Download economics - TeacherWeb

Chapter 2
The Economy:
Myth and Reality
E pluribus unum (Out of many, one)
MOTTO ON U.S. CURRENCY
American Economy: A Thumbnail Sketch
• U.S. economy
– Biggest national economy
– Population: 300 million
• Working population: 150 million
– Very rich country
– High efficiency
• Productivity
– $45,000 per person
– $90,000 per worker
2
American Economy: A Thumbnail Sketch
• Inputs / factors of production
– Labor
– Machinery
– Buildings
– Natural resources
– Used to make outputs
• Outputs
– Goods and services
– Consumers & others want to acquire
3
American Economy: A Thumbnail Sketch
•
•
•
•
•
Free markets
Private enterprise
“Land of opportunity”
Most “privatized” economy
Most “marketized” economy
4
American Economy: A Thumbnail Sketch
• Gross domestic product (GDP)
– Measure size of economy
– Total amount it produces
– In a year
• Real GDP
– Adjusted GDP
• For changes in purchasing power
• For inflation
5
Figure 1
Share of U.S. gross domestic product (GDP)
exported and imported, 1959–2007
6
American Economy: A Thumbnail Sketch
• U.S. economy
– Relatively closed
– 14% of GDP: exports & imports
– 17% of GDP: imports
• Relatively open economy
– Exports & imports – large share of GDP
• Relatively closed economy
– Exports & imports – small share of GDP
7
Table 1
Openness of various national economies, 2007
Openness
Netherlands
Germany
China
Canada
Mexico
Russia
United Kingdom
United States
Japan
67%
41
37
35
35
25
20
14
12
8
American Economy: A Thumbnail Sketch
• U.S. economy
– Growing
– 2007 GDP = $14 trillion
– 2007 GDP per capita
• 2.8 times > than in 1959
9
Figure 2
Real gross domestic product (GDP) since 1959
10
American Economy: A Thumbnail Sketch
• Economic fluctuations
– Business cycles
• Recession – period of time
– Total output falls
• Unemployment rate
– Varies
11
Figure 3
The growth rate of real gross domestic product (GDP)
in the United States since 1959
12
Figure 4
The unemployment rate in United States since 1929
13
The Inputs: Labor and Capital
• American workforce – composition
– 150 million
– 54% men
– 46% women
– 4% teenagers (6 million)
– Expanding role of women
14
Figure 5
Composition of employment by sex, 1950 and 2007
15
Figure 6
Working women as a percentage of the labor force,
1960 versus 2005
16
Figure 7
Teenage employment as a percentage of total
employment, 1950–2006
17
The Inputs: Labor and Capital
• American workforce – production
– Mostly services
– Government
– Only 16% - goods
• Shift to services
– Information age
– Education
– Experience
18
Figure 8
Civilian non-farm payroll employment by sector, 2007
19
Figure 9
Growing share of service sector jobs, 1967 vs. 2005
20
The Inputs: Labor and Capital
• American workforce – earnings
– Wages: 70% of income
– Average hourly wage: $17
– Average weekly paycheck: $600
• Capital
– $30 trillion
– Average rate of return: 10%
21
Figure 10
Average hourly compensation rates in manufacturing,
2006
22
Outputs: What Does America Produce?
• Consumer spending – 70% of GDP
• Households
– 60% of budget – on services
– 40% of budget – on goods
– $140 billion – phone bill
• Non-consumption uses – 30% of GDP
23
The Central Role of Business Firms
• 25 million business firms
– 80,000 fail / year
• Multinational corporations
• Competition
– Key to industrial efficiency
24
Government
• Markets
– Goods & services: bought & sold
• Firms
– Sell goods & services
• Outputs markets
• Receive receipts
– Use resources
• Inputs markets
• Pay for resources
25
Government
• Consumers
– Buy goods and services
• Outputs markets
• Expenditures
– Sell resources
• Inputs markets
• Receive income
26
Figure 11
The circular flow of goods and money
27
Government
• Role of government
– Making & enforcing laws
• Rule maker
• Referee
• Arbitrator
– Regulating business
• Antitrust laws
• Promote social objectives
28
Government
• Role of government
– Providing certain goods & services
• Fiscal year 2008: $2.9 trillion
– Pensions & income security programs
– National defense
– Health care
– Education
– Transportation
– Agriculture
– Housing
– Foreign aid
29
Figure 12
The allocation of government expenditures
30
Government
• Role of government
– Levying taxes
• Pay for these goods and services
• Income & payroll taxes
• Sales taxes
• Property taxes
• Gasoline taxes
• Liquor taxes
• Telephone taxes
31
Figure 13
The tax burden in selected countries, 2006
32
Government
• Role of government
– Redistributing income
• Reduce income inequality
• Taxes
• Transfer payments
• Progressive taxation
• Antipoverty programs
33
Government
• Transfer payments
– Sums of money
• Received by certain individuals
– Outright grants from government
– Not payments for services
• Progressive taxation
– Ratio: taxes to income
• Rises as income rises
34
Conclusion: It’s a Mixed Economy
• Mixed economy
– Some public influence
• Over free markets
– Some public ownership
– And private property
35