Chapter 21 The U.S. Economy and the World American Civics 5/25/2019 Chapter 21 The U.S. Economy and the World Section 1: Overview of the U.S. Economy Section 2: Factors Affecting the U.S. Economy Section 3: Government’s Role in the U.S. Economy Section 4: Living in a World Economy Chapter 21

Section 1: Overview of the U.S. Economy The Main Idea In a market economy, buyers and sellers interact in the marketplace and respond to changes in prices by changing the amounts demanded and the amounts supplied. Reading Focus What are four basic economic systems? What is the free-enterprise economic system? What are three ways to invest in the economy?

How goods and services flow through the U.S. economy: Section 1: Overview of the U.S. Economy How goods and services flow through the U.S. economy: Consumers, producers, and the government exchange resources. Households supply resources to the government and businesses. Businesses supply resources to the government.

How goods and services flow through the U.S. economy: (continued) Section 1: Overview of the U.S. Economy How goods and services flow through the U.S. economy: (continued) Businesses make products and sell to households and the government. The government produces goods and services to benefit businesses and households. Employees earn wages, buy goods, and pay taxes.

The marketplace affects the price of goods: Section 1: Overview of the U.S. Economy The marketplace affects the price of goods: Supply and demand—the demand and supply of a good is related to its price Competition—competitors may lower prices to attract consumers Effect of competition on output—competition increases selection and supply Surpluses and shortages—prices lowered with surpluses, raised with shortages

How investments affect the economy: Section 1: Overview of the U.S. Economy How investments affect the economy: Entrepreneurship encourages economic growth and new product development. Venture capital is used to develop products, improve facilities, and pay for distribution. Business investments—money raised to hire workers and improve facilities; profits generate money for shareholders and bondholders

How investments affect the economy: (continued) Section 1: Overview of the U.S. Economy How investments affect the economy: (continued) Investment and technology—research and development investments lead to new technology products in the marketplace; new technology aids other businesses

Question: How does the marketplace affect the price of goods? SECTION 1 Question: How does the marketplace affect the price of goods? producers consumers supply PRICE shortages demand competition surpluses

Section 2: Factors Affecting the U.S. Economy The Main Idea Sometimes the economy performs well. Sometimes economic activity is not as strong. Many factors affect the performance of the economy. Economists try to understand how the economy is doing and predict its direction in order to advise businesses and the government. Reading Focus What is the business cycle? Why are human and capital resources important to the economy? How do current events affect the economy?

Factors influencing the business cycle: Section 2: Factors Affecting the U.S. Economy Factors influencing the business cycle: Business investment—creates demand and encourages competition; improves efficiency and lowers cost of production; leads to research and development Money and credit—when borrowing declines, business investment declines Public opinion—consumers spend more when economic future looks good, and thus businesses invest more

Factors influencing the business cycle: (continued) Section 2: Factors Affecting the U.S. Economy Factors influencing the business cycle: (continued) Changes in the global economy—for example, oil prices have triggered recessions and expansions War—leads to government spending, new jobs, and increased production

Tools used to predict the business cycle: Section 2: Factors Affecting the U.S. Economy Tools used to predict the business cycle: Leading indicators—used to predict about future economic growth; example: number of building permits issued Coincident indicators—used to understand the economy at the present time; example: personal incomes

Tools used to predict the business cycle: (continued) Section 2: Factors Affecting the U.S. Economy Tools used to predict the business cycle: (continued) Lagging indicators—used to predict how long the current phase might last; example: appearance of new businesses during an upturn

The movement and location of resources affects economic growth: Section 2: Factors Affecting the U.S. Economy The movement and location of resources affects economic growth: New companies seek locations with quality workers at the lowest wages. Low cost of foreign workers has caused many businesses to move factories and jobs out of the country. Many foreign workers immigrate seeking higher wages in the United States. More green cards are issued to skilled and educated immigrants.

SECTION 2 Question: What types of indicators help economics forecast the business cycle? UPTURN DOWNTURN decrease in building permits Coincident Indicators Lagging Indicators Leading Indicators increase in building permits falling sales decreased production rising sales increased production decline in number of businesses appearance of new businesses

Section 3: Government’s Role in the U.S Economy The Main Idea The government affects the economy through regulation and through fiscal and monetary policies. Proper use of these tools helps keep the economy functioning more smoothly and effectively. Reading Focus What are the goals of government regulation? How is fiscal policy used to influence the economy? How does the Federal Reserve use monetary policy to influence the economy?

Goals of government regulation: Section 3: Government’s Role in the U.S Economy Goals of government regulation: Protect workers—Equal Employment Opportunity Commission, Occupational Safety and Health Administration Protect consumers—Food and Drug Administration, Consumer Product Safety Commission

Fiscal policy is used to influence the economy. Section 3: Government’s Role in the U.S Economy Fiscal policy is used to influence the economy. tax incentives encourage business investments Government spending—increased spending raises demand and creates jobs; decreased spending reverses effects

Fiscal policy is used to influence the economy. (continued) Section 3: Government’s Role in the U.S Economy Fiscal policy is used to influence the economy. (continued) Public transfer payments—government funds enable poor and unemployed to continue spending Timing—economic forecasts used to time fiscal policy changes

The Fed influences the economy: Section 3: Government’s Role in the U.S Economy The Fed influences the economy: Monetary policy determines the amount of money available in the economy. Open-market operations—securities are bought or sold to contract or expand money supply

The Fed influences the economy: (continued) Section 3: Government’s Role in the U.S Economy The Fed influences the economy: (continued) Reserve requirement—lowered to expand the economy, raised to slow growth; banks lend more when reserve is low Timing and monetary policy—changes take time to affect economy

encourage competition Government Regulation limit negative effects SECTION 3 Question: What are the four main economic goals of government regulation? Four Main Goals of Government Regulation encourage competition protect workers Government Regulation protect consumers limit negative effects

Section 4: Living in a World Economy The Main Idea International trade allows countries to specialize in producing the goods and services where they are most efficient. Trade gives people access to more goods and services. Trade also makes countries interdependent. Reading Focus Why do countries trade with one another? What are the differences between free trade and protectionism? How does international trade affect jobs and consumers?

Free trade versus protectionism: Section 4: Living in a World Economy Free trade versus protectionism: Free trade promotes competition and efficient businesses; Trade barriers result in business and job losses; removing trade barriers promotes economic growth. (NAFTA)

Free trade versus protectionism: (continued) Section 4: Living in a World Economy Free trade versus protectionism: (continued) Protectionism—Tariffs will protect domestic industries; reducing foreign competition creates more jobs at home;

SECTION 4 Question: What effects can international trade have on jobs and consumers? Effects of International Trade Jobs Consumers As demand increases, companies build new factories and hire more workers. Consumers have access to goods that are scarce in their country. Increased competition causes prices to decline. Jobs are lost when companies move to foreign countries for inexpensive labor. The standard of living rises because consumers can afford more goods. Consumers can enjoy more choices.

Chapter 21 Wrap-Up 1. What is the circular-flow model? 2. Why is investment important in a free-enterprise system? 3. How does the location of capital and human resources affect the U.S. economy? 4. What role do current events play in a country’s economy? 5. What are the goals of government regulation? 6. What is the role of the Federal Reserve System in the U.S. economy? 7. Why do countries have tariffs? 8. What industries do both protectionists and free-trade supporters believe must be protected from foreign competition?