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Chapter 3: American Free Enterprise 3-1 Summary: Fill in the missing words. There is a tradition of ________________________ in the United States-a tradition that encourages people to try out their business ideas and compete in the public market. Both Mr. Scappoose, the immigrant who opened a barber shop, and Bill Gates, the young man who founded Microsoft, are part of this tradition, and both are ____________________ with a desire to succeed and profit. In the free enterprise economy, __________________, acting on their own, decided to buy products. Their individual choices signal the producers what to produce and how much to make. The result is a variety of products at reasonable prices. We expect government to protect consumers by assuring that they have the information they need to make informed decisions. Government laws, such as those protecting the right to private __________________ and enforcing ______________________, help Americans benefit from free enterprise. The ____________________ also specifies how government can tax and it prohibits government from interfering in business contracts. Finally, federal and state agencies regulate industries whose goods and services affect the well-being of the public. The basic features of free enterprise are so similar to us that we tend to take them for granted. FILL IN FEATURES OF AMERICAN FREE ENTERPRISE. American Free Enterprise Chapter 3: American Free Enterprise Supply in the missing information about the American market system in the spaces provided. 1. Describe the feature of American Free Enterprise which is the action taken by the consumer who buys a book from the bookstore? 2. Consumer Basic Roles:: (a)____________________________________________________________________________ (b)____________________________________________________________________________ 3. Government Basic Roles: (a)____________________________________________________________________________ (b)____________________________________________________________________________ (c)____________________________________________________________________________ (d)____________________________________________________________________________ (e)____________________________________________________________________________ Chapter 3: American Free Enterprise 3-2 Summary: Fill in the missing words. To keep the huge American economy on course, government economists follow economic trends. ___________________ is the study of the behavior and decision making of entire economies. By contrast, _________________________ is the study of economic behavior of individuals, families, and businesses. Macroeconomic progress is measured by calculating a nation’s _________________________. This is the total value of all goods and services produced in a year. Measuring the change in GDP from one year to the next is a way of measuring growth or decline in an economy. Free enterprise systems are subject to sudden swings in ______________________, periods of macroeconomic growth followed by slowing or decline. To stabilize the economy and prevent wide swings, the government has three main goals: high employment, steady economic growth, and stable prices. Government policymakers use different policies and tools in their attempts to achieve these goals. On way Americans maintain their high standard of living is by constantly improving __________________. __________________ is the process used to produce a good or service. Progress in technology helps the economy to be more efficient and productive. For example, Thomas Edison’s invention of the light bulb in 1879 made possible a longer work day. To advance technological progress, government policies encourage ____________________. Federal agencies fund research and development projects at universities and private companies. The government also provides ______________ and copyrights. This encourages inventors by protecting their ideas. Government economists use a variety of policies in their attempt to achieve their three major goals. PROPERLY FILL IN THE GOVERNMENT’S MACROECONOMIC GOALS. THREE MAJOR ECONOMIC GOALS Goal 1: Goal 2: Goal 3: Definition: Definition: Definition: Chapter 3: American Free Enterprise Supply in the requested information in the spaces provided. 1. Usual length of the business cycle: ___________________________________________ ________________________________________________________________________ ________________________________________________________________________ 2. Three main outcomes of public policy aimed at economic stability: _________________ ________________________________________________________________________ ________________________________________________________________________ 3. Requirement for raising living standards for new generations: _____________________ ________________________________________________________________________ ________________________________________________________________________ 4. Two indictors of economic stability: __________________________________________ ________________________________________________________________________ ________________________________________________________________________ 5. Government-provided incentives for innovation: ________________________________ ________________________________________________________________________ ________________________________________________________________________ Chapter 3: American Free Enterprise 3-3 Summary: Fill in the missing words. People depend on the government to provide goods. A __________________ is a shared good or service for which it would be inefficient or impractical to make consumers pay individually. Examples of public goods are roads, dams, and national defense. If the government did not provide these things, individuals or companies would have to themselves. But for an individual person or company, the cost of building a highway outweighs the benefits. Another characteristic of public good is that it is difficult to exclude non-payers. Once