Econ Us Economy Ch 21

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Chapter 21

The U.S. Economy and the World

Section 1:

Overview of the U.S. Economy

Section 2:

Factors Affecting the U.S. Economy

Section 3:

Government’s Role in the U.S.

Economy

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The Main Idea

In a market economy, buyers and sellers interact in the marketplace and respond to changes in prices by changing the amounts demanded and the amounts

supplied.

Reading Focus

 _{What are four basic economic systems?}

 _{What is the free-enterprise economic system?}  _{What are three ways to invest in the economy?}

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How goods and services flow through

the U.S. economy:



Consumers, producers, and the government

exchange resources.



Households supply resources to the

government and businesses.



Businesses supply resources to the

government.

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How goods and services flow through

the U.S. economy:

(continued)



Businesses make products and sell to

households and the government.



The government produces goods and services

to benefit businesses and households.



Employees earn wages, buy goods, and pay

taxes.

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The marketplace affects the price of goods:



Supply and demand—the demand and supply of

a good is related to its price



Competition—competitors may lower prices to

attract consumers



Effect of competition on output—competition

increases selection and supply



Surpluses and shortages—prices lowered with

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How investments affect the economy:

 _{Entrepreneurship encourages economic growth and}

new product development.

 _{Venture capital is used to develop products, improve}

facilities, and pay for distribution.

 _{Business investments}_—_{money raised to hire workers}

and improve facilities; profits generate money for shareholders and bondholders

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How investments affect the economy:

(continued)

 _{Investment and technology}_—_{research and}

development investments lead to new technology products in the marketplace; new technology aids other businesses

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Question:

How does the marketplace affect

the price of goods?

PRICE producers

supply

demand

competition surpluses

shortages consumers

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Section 2: Factors Affecting the U.S. Economy

The Main Idea

Sometimes the economy performs well. Sometimes economic activity is not as strong. Many factors affect the performance

of the economy. Economists try to understand how the economy is doing and predict its direction in order to advise

businesses and the government.

Reading Focus

 _{What is the business cycle?}

 _{Why are human and capital resources important to the}

economy?

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Factors influencing the business cycle:

 _{Business investment}_—_{creates demand and encourages}

competition; improves efficiency and lowers cost of production; leads to research and development

 _{Money and credit}_—_{when borrowing declines,}

business investment declines

 _{Public opinion}_—_{consumers spend more when}

economic future looks good, and thus businesses invest more

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Factors influencing the business cycle:

(continued)

 _{Changes in the global economy}_—_{for example, oil}

prices have triggered recessions and expansions

 _War_—_{leads to government spending, new jobs, and}

increased production

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Tools used to predict the business

cycle:



Leading indicators

—

used to predict about

future economic growth; example: number of

building permits issued



Coincident indicators

—

used to understand the

economy at the present time; example:

personal incomes

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Tools used to predict the business

cycle:

(continued)



Lagging indicators

—

used to predict how long

the current phase might last; example:

appearance of new businesses during an

upturn

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The movement and location of

resources affects economic growth:

 _{New companies seek locations with quality workers at}

the lowest wages.

 _{Low cost of foreign workers has caused many businesses}

to move factories and jobs out of the country.

 _{Many foreign workers immigrate seeking higher wages}

in the United States.

 _{More green cards are issued to skilled and educated}

immigrants.

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Question:

What types of indicators help

economics forecast the business cycle?

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Section 3: Government’s Role in the U.S Economy

The Main Idea

The government affects the economy through regulation and through fiscal and monetary policies. Proper use

of these tools helps keep the economy functioning more smoothly and effectively.

Reading Focus

 _{What are the goals of government regulation?}

 _{How is fiscal policy used to influence the economy?}  _{How does the Federal Reserve use monetary policy}

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Goals of government regulation:

 _{Protect workers}_—_{Equal Employment Opportunity}

Commission, Occupational Safety and Health Administration

 _{Protect consumers}_—_{Food and Drug Administration,}

Consumer Product Safety Commission

 _{Limit negative effects}_—_{Environmental Protection}

Agency

 _{Encourage competition}_—_{regulations to ensure fair}

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Fiscal policy is used to influence the

economy.

