Download Chapter 21: The U.S. Economy and the World

CIVICS IN PRACTICE
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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.
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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
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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
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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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SECTION 1
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Question: How does the marketplace affect
the price of goods?
producers
consumers
shortages
surpluses
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supply
PRICE
demand
competition
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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?
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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
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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
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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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.
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SECTION 2
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Question: What types of indicators help
economics forecast the business cycle?
UPTURN
DOWNTURN
increase in
building permits
decrease in
building permits
Coincident
Indicators
rising sales
increased
production
falling sales
decreased
production
Lagging
Indicators
appearance of
new businesses
decline in
number of
businesses
Leading
Indicators
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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?
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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
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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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SECTION 3
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Question: What are the four main economic
goals of government regulation?
Four Main Goals of Government Regulation
encourage
competition
protect
workers
Government
Regulation
protect
consumers
limit negative
effects
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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?
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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
Nations trade with one another. (continued)
 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.
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Section 4: Living in a World Economy
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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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
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SECTION 4
HOLT
Question: What effects can international
trade have on jobs and consumers?
Effects of International Trade
Jobs
As demand increases,
companies build new
factories and hire more
workers.
Jobs are lost when companies
move to foreign countries for
inexpensive labor.
Consumers
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.
Consumers can enjoy more choices.
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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?
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