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 Section 4: Living in a World Economy
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Section 1: Overview of the U.S. Economy
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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Section 1: Overview of the U.S. Economy
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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Section 1: Overview of the U.S. Economy
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.HOLT
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Section 1: Overview of the U.S. Economy
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
surpluses, raised with shortages ANDHOLT
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Section 1: Overview of the U.S. Economy
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 AND
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Section 1: Overview of the U.S. Economy
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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HOLT SECTION 1
IN PRACTICE CIVICS Question: How does the marketplace affect the price of goods? producers consumers supply shortages demand PRICE competition surpluses
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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?
How do current events affect the economy? AND
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Section 2: Factors Affecting the U.S. Economy
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 AND
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Section 2: Factors Affecting the U.S. Economy
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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Section 2: Factors Affecting the U.S. Economy
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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Section 2: Factors Affecting the U.S. Economy
Tools used to predict the business (continued) cycle:
Lagging indicators—used to predict how long the current phase might last; example: appearance of new businesses during an upturn
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Section 2: Factors Affecting the U.S. Economy
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. AND
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Question: What types of indicators help economics forecast the business cycle? SECTION 2 appearance of Coincident new businesses Indicators Lagging Indicators Leading Indicators DOWNTURN UPTURN
increase in
building permits decrease in building permits falling sales decreased production decline in number of businesses rising salesincreased
productionHOLT
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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 to influence the economy? AND
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Section 3: Government’s Role in the U.S Economy
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 competition AND
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Section 3: Government’s Role in the U.S Economy
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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Section 3: Government’s Role in the U.S Economy
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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Section 3: Government’s Role in the U.S Economy
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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Section 3: Government’s Role in the U.S Economy
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?
Four Main Goals of Government Regulation
Four Main Goals of Government Regulation
competitionencourage
workers Regulation protect Government consumers protectlimit negative
effectsAND
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Section 4: Living in a World Economy
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? AND
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Section 4: Living in a World Economy 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 industries from foreign competition.
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Section 4: Living in a World Economy
(continued) Nations trade with one another.
Reciprocal trade agreements, regional trade organizations, and international trade agreements work to improve trade.
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Section 4: Living in a World Economy
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.AND
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Section 4: Living in a World Economy
(continued) Free trade versus protectionism:
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.AND
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Section 4: Living in a World Economy
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 ANDHOLT SECTION 4
IN PRACTICE CIVICS Question: What effects can international trade have on jobs and consumers? Effects of International Trade
Jobs Consumers
Consumers have access to goods factories and hire more As demand increases, companies build new that are scarce in their country. workers. causes prices to decline. Increased competition Jobs are lost when companies move to foreign countries for inexpensive labor. The standard of living rises because consumers can afford more goods.Consumers can enjoy more choices. AND CIVICS
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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 competition?