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CH 2] Business 101 2-5

Another cause of deflation is when the demand for goods or services declines.
Demand can disappear because of market saturation (everybody owns a computer) or
as an act of companies wanting to reduce costs of production find less expensive
sources to produce them; such as shipping production to a foreign country where labor
costs are $3 per day versus $15 per hour. When the domestic labor force has fewer
dollars because of layoffs, then their individual buying habits change. This is a
downward spiral.
When firms make less profit they will restructure, change product offerings, and/or
cut back on employment. Cutting back on employment causes people to spend less. 2
When firms make fewer sales, with smaller profit margins, their overall profit works
itself into a declining spiral. Deflation also has a psychological element as it becomes
rooted in peoples' thinking and becomes self-perpetuating. Consumers are discouraged
from buying expensive items like automobiles or homes because they know those
things will be less expensive or more affordable in the future.
When a cycle of consumers postponing spending because they believe prices will
fall further, then the firms can’t make a profit or pay off debt. The firm will then cut
production and lower lay off workers, thus producing fewer products. This change is
reflected as a lower demand for goods, which can lead to more lower prices and/or less
productive firms to leave the market (shut down).

Unemployment Under Macroeconomics
Unemployment is a major economic factor that government would like to deal
with. When governments offer financial service to the unemployed such as reduced
pay to replace lost wages, funding to cover healthcare and other financial incentives
that the taxpayer funds, the issue then is that the citizen is not paying taxes to fund
those resources (welfare) but are actually an expense to government money reserves.
Some citizens think that government only prints the funds that they need, when the
reality is that their funds are resourced from those that are employed and receiving a
paycheck or are a business owner. As such, government needs to have its citizen
working and paying taxes. unemployment
Government can affect industries that employ people by ensuring employment or Joblessness of people who
are looking for work. Those
undermining it through the types of regulations and policies it enacts. These who are no longer receiving
enactments originate with their bureaucracies that elected legislators champion. The unemployment benefits are
result is that government agencies continually monitor employment activity and report removed from this count.
it as farm and non-farm unemployment figures. Unemployment is the joblessness of discouraged workers
people actively looking for work. Publicized unemployment figures do not include People who give up
people who are not seeking outside employment and are not receiving unemployment searching for jobs.
benefits, such as students or homemakers, or those who have given up on finding
work—sometimes called discouraged workers. frictional unemployment
People who are temporarily
There are four types of unemployment, frictional, seasonal, cyclical, and not working but are
structural. Frictional unemployment refers to the three or four percent of the labor searching for jobs.
force who are temporarily not working but are looking for jobs. This includes people
leaving school and just entering the work force and those who have left one job and seasonal unemployment
Joblessness of workers
are searching for another. Of course, it is wiser to have that other position established due to the seasonal hiring
before leaving current employment. Seasonal unemployment refers to the joblessness practices of their industry.
of workers in a seasonal industry, mostly agricultural and food processing workers,
and construction workers where construction sites are subject to weather conditions. cyclical unemployment
Joblessness because of
Cyclical unemployment involves people who are out of work due to slowed reduced economic activity.
economic activity. Much of the unemployment statistics during a recession result from
workers who are laid off as a result of economic stagnation. Structural structural
unemployment is applied to workers lacking necessary skills for available jobs or unemployment
Joblessness of people
those whose skills are no longer in demand because their industry has ended. For an who lack necessary skills
industry to end, there must be a major change in an economy due to technological for employment or whose
advances or moving the production off shore. An example would be buggy whip skills are no longer
manufacturing becomes non-existent because of the invention of the automobile. demanded.

When government enters into trade treaties that advantage another country by moving
their industries to that trading partner, the thinking is that the foreign country can
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