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Foundations American Civilization 10
Name
Date
Period
ECONOMIC REVIEW
WHY
3 Key Economic Questions
Different answers to each question, as well as people’s views on their economic goals,
creates different types of economies.
What goods and services should be produced?
How should goods and services be produced?
Who consumes the goods and services?
WHAT
An economic system is the method used by a society to make and distribute goods and
services. There are 3 types.
MARKET
(Capitalist, free-Enterprise)
CENTRALLY PLANNED
MIXED
( Command, Socialist, Communist)
(Social Democratic, Liberal Socialist)
Economic system based on
private ownership of
production, free markets,
and the right of individuals
to make most economic
decisions.
Central government
planners make most
economic decisions for the
people. In theory, the
workers own the means of
production, in practice, the
government does.
A mix of socialism and free
enterprise, in which the
government plays a
significant role in making
economic decisions.
United States
Germany, Canada, Japan
China, Cuba,
North Korea
France, Italy, Russia,
India, United Kingdom
1. Which has the least amount of government interaction?
2. Which has the most?
3. What is the main type of economic system in the United States?
GROSS DOMESTIC PRODUCT
The market value of all goods
and services produced in a nation
within a specific period of time.
MEASURES HOW A
NATIONS ECONOMY IS
DOING. If the GDP is not
increasing, then the economy is
probably in a recession.
Inflation = Prices increase while wages don’t. The
dollar is worth less.
Stagflation = inflation + high unemployment
Recession = a period of declining economic
activity (when the GDP falls for six months in a
row)
Budget deficit = when the government spends more
than it brings in.
Federal Reserve System – national banking
system that controls the U.S. money supply and the
availability of credit in the country.
Net Exports
GDP
Consumer Spending
Government Spending
Investment
What happens if the money supply increases faster than production?
SUPPLY & DEMAND
This is what determines the price of goods &
services.
Supply = amount of good or service that is able
to be produced at a given price.
Demand = amount of goods consumers can
buy at a given price.
Equilibrium Price = price at which the amount
produced and the amount demanded is the
same. Market operates efficiently.
Surplus = more goods than people want
Shortage = people want more goods than what
is available.
Surplus
Shortage
= Equilibrium Price
Supply
Price
Demand
What is the point at which supply and demand intersect known as?
When does a surplus occur?
When price goes up, what happens to supply? To demand?
THE STOCK MARKET or STOCK EXCHANGE
A place where stocks and bonds are bought and sold. Large companies sell stocks (or
shares) of ownership in their companies in order to raise money. Individuals invest in
securities to make a profit. The sale of securities takes place in the stock exchange. The
largest exchange in the U.S. is the New York Stock Exchange.
Activity on this and other exchanges signals how well the economy is doing.
Dow Jones Industrial Average – based on the prices of the stocks of 30 large
companies, often used to indicate how the stock market is doing.
THE AMERICAN ECONOMY
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Producers & consumers motivated by self-interest.
To make more money, producers try to make goods and services that consumers want.
Producers engage in competition (by lowering prices, advertising, improving quality) to get more
people to buy goods.
Consumers serve self interest by purchasing the best goods & services for the lowest price.
Government plays a limited but important role.
INDIVIDUALS
Demands Goods
Supplies Goods
PRODUCT MARKET
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Create demand
Offer Labor
PRODUCERS
Send goods to market
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Sells goods and services
Hires Labor
GOVERNMENT
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Collects Taxes
Offers Services
Regulates Economy
Equalizes distribution of wealth
Create goods
Hire Labor