 _Taxes_—_{lowering taxes creates spending money, aids}

business, and leads to new jobs; raising taxes slows growth and lowers prices; tax incentives encourage business investments

 _{Government spending}_—_{increased spending raises}

demand and creates jobs; decreased spending reverses effects

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Fiscal policy is used to influence the

economy.

(continued)

 _{Public transfer payments}_—_{government funds enable}

poor and unemployed to continue spending

 _Timing_—_{economic forecasts used to time fiscal}

policy changes

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The Fed influences the economy:

 _{Monetary policy determines the amount of money}

available in the economy.

 _Open_-_{market operations}_—_{securities are bought or}

sold to contract or expand money supply

 _{Discount rate}_—_{interest rate charged to banks is}

lowered to expand the economy, raised to slow growth; banks borrow more when rate is low

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The Fed influences the economy:

(continued)

 _{Reserve requirement}_—_{lowered to expand the}

economy, raised to slow growth; banks lend more when reserve is low

 _{Timing and monetary policy}_—_{changes take time to}

affect economy

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Question:

What are the four main economic

goals of government regulation?

SECTION 3

Government Regulation

protect

consumers

encourage competition

limit negative protect

workers

Four Main Goals of Government Regulation

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The Main Idea

International trade allows countries to specialize in producing the goods and services where they are most efficient. Trade gives people access to more goods and services. Trade also makes

countries interdependent.

Reading Focus

 _{Why do countries trade with one another?}

 _{What are the differences between free trade and}

protectionism?

 _{How does international trade affect jobs and consumers?}

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Nations trade with one another.



Specialization—resources determine types of

goods nations produce; countries specialize in

certain goods and services



Trade increases a country’s supply of goods,

services, and resources.



Trade barriers are used to protect a country’s

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Nations trade with one another.

(continued)



Reciprocal trade agreements, regional trade

organizations, and international trade agreements

work to improve trade.

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Free trade versus protectionism:



Free trade—Supporters believe exports and

imports should flow freely between countries;

free trade promotes competition and efficient

businesses; trade barriers result in business

and job losses; removing trade barriers

promotes economic growth.

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Free trade versus protectionism:

(continued)



Protectionism—Supporters believe that tariffs

will protect domestic industries; reducing

foreign competition creates more jobs at

home; “infant industries” are vulnerable to

foreign competition; businesses

overspecialize; other nations do not promote

free trade.

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Effects of international trade on jobs

and consumers:



Impact on jobs—new markets can increase

demand and create more jobs; however, lower

wages in foreign countries results in job losses



Impact on consumers—trade allows consumers

access to goods scarce in their countries;

increases competition and lowers prices;

consumers have more choices

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Question:

What effects can international

trade have on jobs and consumers?

SECTION 4

Jobs Consumers

As demand increases, companies build new factories and hire more

workers.

Jobs are lost when companies move to foreign countries for

Consumers have access to goods that are scarce in their country.

Increased competition causes prices to decline.

The standard of living rises because consumers can afford more goods.

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Chapter 21 Wrap-Up

1. What is the circular-flow model?

2. Why is investment important in a free-enterprise system? 3. How does the location of capital and human resources

affect the U.S. economy?

4. What role do current events play in a country’s economy? 5. What are the goals of government regulation?

6. What is the role of the Federal Reserve System in the U.S. economy?

7. Why do countries have tariffs?

8. What industries do both protectionists and free-trade supporters believe must be protected from foreign

competition?

1. What is the circular-flow model?

2. Why is investment important in a free-enterprise system? 3. How does the location of capital and human resources

affect the U.S. economy?

4. What role do current events play in a country’s economy? 5. What are the goals of government regulation?

6. What is the role of the Federal Reserve System in the U.S. economy?

7. Why do countries have tariffs?

8. What industries do both protectionists and free-trade supporters believe must be protected from foreign