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Chapter Introduction Section 1: The Role of Government Section 2: Measuring the Economy Section 3: Government, the Economy, and You Visual Summary Promoting a stable, growing economy is a major goal of the federal government. The decisions that government makes affect our economic lives every day. As you read the chapter, list the specific ways in which the government affects you economically. Section 1: The Role of Government Free enterprise is the freedom of individuals and businesses to operate and compete with a minimum of government interference or regulation. In order to encourage competition and prevent monopolies, governments take steps to regulate economies. Section 2: Measuring the Economy An economic system is the way a society organizes the production and consumption of goods and services. Our government plays a limited, but important, role in measuring and trying to balance the alternating periods of growth and decline called the business cycle. Section 3: Government, the Economy, and You People form governments to establish order, provide security, and accomplish common goals. A major focus of government programs is to help people in poverty. Guide to Reading Big Idea Free enterprise is the freedom of individuals and businesses to operate and compete with a minimum of government interference or regulation. Guide to Reading Content Vocabulary • private good • antitrust law • public good • merger • externality • natural monopoly • monopoly • recall Academic Vocabulary • exclude • achieve • minimize Does the government do a good job protecting private citizens from negative effects of products? A. Yes B. No A. A B. B 0% B A 0% Providing Public Goods Governments usually provide public goods, while businesses usually provide private goods. Providing Public Goods (cont.) • Businesses provide private goods and governments provide public goods . Providing Public Goods (cont.) • Private goods only consumed once – Someone can be excluded from goods and services if unwilling to pay – Include items such as clothes and food – Private services: haircuts, insurance, medical services, and so on Providing Public Goods (cont.) • Public goods shared by everyone – Government provides – Examples: Libraries, roads, parks – Taxes pay for them – Produce positive and negative externalities, or unintended side effects Which is an example of a public good or service? A. Milk shake B. Ballet shoes C. Street lamp D. Teeth Cleaning 0% A A. B. C. 0% D. B A B C 0% D C 0% D Maintaining Competition One government role is to ensure competition in the economy. Maintaining Competition (cont.) • Governments protect citizens by regulating business. Maintaining Competition (cont.) • A monopoly is one provider controlling a market. – Antitrust laws preserve competition – Sherman Antitrust Act passed in 1890 – Mergers threaten competition Maintaining Competition (cont.) • Areas where government regulation is key: – Natural monopolies, such as gas, water, or local telephone service – Food and Drug Administration and Federal Trade Commission – Product safety—unsafe products are recalled Federal Regulatory Agencies Do you agree that the company that holds a monopoly is the only one that really benefits? A. Agree B. Disagree A. A B. B 0% B A 0% Guide to Reading Big Idea An economic system is the way a society organizes the production and consumption of goods and services. Guide to Reading Content Vocabulary • real GDP • fiscal policy • business cycle • inflation • civilian labor force • consumer price index (CPI) • unemployment rate Guide to Reading Academic Vocabulary • period • implement During the ten-year expansion period that began in the 1990s, how might the government have prepared for the next recession? A. Raised taxes 0% D A D. Increased the GDP 0% A B C D0% C C. Reduced spending A. B. C. 0% D. B B. Required citizens to save money Measuring Growth The real gross domestic product is the most accurate measure of an economy’s performance. Measuring Growth (cont.) • The real GDP tells whether the economy is growing. • Economists measure periods of growth and decline. Measuring Growth (cont.) • GDP: – Dollar value of all goods and services produced in a year – Price increases raise GDP but don’t grow economy – Real GDP removes distortions Measuring Growth (cont.) • The business cycle is alternating periods of growth and decline in the economy. Model of the Business Cycle Do you agree that price increases can be a good way for businesses to succeed in times of economic decline? A. Agree B. Disagree A. A B. B 0% B A 0% Business Fluctuations The economy goes through alternating periods of growth and decline. Business Fluctuations (cont.) • Periods of increase and decline affect the American economy. – Real GDP up: expansion – Real GDP down for six months in a row: recession • Average recession lasts one year • Many people lose jobs U.S. Business Activity Since 1880 Business Fluctuations (cont.) • Civilian labor force: – All civilians 16 or older who work or seek work (half of all people in the U.S.) – Unemployment rate measures those in civilian labor force who are seeking work – Impact of unemployment Unemployment Rate and the Business Cycle Business Fluctuations (cont.) • Changes in government spending or taxes is fiscal policy. – Political climate affects ability to implement policy Business Fluctuations (cont.) • Inflation reduces purchasing power. – Consumer price index (CPI) measures inflation – Causes speculation – Distorts pricing How might the government best lower inflation? A. Raise taxes B. Lower taxes C. Raise the interest rate D. Lower the interest rate 0% A A. B. C. 0% D. B A B C 0% D C 0% D Stocks and Stock Markets Stock markets are usually good indicators of the health of the economy. Stocks and Stock Markets (cont.) • Stock markets are indicators of economic health. – Profits in form of dividends and capital gains – Stock value determined by supply and demand Stocks and Stock Markets (cont.) • Stock market indexes track stock prices over time. – Dow-Jones Industrial Average (DJIA) • 30 representative stocks – Standard and Poor’s (S&P) • 500 largest stocks Stocks and Stock Markets (cont.) • Stocks sold at stock exchanges – New York Stock Exchange (NYSE) – NASDAQ (electronic market) Stocks and Stock Markets (cont.) • Stock prices reveal investors’ attitudes. – Bull market is optimistic – Bear market is pessimistic If you were an investor in a bull market what would you be likely to do? A. Buy a lot of stock B. Sell all your stock C. Buy and sell stock D. Avoid the stock market 0% A A. A B. B C.0% C 0% D. D B C 0% D Guide to Reading Big Idea People form governments to establish order, provide security, and accomplish common goals. Guide to Reading Content Vocabulary • food stamps • Women, Infants, and Children (WIC) • workfare • progressive income tax • Earned Income Tax Credit (EITC) Academic Vocabulary • survive • supplement Do you think it is fair for some people to be extremely wealthy when other people are impoverished? A. Yes B. No A. A B. B 0% B A 0% Income Inequality Education, family wealth, and discrimination are reasons for income differences. Income Inequality (cont.) • Income is influenced by education, family wealth, and discrimination. • College graduate has the potential to earn twice the income of high school graduate. Income Inequality (cont.) • Women and minorities experience discrimination on the job. – Fewer promotions – Lower salaries Income Inequality (cont.) • Laws reduce discrimination – Equal Pay Act of 1963 – Civil Rights Act of 1964 – Americans with Disabilities Act of 1990 – Courts help enforce What are good reasons why two people with the same education should receive different pay? A. Different levels of experience B. Different kinds of talents C. Different backgrounds 0% D. All of the above A A. B. C. 0% D. B A B C 0% D C 0% D Poverty Poverty is a major problem in America. Poverty (cont.) • Government has created programs to help poor people. • Incentives encourage self-improvement Poverty (cont.) • Guidelines determine eligibility for programs – Revised yearly – Based on what is needed to survive – 2006: $9,800 annual income and below is impoverished – Nearly 37 million people impoverished Poverty (cont.) • Federal welfare programs – Food Stamp program – Women, Infants, and Children (WIC) – Supplemental Security Income (SSI) – Temporary Assistance to Needy Families (TANF) Poverty (cont.) • Workfare usually at state level • Progressive income tax – People with lower incomes taxed at a lower rate Poverty (cont.) • Earned Income Tax Credit (EITC) – Provides tax credits or cash assistance – Helps almost 20 million people each year What do you think is the best way to help someone whose income is below the poverty level? A. Welfare A 0% 0% D D. Workfare A B C 0% D C C. Lower taxes A. B. C. 0% D. B B. Job training Government and the Economy Government’s Role • Government provides public goods. • Government regulates the economy to ensure competition. Government and the Economy Measuring the Economy • Real GDP is GDP that has been adjusted for inflation. • The real gross domestic product is the most accurate measure of an economy’s performance. • Government must deal with unemployment, inflation, and periods of growth and decline called the business cycle. • Stock markets are usually good indicators of the health of the economy. Government and the Economy The Problem of Poverty • Education, family wealth, and discrimination are reasons for income differences. • Government uses several different programs and policies to combat poverty. It is an exaggerated claim in terms of the number of patients and results, so it is probably not true. private goods goods that, when consumed by one individual, cannot be consumed by another public goods economic goods that are consumed collectively, such as highways and national defense externality the unintended side effect of an action that affects someone not involved in the action monopoly when the market creates a sole provider for a good or service antitrust law legislation to prevent new monopolies from forming and police those that already exist merger a combination of two or more companies to form a single business natural monopoly a market situation in which the costs of production are minimized by having a single firm produce the product recall situation in which a company pulls a product off the market or agrees to change it to make it safe exclude to shut out achieve to accomplish or successfully gain minimize to make as small as possible real GDP GDP after adjustments for inflation business cycle alternating periods of growth and decline that the economy goes through civilian labor force all civilians 16 years old or older who are either working or are looking for work unemployment rate the percentage of people in the civilian labor force who are not working but are looking for jobs fiscal policy the federal government’s use of spending and taxation policies to affect overall business activity inflation sustained increase in the general level of prices consumer price index (CPI) measure of change in price over time of specific group of goods and services period a length of time implement to put into practice food stamps coupons that can be used to purchase food Women, Infants, and Children (WIC) a program that provides help for nutrition and health care to lowincome women, infants, and children up to age 5 workfare programs that require welfare recipients to exchange some of their labor in return for benefits progressive income tax a tax that takes a larger percentage of higher incomes than lower incomes Earned Income Tax Credit (EITC) a program that gives tax credits and even cash payments to qualified workers survive to continue to exist supplement something that supplies what is needed or makes an addition To use this Presentation Plus! product: Click the Forward button to go to the next slide. 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