Section 2: Promising Growth & Stability Chapter 3 Section 2: Promising Growth & Stability

Tracking Business Cycles Macroeconomics- study of the behavior & decision making of entire economies Examines major trends for the economy as a whole Microeconomics- study of behavior & decision making of small units such as individuals, families, households, & businesses

One way economies measure economic well being is by calculating the nation’s Gross Domestic Product (GDP) Total value of all final goods & services provided in an economy

Economics follows a country’s GDP & other key stats to predict business cycles Period of macroeconomic expansion followed by a period of contraction Cycles are major fluctuations May last less than a year or continue for many years Government plays a role in attempting to prevent wild swings in economic behavior

Promoting Economic Strength Government creates public policies that aim to stabilize the economy Policy makers pursue 3 main outcomes as they seek to stabilize the economy 1. High employment 2. Steady growth 3. Stable prices

Employment Aim to provide jobs for everyone who is able to work 4-6% is the desirable unemployment rate

Growth Each generation should enjoy a higher standard of living than that of the previous generation Economies must grow to provide additional goods & services GDP is a measure of such growth

Stability Gives consumers, producers, & investors confidence in the economy & in our financial institutions, promoting economic freedom & growth One indicator is general price levels Government aim is to help prevent sudden, drastic shifts in prices

A surge in overall prices puts a strain on consumers In either direction, major fluctuations in price levels can cause a macroeconomics chain reaction that policymakers seek to avoid

Another sign is the health of the nation’s financial institutions Federal government monitors & regulates American banks & other financial institutions Produces hundreds of regulations & has the power to enforce them

Protect bank deposits & retirees’ pensions Investigate fraud & manage interest rates & the flow of money through the economy

Economic Citizenship Through the way it spends money & influences other macroeconomics factors, the government helps to compensate for the typical swings of the business cycle As a voter, your elective choices will help guide government policy

Technology & Productivity Increase productivity through work ethic

Technological Progress Improvements allow the U.S. economy to produce more output from the same or a smaller quantity of inputs or resources Allows the U.S. economy to operate more efficiently & productively increasing GDP & giving U.S. businesses a competitive advantage in the world

Innovation makes some production processes & workers obsolete, these resources can be used in other ways

The Government’s Role Provides incentives for innovation Federal agencies fund scores of research & development projects at universities Governments own research institutions, also produces a steady stream of new technology that makes their way into the marketplace

EX: NASA Created spin off producers with commercial users Muscle stimulators, scanners that see invisible flames Offers inventors the possibility of making huge profits in the free market Grants, patents, & copyrights