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Chapter Three
Section 1 – Benefits of Free Enterprise – pp 51-55
Objectives
Describe the tradition of free enterprise in the USA and then constitutional
protections that underlie it
Explain the basic principles of the US free enterprise system
Identify the role of the consumer in the US free enterprise system
Describe the role of the government in the US free enterprise system
***********
Section 2 – Promoting Growth and Stability – pp 57-60
Objectives
Explain how the government tracks and seeks to influence business cycles
Analyze how the government promotes economic strength
Analyze the effect of technology on productivity
***********
Section 3 – Providing Public Goods – pp 62-66
Objectives
Identify examples of public goods
Analyze market failures
Evaluate how the government allocates some resources by managing externalities
***********
Section 4 – Providing a Safety Net – pp 67-70
Objectives
Summarize the US political debate on ways to fight poverty
Describe the main programs through which the government redistributes income
Gross Domestic Product (GDP)
Article courtesy of FinancialContent
By Chris Stallman | The stock market is something that is greatly influenced by the state of the
economy. After all, it acts as a gauge to the economy. When a nation's economy is doing well, its
stock market usually mirrors this economic growth. With this in mind, understanding the economy,
or at least the basics, is important.
The Gross Domestic Product (GDP) is one economic number that is key to many investors and
economists. It is a number that gives people an idea of the state of a country's economy.
What is the GDP?
The GDP is an economic number that tells us the total value of all the final goods and services
produced by resources located in the country you live in during a period of one year. So the 2004
US GDP would be the value of all the goods produced in the US in 2004.
The GDP is seen as one of the most important economic numbers because it gives economists
a rough idea of how fast the economy is growing. For example, the GDP for the United States
rose 4.5% in 1999 which shows that our domestic economy rose during that year.
The GDP is also important for determining the domestic economic policies and monetary
policies, such as the Federal Reserve's position on interest rates. By examining the GDP's of
other countries, we can also determine approximately how much we should give them in aid.
What Makes up the GDP?
The GDP is figured by taking the total value of all the final goods and services of one country
and adding them up. The GDP doesn't account for intermediate goods because the value would
be counted twice.
The GDP is composed of three major groups. The first is consumer goods, which account for
nearly two-thirds of the total GDP, which include durable goods (cars, refrigerators, etc...),
nondurable goods (clothes, food, etc...), and services. It is also composed of investment goods
such as new plants and equipment, housing, and business inventory. The last major group that
makes up the GDP is the government sector which includes the production of public goods and
services.
What Are Some Problems with the GDP?
1.) Doesn't measure per capita to determine the most accurate standard of living
2.) Doesn't measure how the goods are distributed to the population
3.) Doesn't allow for changing price levels
4.) Doesn't include unpaid household work
5.) Doesn't include the barter system, which is still used by many undeveloped countries
6.) Doesn't measure the quality of items produced
The GDP has a few small flaws in it but it is, overall, a very good number to look at when you're
determining the state of the economy. If you are interested in finding the latest Gross Domestic
Product figures, you can visit the Bureau of Economic Analysis' website at
http://www.bea.doc.gov/
Name: _______________________________________________ Date: _______________________________ Class: ___________
Key Terms *Questions, Ch 3, Sec. 1 – Benefits of Free
Enterprise
Key Terms
1.
Profit motive
2.
Open opportunity
3.
Private property rights
4.
Free contract
5.
Voluntary exchange
6.
Competition
7.
Interest group
8.
Public disclosure laws
9.
Public interest
Questions
10.
How does the constitution protect, which underlies the American
free enterprise system?
11.
Explain three benefits of the free enterprise system.
12.
Explain your role as a consumer and how you influence the
economy.
13. Complete the table below
Major Federal Regulatory Agencies
Year Created *
Agency
1908 *
Food & Drug
Administration (FDA)
1914 *
Federal Trade Commission
(FTC)
1934 *
Federal Communications
Commission (FCC)
1958 *
Federal Aviation
Administration (FAA)
1964 *
Equal Employment
Opportunity Commission
(EEOC)
1970 *
Environmental Protection
Agency (EPA)
1970 *
Occupational Safety and
Health Administration
(OSHA)
1972 *
Consumer Product Safety
Commission (CPSC)
1974 *
Nuclear Regulatory
Commission (NRC)
What does the agency do?