a road is built, it is difficult to keep some drivers from using it. Situations such as road-building, in which the free market does not efficiently provide resources to solve a problem, are known as ____________________. Public goods are paid for by the _______________________, which is the part of the economy that involves government transactions. The _____________________ involves transactions of individuals and businesses. Outside factors can affect the public and private sector. An ______________________ is an economic side effect of a good or service. The government encourages the creation of __________________ externalities. Education, for example, benefits students, yet society as a whole benefits from an educated population. The government also works to limit ____________________ externalities, such as automobile pollution. Chapter 3: American Free Enterprise A market failure occurs when farmers need a dam. The dam becomes a public good when the government decides to build it. FROM YOUR TEXTBOOK, COMPLETE THE CHART TO SHOW A DAM AS A PUBLIC GOOD. Example A: Market Failure Occurs Proposal Farmers want a local river to be dammed. Benefit Cost Decision Example B: Public Good is Created Proposal The government considers funding the dam. Cost Benefit Decision Result Chapter 3: American Free Enterprise Fill in two supporting facts or details under each main idea by answering each question. Main Idea: In some situations, the free market does not efficiently distribute resources. 1. What is an example of something that self-interest would not motivate consumers to provide? ______________________________________________________________________________ ______________________________________________________________________________ 2. Why might this public good be unreasonable to expect from private providers? ______________________________________________________________________________ ______________________________________________________________________________ Main Idea: Cost is an important factor in determining whether a good or service is produced as a public good. 3. How does this factor relate to the individual? _________________________________________ ______________________________________________________________________________ 4. How does this factor relate to society? ______________________________________________ ______________________________________________________________________________ Main Idea: A good or service can generate positive or negative side effects for people who do not pay for or produce them. 5. What is an example of a positive side effect? _________________________________________ ______________________________________________________________________________ 6. What is an example of a negative side effect? _________________________________________ ______________________________________________________________________________ Chapter 3: American Free Enterprise 3-4 Summary: Fill in the missing words Free markets tend to spend wealth unevenly. This leaves some people in poverty. The _______________________ is the minimum level of income, as determined by the government that is needed to support a household. To help ease poverty, the government collects tax money and redistributes it to people who are poor or otherwise in need. This kind of aid is known as ___________________. In the 1990s, welfare programs became subject to much debate. Critics charged that people were becoming dependent on their welfare payments and were not doing enough to help themselves. Despite these debates, welfare programs continue to function in the United States. One major program is ____________________________ (TANF). It uses _______________________, direct payments of money, to help poor people. Money provided by the federal government goes to the states, which design their own welfare programs. Another major program is _____________________, which provides cash transfers to the elderly retired and to people who are disabled. It is funded from taxes on people’s wages. The government also provides __________________________ -goods and services provided for free or at very low prices. Examples of in-kind benefits include food stamps and subsidized housing. Another important social service that government provides is health insurance. __________________, which provides aid to the elderly, and _________________________, which assists the poor, are two health insurance programs. Chapter 3: American Free Enterprise The costs of both Medicare and Medicaid have increased substantially since they were created. FROM YOUR TEXTBOOK, GRAPH SPENDING ON THESE TWO GOVERNMENT PROGRAMS. 300 Dollares ( In Billions) 250 200 150 Medicare Spending Medicaid Spending 100 50 0 1965 1970 1975 1980 1985 Year 1990 1995 2000 2005 1. Infer why the government spends more money on Medicare than Medicaid? Chapter 3: American Free Enterprise Supply the missing information in the chart below. TAX-SUPPORTED SAFETY NETS Program or Program Area Form of Aid Recipients 1. TANF 2. Social Security Workers 3. 4. Worker’s Compensation 5. 6. Education Health Insurance Chapter 3: American Free Enterprise Rewrite each statement below to make it agree with the italicized key term 1. The most common in-kind benefits include food giveaways, food stamps, subsidized housing, and farm aid. ________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ 2. The government institutes welfare programs to improve transportation routes. __________ ___________________________________________________________________________ __________________________________________________________________________ 3. A nation’s standard of living indicates its level of income distribution. _________________ ___________________________________________________________________________ ___________________________________________________________________________ 4. The poverty threshold is the income level below that which is needed to provide the needs and wants of families or households. ____________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________