Promoting growth and stability Chapter 3

Tracking economic data is one tool the government uses to promote economic growth and stability

Tracking Business Cycles Even under our free enterprise system, the government intervenes to influence macroeconomic trends Macroeconomics is the study of economic behavior and decision- making in a nation’s whole economy Microeconomics is the study of economic behavior and decision- making in small units, such as households or firms

gDP and the Business cycle One measure of a nation’s economic well-being is gross domestic product (GDP) The total value of all final goods and services produced in a country in a given year In a period of growth, a country produces more than it did before and GDP goes up In a period of contraction, the country produces less than it did before and GDP goes down The pattern of expansion and decline is called the business cycle (major fluctuations, not day-to-day)

Making predictions Changes in the business cycle take place because individuals and businesses, acting in their own self-interest, make decisions about factors such as price, production, and consumption. Increase production Hire more workers Buy fewer goods/services Cut production Lay-off workers

Promoting economic strength Because the market is vulnerable to the business cycles, the government tries to create public policies that promote economic strength. They do so by pursuing three main goals: High employment Growth stability

employment Ensure jobs for everyone who is able to work Unemployment rate between 4-6% is a health economy If the unemployment rate is too high, the government may take steps to encourage job growth

Economic Growth Part of the “American Dream” has always been for each generation to enjoy a higher standard of living than that of the previous generations For that to happen, the economy must grow to provide additional goods and services to succeeding generations An increasing GDP is a sign of growth To help growth, governments may cut taxes or increase spending (stimulating the economy)

Stability and security The government also seeks to keep the economy stable If the economy fluctuates unpredictably, economic growth will slow or even stop One indicator of economic stability is the general level of prices— drastic price changes (up and down) can send problems across the economy Another indicator is economic stability of our financial institutions (banks and stock market)

Economic Citizenship Voters play a vital role in shaping government economic actions Economic policy is made by elected officials and workers they appoint

Technology and productivity The American economy support a greater standard of living than most economies of the world One way to preserve that standard of living is by increasing productivity—producing more outputs from same or smaller amounts of inputs

Technological process Improved technology is a key factor in boosting productivity Technological progress has enabled the US to operate more efficiently, increasing GDP, and giving us a competitive advantage in the world Innovation leads to obsolescence—older products and processes become out-of-date

The government’s role The government promotes innovation and invention owns research institutions Grants patents and copyrights