Name: _______________________________________________ Date: _______________________________ Class: ___________
Key Terms *Questions, Ch 3, Sec. 2 – Promoting Growth and Stability
Pg. 56, Alice Rivlin, born 1931
1. What is the mission of the Congressional Budget Office?
2. Name two of the positions to which President Bill Clinton appointed Alice Rivlin.
In 1993 ________________________________
In 1996 ________________________________
3. What does Alice Rivlin believe encourages growth more than cutting taxes?
4. Does she argue that aid for business should come from the federal government or
the state?
5. Rivlin believes that lowering taxes does not effectively raise the standard of
living. Do you agree or disagree with Rivlin’s opinion about lowering taxes?
Explain your answer.
***************
Key Terms, Ch 3, Sec. 2
1. Macroeconomics
2. Microeconomics
3. Gross domestic product (GDP)
4. Business cycle
5. Work ethic
6. Technology
Macroeconomics
Microeconomics
Example:
Example:
Questions:
1. How does GDP provide a means to analyze economic growth?
2. Give one example of a new technology that has resulted in greater
productivity in the United States.
3. How do patents and copyrights promote innovation?
4. How does innovation help the economy?
Name: _______________________________________________ Date: _______________________________ Class: ___________
Key Terms *Questions, Ch 3, Sec. 3 – Providing Public Goods
Key Terms
1. Public goods
2. Public sector
3. Private sector
4. Free rider
5. Market failure
6. Externality
7. Why is a free rider a type of market failure?
Name: _______________________________________________ Date: _______________________________ Class: ___________
Key Terms *Questions, Ch 3, Sec. 4 – Providing a Safety Net
Key Terms
1. Poverty threshold
2. Welfare
3. Cash transfers
4. In-kind benefits
Questions
5. What is the difference between cash transfers and in-kind benefits?
6. How is Social Security an example of income redistribution?
* * * * * * * * * * * * * * * *** * * * *
Pg. 71, “Government and the Interstate Highway System”
1. Why was it inefficient to leave highway construction to individual states?
2. Why do you think it took Congress so long to authorize funds for highway
construction?
Name: _______________________________________________ Date: _______________________________ Class: ___________
Economics Test - Chapter 3
Multiple Choice-Write the letter of the choice that best completes the statement or answers the question.
____
1. What is the most effective way for consumers to make their desires known to businesses?
a. through mail and phone surveys
b. by protesting and boycotting products
c. by the purchases they make
d. by hiring lobbyists and joining consumer groups
____
2. Why does the government use its powers to make sure that businesses disclose so much
information to the public?
a. to make buyers more knowledgeable and safer
b. to make it hard for businesses to make an excess profit
c. to make it easier for consumers to save money
d. to make it easy for businesses to have good information
____
3. What is a positive externality?
a. a way to generate trade that will benefit people who are from other countries
b. an economic side effect that generates unexpected benefits
c. a cash flow that will benefit both the government and the businesses who interact with it
d. an extra payment to welfare recipients
____
4. What does the Temporary Assistance for Needy Families program provide?
a. retirement income for the elderly
b. cash to the states to help run their welfare programs
c. compensation to all who lose jobs
d. cash to workers injured on the job
____
5. What is the difference between a business cycle and the day-to-day ups and downs of the market?
a. The day-to-day ups and downs of the market can be much more extreme than a business
cycle.
b. The day-to-day fluctuations are more likely to have an impact on people’s finances.
c. A business cycle is usually more restricted, whereas market fluctuations are worldwide.
d. A business cycle is a major, prolonged fluctuation rather than a day-to-day movement.
____
6. What effect does new technology usually have on an economy?
a. It makes the economy stronger and more efficient.
b. It reduces the dependence of the economy on business.
c. It slows an economy down for at least a while.
d. It reduces the available jobs.
____
7. Which of the following is a critical rule for determining whether something is a public good?
a. The benefit to each individual who uses the facility is greater than the cost.
b. The benefits of the facility are greater for the society than for the individuals using it.
c. The total benefits to society are greater than the total cost.
d. The total cost is small for each individual taxpayer.
