List of Economic Issues

Factors affecting the economy are often intertwined.

Economics is the study of how resources are allocated in society. However, the second part of economics is what makes the field complicated; people have unlimited wants, but there are not enough resources to satisfy these wants. Perhaps this intrinsic dilemma is what compelled senior economist Barry Asmus to quote, “Economists are pessimists: they’ve predicted eight of the last three depressions.” Economies function by balancing a number of economic issues.

1 Inflation

Inflation is the overall rise in price of goods or services. The Dallas Federal Reserve explains that inflation is measured through the Consumer Price Index (CPI). Economists refer to the CPI as the assembly of various goods into a metaphorical “basket,” with some goods weighted more than others. In this basket are goods like housing, transportation, recreation, apparel, health care and food and beverages. The item with the most weight is housing, which accounts for 42 percent of the CPI’s measurement. Inflation is caused by a few things, but the primary cause is the amount of money circulating in the money supply. The more currency printed, the more inflation will rise. Countries attempt to control inflation levels by setting low interest rates and devaluing their currency on the global exchange market.

2 Consumer Confidence

Consumer confidence is one reason economics is a behavioral science as well as a hard science. Psychological issues influence a person’s spending habits almost as much as monetary issues. For example, economists try to estimate retail holiday sales in advance. This estimate is based on exact, quantitative measures like the number of people employed in the economy. However, an employed person fearful of losing his job is unlikely to spend as much, and this psychological barrier affects spending. Thus, how confident consumers are regarding the state of the economy can influence economic factors such as individual spending, saving and the buying and selling of stocks.

3 Unemployment

Because the unemployment level affects economic growth and activity, this figure is closely-watched. Arleen and John Hoag, author of “Introductory Economics” explain that unemployment is caused in a number of ways, and classifies unemployment into four different groups. Frictional unemployment is caused when people leave or relocate from one job in pursuit of another. Seasonal unemployment is caused when people are laid off during an industry’s slow season, like laying off ski trainers at snow resorts during the summertime, or laying off farmers during the winter. Cyclical unemployment is the most pernicious, as this occurs during times of low economic productivity and an overall slowdown. Cyclical unemployment occurs when consumers buy fewer goods or services, and companies are unable to obtain financing to stay in business. The fourth type of unemployment is called structural unemployment. This type of unemployment happens when there are too many unemployed, unqualified people applying for other jobs. An example is an auto worker trying to find another job in a new industry when her plant closes. She, along with all of the other auto workers, are competing for jobs with few qualifications and credentials other than the ones gained from the auto industry.

Since 2008 Catherine Capozzi has been writing business, finance and economics-related articles from her home in the sunny state of Arizona. She is pursuing a Bachelor of Science in economics from the W.P. Carey School of Business at Arizona State University, which has given her a love of spreadsheets and corporate life.