  the early 1940s. This was the main cause of
  expansion after the Great Depression.
• Recession returned in 1945, but it did not last.
  Between 1945 to 1980 the average recession lasted
  about 11 months, while the average expansion
  lasted 43 months. Since then recessions have
  occurred much less frequently.

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Unemployment Rate

• The loss of jobs is one of the greatest effects
  that face citizens during the recession. The
  measure of joblessness is the unemployment rate.
• In the middle of the month, specialist from the
  Bureau of the Census begin their survey of about
  50,000 households in nearly 2,000 counties
  covering 50 states. Census workers look for the
  unemployed, people available for work who have
  made a specific effort to find a job during the
  past month and have worked less than one hour for
  pay or profit. The Bureau of Labor Statistics
  analyze the data and publish it.
• The unemployment rate is also expressed by the
  number of unemployed individuals divided by the
  total number of persons in the civilian labor
  force.

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Limitations of the Unemployment Rate

• The civilian labor force is approximately 150
  million people, a one-tenth of one percent rise
  in the unemployment rate would mean nearly
  150,000 people had lost their jobs.
• All though the unemployment rate is an important
  measure it understates employment conditions
  because it doesnt count those who are too
  discouraged or too frustrated to look for work
  and they dont count people that are working
  part-time even if they have lost a high paying
  job and work part-time to pay the bills.

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Full Employment

• Full employment does not mean zero unemployment.
  Instead, full employment is the lowest possible
  unemployment rate, with the economy growing and
  all factors of production being used as
  efficiently as possible.
• Although controversial, many people that full
  employment is reached when the unemployment rate
  drops below 4.5 percent. It has occurred and
  been even lower in the past.

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Inflation

• Inflation is a special kind of economic
  instability that deals with the level of prices
  rather than the level of employment or output.
• To measure the price level, economist select a
  market of goods. Inflation is reported in terms
  of annual rates of change of the price level for
  these goods.
• Example Inflation Rate Change in price level
  divided by the beginning price level then you
  multiply that number by 100.

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Deflation

• On rare occasions, unusual circumstances may
  cause deflation, or a decrease in the general
  price level.
• It has only occurred twice throughout history,
  once during the post- World War I recession and
  the other during the Great Depression.
• Many experts believe that deflation is occurring
  now with our current recession.

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Causes of Inflation

• There are several causes for inflation
• Demand-Pull Theory All sectors in the economy
  try to buy more goods and services than are
  available. As shortages occur prices go up.
• Federal Governments Deficit Our government is
  spending more money than we have and as this
  continues our money is worth less.
• Rising Input Costs As costs to produce goods
  rise, like labor costs or oil, the price of goods
  rise as well causing inflation.
• Printing More Money Inflation occurs when the
  money supply grows faster than the GDP.

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Consequences of Inflation

• Inflation involves more than rapidly rising
  prices.
• The dollar buys less. As prices go up the value
  of the dollar falls.
• People with fixed incomes, like retired people,
  are the most effected because their money is
  worth less every month.
• It can change peoples spending habits which can
  disrupt the economy.
• It can also disrupt income. As prices increase
  and we make less money.
• It also tends to hurt lenders the most and they
  give out less money hurting borrowers.

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Distribution of Income

• Everyone is affected by the changes in the
  economy because income is different in every
  household.
• The incomes of all households are ranked from
  highest to lowest. Only money income is counted
  other aid such as food stamps are excluded.
  They are then shown on the Lorenz Curve which
  shows what the actual distribution of wealth is
  in comparison to equal distribution.

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Causes of Inequality of Income

• The inequality of income occurs for many reasons
• Education generally there is a strong
  relationship between median income and the level
  of education, although there are exceptions to
  the rule.
• Wealth Some people hold more wealth than
  others. The top fifth has 75 percent of all the
  wealth in the country, while the bottom
  two-fifths, 40 of the country, has less than 2
  of the wealth. It is difficult to earn more
  wealth if you dont have any to begin with. Ex.
  Wealthy families can afford to put their children
  in universities without worrying about the cost.

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Causes of Inequality, Cont.

• Discrimination It tends to be more difficult to
  be promoted into executive positions for those
  who are minorities or women.
• Ability Some people have more natural
  abilities, such as professional athletes or
  performers.
• Monopoly Power Some people who work in certain
  fields come together to make more money because
  they are stronger as a group. Ex. The American
  Medical Association limits the amount of people
  in the field and pushes for higher income.

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Poverty

• Poverty is a measure that depends on prices, the
  standard of living, and incomes that others earn.
• Poverty is a major problem and is extremely
  difficult to resolve.
• The poverty line changes every year but in 2003
  poverty was was defined as having an income of
  less than 18,400 for a family of four.
  According to recent studies, nearly 35 million
  Americans live in poverty.

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Growing Income Gap

• One reason for the poverty numbers is the growing
  gap in the distribution of income.
• As industry changes from goods production to
  service production the wages tend to be lower.
• There is also a growing gap between well-educated
  workers and poorly educated workers.
• There is also a decline of unions so less skilled
  workers have to work for less pay.
• Also, single parent families are on the rise and
  this tends to create a lower family income in the
  homes.

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Antipoverty Programs

• The federal government has instituted a number of
  programs to help the needy. Most come under the
  general heading of welfare.
• Welfare includes economic and social programs
  that provide regular assistance from the
  government or private agencies because of need.

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Income Assistance

• There are programs that provide cash assistance
  to those in need.
• Temporary Assistance for Needy Families families
  are able to receive cash payments because of the
  death, continuous absence, or permanent
  disability of a parent.
• Supplemental Security Income Makes cash
  payments to blind or disabled persons or to
  people age 65 and older.

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General Assistance

• There are programs that provide assistance to the
  poor without giving direct cash aid.
• Food stamps millions of Americans receive these
  government issued coupons that can be redeemed
  for food. They may be given or sold to eligible
  low-income persons. (Eligibility is solely based
  on income.)
• Medicaid This joint federal-state program
  provide medical insurance to low-income people.
  This program serves millions of American,
  including children, the visually impaired, and
  the disabled.

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Social Service Programs

• Over the years states have developed social
  service programs to help the needy. These
  programs include such areas as child abuse
  prevention, foster care, family planning, job
  training, child welfare, and day care.
• Although these programs are state controlled, the
  federal government helps pay the cost..

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Tax Credits

• Many low-income Americans qualify for special tax
  credits.
• Earned Income Tax Credit (EITC) This is the
  most popular tax credit and provide federal tax
  credits and sometimes cash to low-income workers.
  The credit was created in 1975 to partially
  offset the payroll tax burden on working
  families. Nearly 20 billion families receive
  these tax credits annually.
• Enterprise Zones Some companies earn federal
  tax credits if they operate in low-income areas.
  This benefits the residents so they can find work
  without having to worrying about transportation.
  The purpose is to help depressed areas grow again.

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Workfare

• With rising welfare costs, many states and local
  governments require those individuals who receive
  welfare to provide labor in exchange for
  benefits.
• Workfare is a program that requires welfare
  recipients to exchange some of their labor for
  benefits. People on workfare often assist law
  enforcement officials or sanitation and highway
  crews, or perform other types of community
  service work.
• This program can also help the recipient because
  they have an opportunity to learn new skills.

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The American Homeless

• Homeless is usually defined as a person who does
  not have fixed, regular, or adequate residence at
  night.
• It is believed that 3.5 million people will
  experience homelessness within the year and most
  are only homeless temporarily.
• Who makes up the homeless population?
• 40 are families with childrenthe fastest
  growing segment.
• 41 are single males.
• 14 are single females.
• 5 are minors unaccompanied by adults.

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The American Homeless, Cont.

• What is their Ethnicity?
• 49 are African American (compared to 11 of
  general population).
• 35 are Caucasian (under-represented compared to
  75 of general population).
• 13 are Hispanic (compared to 10 of general
  population).
• 2 are Native American (compared to 1 of general
  population).
• 1 are Asian-American (under-represented compared
  to 4 of general population).
• What is their background?
• 23 are veterans (compared to 13 of general
  population).
• 25 were physically or sexually abused as
  children.
• 27 were in foster care or similar institutions
  as children.
• 21 were homeless at some point during their
  childhood.
• 54 were incarcerated at some point in their
  lives.

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The American Homeless, Cont.

• What is their educational background?
• 38 have less than a High School diploma.
• 34 have a High School diploma or equivalent
  (G.E.D.).
• 28 have more than a High School education.
• What are their health concerns?
• 22 are considered to have serious mental
  illnesses, or are disabled.
• 30 have substance abuse problems.
• 3 report having HIV/AIDS.
• 26 report acute health problems other than
  HIV/AIDS such as tuberculosis, pneumonia, or
  sexually transmitted infections.
• 46 report chronic health conditions such as high
  blood pressure, diabetes, or cancer.
• 55 report having no health insurance (compared
  to 16 of general population).
• 58 report having trouble getting enough food to
  eat.

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The Homeless Problem

• The chronically homeless population decreased to
  about 124,000 in 2007.
• According to The National Coalition for the
  Homeless (NCH), 50 of the chronically homeless
  have a drug addiction and one third face a severe
  mental illness.
• These people can not be forced into treatment
  centers or mental health institutions and unless
  they chose to get help they tend to continue to
  live on the streets.

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Poverty in California

• The Los Angeles region is thought to have the
  largest concentration of homeless persons in the
  country and is considered one of if not the
  homelessness capital of the United States, with
  90,000 counted country during the 2005 census.
• Those living in California under the poverty line
  reached 6.6 million in 2007, which was 19 of our
  population.
• Los Angeles has the second highest rate of
  poverty in the United States and it is believed
  that it is the driving force of gang membership
  today.