____
8. Which of the following is NOT an example of a public good?
a. shopping malls
c. highways
b. national parks
d. municipal libraries
____
9. What protections does OSHA give to people in the United States?
a. regulations on workplace safety and information about hazards in the workplace
b. consumer protection in buying foods
c. regulations about clean environment
d. protection for certain key industries such as logging
____ 10. What is the term for the total value of all goods and services produced in a particular economy?
a. net worth
c. gross domestic product
b. open market value
d. standard of living
____ 11. What is one benefit provided by Social Security?
a. medical care for the indigent
b. cash transfers to workers injured on the job
c. compensation for all who lose jobs
d. retirement income for the elderly
____ 12. A person who consumes a good or service but does not pay for it is called which of the
following?
a. a free rider
c. a private consumer
b. a volunteer user
d. an entrepreneur
Matching - Identifying Key Terms- Match each term with the correct statement below.
a.
b.
c.
d.
e.
gross domestic product
free rider
public interest
private sector
in-kind benefits
f.
g.
h.
i.
j.
macroeconomics
poverty threshold
market failure
welfare
public disclosure laws
____ 13. the study of the behavior and decision making of entire economies
____ 14. an income level below that which is needed to support families or households
____ 15. the part of the economy that involves the transactions of individuals and businesses
____ 16. goods and services provided by the government for free or at greatly reduced prices
____ 17. someone who would not choose to pay for a certain good or service, but who would get the
benefits of it anyway if it were provided as a public good
____ 18. requirements for companies to provide full information about their products
____ 19. the concerns of the people as a whole
____ 20. the total value of all final goods and services produced in a particular economy
Short Answer
Reading a Table
Federal Program
Temporary Assistance for Needy Families
Unemployment insurance
Consumer Product Safety Commission
Environmental Protection Agency
Equal Employment Opportunity Commission
Social Security Administration
Purpose
Provides welfare programs
Provides payments to the unemployed
Regulates consumer products
Protects human health and environment
Promotes equal job opportunities
Provides payments to the elderly
21. Which program helps support people who have retired?
22. Which programs provide short-term safety nets for people in direct need?
23. Which programs provide indirect safety for all residents?
24. Which programs are examples of direct cash transfers?
25. Which program provides enforcement of civil rights laws?
Short Answer – Bonus Questions – 5 pts each
26. What is the difference between a positive and a negative externality? Give an example of each.
27. How might the changes brought about by the influence of interest groups affect the public?
28. What kinds of intervention or protection have U.S. residents come to expect from the government
that a totally free market would not provide?
29. How does the poverty threshold relate to free enterprise?
30. What are the three main goals sought by policymakers in the economy?
31. What are the main differences between the 1996 Temporary Assistance for Needy Families and
the older programs it replaced such as Aid to Families with Dependent Children?
ch 3
Answer Section
MULTIPLE CHOICE
1. ANS:
STO:
2. ANS:
STO:
3. ANS:
STO:
4. ANS:
STO:
5. ANS:
STO:
6. ANS:
STO:
7. ANS:
STO:
8. ANS:
STO:
9. ANS:
STO:
10. ANS:
STO:
11. ANS:
STO:
12. ANS:
STO:
C
TEKS:
A
TEKS:
B
TEKS:
B
TEKS:
D
TEKS:
A
TEKS:
C
TEKS:
A
TEKS:
A
TEKS:
C
TEKS:
D
TEKS:
A
TEKS:
DIF: Medium
1A, TEKS: 23A
DIF: Medium
15A, TEKS: 23A
DIF: Medium
2B, TEKS: 24A
DIF: Medium
15A, TEKS: 23A
DIF: Medium
19C, TEKS: 23A
DIF: Medium
26A, TEKS: 23A
DIF: Medium
16A, TEKS: 24A
DIF: Medium
16A, TEKS: 24A
DIF: Medium
15B, TEKS: 23A
DIF: Medium
16B, TEKS: 24A
DIF: Medium
15A, TEKS: 24A
DIF: Medium
16A, TEKS: 24A
REF:
TOP:
