CHAPTER 4: GLOBAL ECONOMICS

CHAPTER FOUR SECTION ONE 4.1

I. WHAT IS ECONOMICS? THINGS THAT TOUCH YOUR DAILY LIFE. (Gasoline – Oil) (Cheese – Oil) Interest Rates (Car / House) THE WAY A NATION MAKES DECISIONS FOR USING RESOURCES TO PRODUCE AND DISTRIBUTE GOODS AND SERVICES.

A. RESOURCES ALL THINGS USED IN PRODUCING GOODS AND SERVICES.

THERE ARE THREE BASIC ECONOMIC RESOURCES: 1. LAND- EVERYTHING ON EARTH IN A NATURAL STATE 2. LABOR- ALL PEOPLE WHO WORK IN OUR ECONOMY 3. CAPITAL- MONEY AND MACHINERY NEEDED TO START AND OPERATE A BUSINESS

B. CONCEPT OF SCARCITY PEOPLE HAVE UNLIMITED WANTS AND NEEDS BUT LIMITED RESOURCES AND WE MUST MAKE CHOICES. UNLIMITED WANTS+LIMITED RESOURCES=SCARCITY

II. HOW DOES AN ECONOMY WORK? NATIONS MUST ANSWER THREE BASIC QUESTIONS WHEN DECIDING HOW TO USE THEIR RESOURCES: WHAT GOODS AND SERVICES SHOULD BE PRODUCED? HOW SHOULD THEY BE PRODUCED? FOR WHOM SHOULD THEY BE PRODUCED FOR?

A. MARKET ECONOMY THE PEOPLE ANSWER THE BASIC ECONOMIC QUESTIONS AND PRODUCTS AND PRICES ARE KEPT COMPETITIVE. CAPITALISM (U.S. AND JAPAN)

B. COMMAND ECONOMY THE GOVERNMENT ANSWERS ALL QUESTONS AND SETS PRODUCTS AND PRICES. COMMUNISM (CUBA, NORTH KOREA, CHINA)

C. MIXED ECONOMY- BOTH GOVERNMENT AND PEOPLE ANSWER THE ECONOMIC QUESTIONS AND RUN THE COUNTRY. SOCIALISM (SWEDEN, AUSTRIA, GREAT BRITIAN)

CHAPTER FOUR SECTION TWO 4.2

III. ECONOMIC MEASUREMENTS A. GOALS OF A HEALTHY AND SUCCESSFUL ECONOMY ARE:

1. INFLATION- PRICES RISE (1-5% IS STABLE)

2. FULL EMPLOYMENT- WHEN 96% OF THE CIVILIAN WORK FORCE IS EMPLOYED (16 YRS. OR OLDER)

3. PRODUCTIVITY DIVIDING OUTPUT OF PRODUCTION BY INPUT OF RESOURCES AND CAPITAL

4. STABLE PRICES- PRICES THAT DO NOT INCREASE 4. STABLE PRICES- PRICES THAT DO NOT INCREASE IN A SHORT PERIOD OF TIME.

B. FOUR INDICATORS THAT MEASURE THE ECONOMY Employee Productivity GDP Inflation (CPI / PPI) Unemployment Rate

1. Employee Productivity PRODUCTIVITY IS OUTPUT PER WORKER HOUR THAT IS MEASURED OVER A DEFINED PERIOD OF TIME. HOUR DAY WEEK MONTH YEAR WORKERS X HOURS X TIME = OUTPUT PER TIMEFRAME

2. GROSS DOMESTIC PRODUCT MEASURES TOTAL VALUE OF A NATIONS GOODS AND SERVICES PRODUCED IN A GIVEN PERIOD OF TIME (1 YEAR)

3. STANDARD OF LIVING- A MEASUREMENT OF THE AMOUNT OF GOODS AND SERVICES THAT PEOPLE HAVE IN A NATION. DETERMINES QUALITY OF LIFE. U.S HAS THE HIGHEST.

4. UNEMPLOYMENT RATE- AVAILABLE FROM BOTH STATE AND FEDERAL GOV, THE HIGHER UNEMPLOYMENT, THE GREATER THE CHANCE OF RECESSION OR DEPRESSION. Long Term Unemployment Part-Time Unemployment GREAT DEPRESSION: AT ITS HIGHEST, THE UNEMPLOYMENT RATE REACHED 25%

IV. BUSINESS CYCLE THE SUCCESS OF ANY INDIVIDUAL BUSINESS IS STRONGLY AFFECTED BY EVENTS IN THE ECONOMY AND BY THE INDIVIDUAL MEMBERS WITHIN THE ECONOMY. THERE ARE 4 PHASES WITHIN A BUSINESS CYCLE:

A. PROSPERITY- ECONOMY IS GROWING, LOW UNEMPLOYMENT, INCREASE IN OUTPUT OF GOODS AND SERVICES, AND HIGH CONSUMER SPENDING.

B. RECESSION- ECONOMIC GROWTH SLOWS, UNEMPLOYMENT BEGINS TO RISE, FEWER GOODS AND SERVICES ARE PRODUCED AND CONSUMER SPENDING DECREASES. SOMETIMES THERE IS QUICK RECOVERY.

C. DEPRESSION- A PROLONGED RECESSION. POVERTY CAN RESULT.

D. RECOVERY- THE ECONOMY BEGINS TO GROW AGAIN AFTER DEPRESSION OR RECESSION.

V. FACTORS THAT AFFECT THE BUSINESS CYCLE BUSINESS CYCLES ARE AFFECTED BY THE ACTIONS OF BUSINESSES, CONSUMERS, AND GOVERNMENT.

A. ACTIONS OF BUSINESS- BUSINESSES MAKE THEIR DECISIONS BASED ON THE BUSINESS CYCLE. DURING PROSPERITY AND RECOVERY THEY WILL INVEST IN PROPERTY, EQUIPMENT, AND INVENT.

B. ACTIONS OF CONSUMERS- CONSUMERS HAVE AN EFFECT ON THE ACONOMY WHEN THEY INCREASE OR DECREASE THEIR SAVINGS AND/OR SPENDING.

C. ACTIONS OF GOVERNMENT- GOVERNMENT WILL SET POLICIES TO CONTROL HIGHS AND LOWS OF THE BUSINESS CYCLE.