Understanding Economics The Economic Problem

National Economic Goals Question: What are our national economic goals?

Suggested National Economic Goals Low unemployment Low inflation Steady economic growth Fairness A level playing field Equal opportunity for all

Unemployment rate in U.S.

Number of employed

Inflation rate in U.S.

Growth rate in U.S.

GDP of the Nations compared Review these: List of countries by GDP List of countries by GDP per capita

The Basic Economic Questions 3 basic questions society must answer: what to produce how to produce it for whom to produce it (who gets it?) 2 basic approaches to answer these Q’s: Command economy Market economy

Command Economy A small group of people at the top make the decisions. Socialism: the government owns the factors of production. State-owned factories, farms, businesses. Communism: all private property is confiscated and owned by the State in the name “the people”. The middle and upper classes are exterminated. In the 1900’s Marxism was responsible for the murder of more than 100 million people.

Command Economies (cont.) Monarchy: The King owns everything. Any sort of private commercial enterprise requires a special “charter” from the King. Oligarchy: A small group of families, basically, run everything from the top. All about hereditary. Theocracy: The Mullah’s run everything.

Market Economy Private individuals make the decisions which answer the 3 ‘economic questions’ What to produce – the laws of supply & demand act as a thermostat How to produce – individual firms make decisions based on financial analysis For whom to produce – consumers wishing to buy goods will find them available Safety nets are established for the poor.

Mixed Economies Most countries have mixed economies. In the U.S., the private sector generates $20 Trillion in GDP. The Federal Government uses $4 Trillion of this, of which roughly $3 Trillion is transfer-payments to individuals.