REF:
TOP:
REF:
TOP:
REF:
TOP:
REF:
TOP:
REF:
TOP:
REF:
TOP:
REF:
TOP:
REF:
TOP:
REF:
TOP:
REF:
TOP:
REF:
TOP:
53-54
OBJ: 1.3.1.3
public interest
54
OBJ: 1.3.1.4
public interest, public policy
65
OBJ: 1.3.3.3
externality
69
OBJ: 1.3.4.2
welfare
57
OBJ: 1.3.2.1
business cycles
59
OBJ: 1.3.2.3
technology
62-63
OBJ: 1.3.3.1
public goods
62-63
OBJ: 1.3.3.1
public goods
55
OBJ: 1.3.1.4
public policy
57
OBJ: 1.3.2.1
gross domestic product
69
OBJ: 1.3.4.2
public policy, safety net
63
OBJ: 1.3.3.1
free rider
F
TEKS:
G
TEKS:
D
TEKS:
E
TEKS:
B
TEKS:
J
TEKS:
C
TEKS:
A
DIF: Easy
16B, TEKS: 24A
DIF: Easy
15A, TEKS: 24A
DIF: Easy
2A, TEKS: 24A
DIF: Easy
15A, TEKS: 24A
DIF: Easy
16A, TEKS: 24A
DIF: Easy
15A, TEKS: 24A
DIF: Easy
1A, TEKS: 24A
DIF: Easy
REF:
TOP:
REF:
TOP:
REF:
TOP:
REF:
TOP:
REF:
TOP:
REF:
TOP:
REF:
TOP:
REF:
57
OBJ: 1.3.2.1
macroeconomics
67
OBJ: 1.3.4.1
poverty threshold
64
OBJ: 1.3.3.1
private sector
70
OBJ: 1.3.4.2
in-kind benefits
63
OBJ: 1.3.3.1
free rider
54
OBJ: 1.3.1.4
public disclosure laws
54
OBJ: 1.3.1.4
public interest
57
OBJ: 1.3.2.1
MATCHING
13. ANS:
STO:
14. ANS:
STO:
15. ANS:
STO:
16. ANS:
STO:
17. ANS:
STO:
18. ANS:
STO:
19. ANS:
STO:
20. ANS:
STO:
TEKS: 16B, TEKS: 24A
TOP: gross domestic product
SHORT ANSWER
21. ANS:
Social Security
DIF: Hard
REF: 68-69
OBJ: 1.3.4.2
STO: TEKS: 15A, TEKS:
23A
TOP: public policy, safety net
22. ANS:
unemployment insurance and Temporary Assistance for Needy Families
DIF: Hard
REF: 68-69
OBJ: 1.3.4.2
STO: TEKS: 15A, TEKS:
23A
TOP: public policy, safety net
23. ANS:
Consumer Product Safety Commission and the Environmental Protection Agency
DIF: Hard
REF: 68-69
OBJ: 1.3.4.2
STO: TEKS: 15A, TEKS:
23A
TOP: public policy, safety net
24. ANS:
Temporary Assistance for Needy Families, Social Security, and unemployment insurance
DIF: Hard
REF: 68-69
OBJ: 1.3.4.2
24A
TOP: public policy, safety net
25. ANS:
Equal Employment Opportunity Commission
DIF:
23A
TOP:
Hard
REF: 68-69
OBJ: 1.3.4.2
STO: TEKS: 15A, TEKS:
STO: TEKS: 15A, TEKS:
public policy, safety net
ESSAY
26. ANS:
A positive externality is a side effect in which people who do not pay for the goods or services
benefit anyway. One example might be that people who live near a park gain property value. A
negative externality is the opposite, in which a person who does not pay for the goods or services
suffers a loss. One example might be that a person who lives across the street from a house that is
allowed to degenerate loses property value.
DIF: Hard
24A
TOP: externality
27. ANS:
REF: 65-66
OBJ: 1.3.3.3
STO: TEKS: 2B, TEKS:
Interest groups sometimes make a positive effect for many people by their attempts to influence
legislation, but sometimes the legislation they want helps only their own group and may in fact be
detrimental to others.
DIF: Hard
REF: 54
OBJ: 1.3.1.3
STO: TEKS: 1A, TEKS:
23A
TOP: interest group, public policy
28. ANS:
Possible answer: The residents of the United States have come to expect that the government will
protect rights and contracts, assure safe food and drugs, keep the environment clean, and provide
necessary safety nets for residents.
DIF: Hard
REF: 62-63
OBJ: 1.3.3.1
STO: TEKS: 15A, TEKS:
23A
TOP: public policy, public goods
29. ANS:
The poverty threshold relates to free enterprise in that the United States has decided that all
residents should have a chance to live above this threshold and has instituted many programs to
help people do so, even if they need assistance that is not part of the free market.
DIF: Hard
REF: 67
OBJ: 1.3.4.1
STO: TEKS: 16A, TEKS:
23A
TOP: poverty threshold, free enterprise
30. ANS:
The three main goals sought by policymakers in the economy are employment for all who are
able to work, steady growth of the economy, and a stable and secure economy.
DIF: Hard
REF: 57-58
OBJ: 1.3.2.1
STO: TEKS: 16A, TEKS:
23A
TOP: public policy
31. ANS:
Temporary Assistance for Needy Families differs from earlier antipoverty programs in that it
provides a lifetime limit for assistance and requires work incentives.
DIF:
23A
TOP:
Hard
REF: 69
welfare, safety net
OBJ: 1.3.4.2
STO: TEKS: 15A, TEKS: