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Chapter Intro 2 Section 1: The Role of Government Free enterprise is the freedom of individuals and businesses to operate and compete with a minimum of government interference or regulation. In order to encourage competition and prevent monopolies, governments take steps to regulate economies.

Chapter Intro 2 Section 2: Measuring the Economy An economic system is the way a society organizes the production and consumption of goods and services. Our government plays a limited, but important, role in measuring and trying to balance the alternating periods of growth and decline called the business cycle.

Chapter Intro 2 Section 3: Government, the Economy, and You People form governments to establish order, provide security, and accomplish common goals. A major focus of government programs is to help people in poverty.

Chapter Preview-End

Section 1-Main Idea Guide to Reading Big Idea Free enterprise is the freedom of individuals and businesses to operate and compete with a minimum of government interference or regulation.

Section 1 Providing Public Goods Governments usually provide public goods, while businesses usually provide private goods.

Section 1 Providing Public Goods (cont.) Businesses provide private goods and governments provide public goods.private goodspublic goods

Section 1 Private goods only consumed once –Someone can be excluded from goods and services if unwilling to pay –Include items such as clothes and food –Private services: haircuts, insurance, medical services, and so on Providing Public Goods (cont.)

Section 1 Public goods shared by everyone –Government provides –Examples: Libraries, roads, parks –Taxes pay for them –Produce positive and negative externalities, or unintended side effects externalities Providing Public Goods (cont.)

Section 1 Maintaining Competition One government role is to ensure competition in the economy.

Section 1 Maintaining Competition (cont.) Governments protect citizens by regulating business.

Section 1 A monopoly is one provider controlling a market.monopoly –Antitrust laws preserve competitionAntitrust laws –Sherman Antitrust Act passed in 1890 –Mergers threaten competitionMergers Maintaining Competition (cont.)

Section 1 Areas where government regulation is key: –Natural monopolies, such as gas, water, or local telephone serviceNatural monopolies –Food and Drug Administration and Federal Trade Commission –Product safety—unsafe products are recalled recalled Maintaining Competition (cont.) Federal Regulatory Agencies

Section 1-End

Section 2-Main Idea Guide to Reading Big Idea An economic system is the way a society organizes the production and consumption of goods and services.

Section 2 Measuring Growth The real gross domestic product is the most accurate measure of an economy’s performance.

Section 2 Measuring Growth (cont.) The real GDP tells whether the economy is growing.real GDP Economists measure periods of growth and decline.

Section 2 GDP: –Dollar value of all goods and services produced in a year –Price increases raise GDP but don’t grow economy –Real GDP removes distortions Measuring Growth (cont.)

Section 2 The business cycle is alternating periods of growth and decline in the economy.business cycle Measuring Growth (cont.) Model of the Business Cycle

Section 2 Business Fluctuations The economy goes through alternating periods of growth and decline.

Section 2 Business Fluctuations (cont.) Periods of increase and decline affect the American economy. –Real GDP up: expansion –Real GDP down for six months in a row: recession U.S. Business Activity Since 1880 Average recession lasts one year Many people lose jobs

Section 2 Civilian labor force:Civilian labor force –All civilians 16 or older who work or seek work (half of all people in the U.S.) –Unemployment rate measures those in civilian labor force who are seeking workUnemployment rate –Impact of unemployment Business Fluctuations (cont.) Unemployment Rate and the Business Cycle

Section 2 Changes in government spending or taxes is fiscal policy.fiscal policy –Political climate affects ability to implement policy Business Fluctuations (cont.)

Section 2 Inflation reduces purchasing power.Inflation –Consumer price index (CPI) measures inflationConsumer price index (CPI) –Causes speculation –Distorts pricing Business Fluctuations (cont.)

Section 2 Stocks and Stock Markets Stock markets are usually good indicators of the health of the economy.

Section 2 Stocks and Stock Markets (cont.) Stock markets are indicators of economic health. –Profits in form of dividends and capital gains –Stock value determined by supply and demand

Section 2 Stock market indexes track stock prices over time. –Dow-Jones Industrial Average (DJIA) Stocks and Stock Markets (cont.) 30 representative stocks 500 largest stocks –Standard and Poor’s (S&P)

Section 2 Stocks sold at stock exchanges –New York Stock Exchange (NYSE) –NASDAQ (electronic market) Stocks and Stock Markets (cont.)

Section 2 Stock prices reveal investors’ attitudes. –Bull market is optimistic –Bear market is pessimistic Stocks and Stock Markets (cont.)

Section 2-End

Section 3-Main Idea Guide to Reading Big Idea People form governments to establish order, provide security, and accomplish common goals.

Section 3 Income Inequality Education, family wealth, and discrimination are reasons for income differences.

Section 3 Income Inequality (cont.) Income is influenced by education, family wealth, and discrimination. College graduate has the potential to earn twice the income of high school graduate.

Section 3 Women and minorities experience discrimination on the job. –Fewer promotions –Lower salaries Income Inequality (cont.)

Section 3 Laws reduce discrimination –Equal Pay Act of 1963 –Civil Rights Act of 1964 –Americans with Disabilities Act of 1990 –Courts help enforce Income Inequality (cont.)

Section 3 Poverty Poverty is a major problem in America.

Section 3 Poverty (cont.) Government has created programs to help poor people. Incentives encourage self-improvement

Section 3 Poverty (cont.) Guidelines determine eligibility for programs –Revised yearly –Based on what is needed to survivesurvive –2006: $9,800 annual income and below is impoverished –Nearly 37 million people impoverished

Section 3 Federal welfare programs –Food Stamp programFood Stamp –Women, Infants, and Children (WIC)Women, Infants, and Children (WIC) –Supplemental Security Income (SSI) –Temporary Assistance to Needy Families (TANF) Poverty (cont.)

Section 3 Workfare usually at state levelWorkfare Progressive income tax Poverty (cont.) –People with lower incomes taxed at a lower rate

Section 3 Earned Income Tax Credit (EITC) –Provides tax credits or cash assistance –Helps almost 20 million people each year Poverty (cont.)

Section 3-End

VS 1 Government and the Economy Government’s Role Government provides public goods. Government regulates the economy to ensure competition.

VS 2 Government and the Economy Measuring the Economy Real GDP is GDP that has been adjusted for inflation. The real gross domestic product is the most accurate measure of an economy’s performance. Government must deal with unemployment, inflation, and periods of growth and decline called the business cycle. Stock markets are usually good indicators of the health of the economy.

VS 3 Government and the Economy The Problem of Poverty Education, family wealth, and discrimination are reasons for income differences. Government uses several different programs and policies to combat poverty.

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DFS Trans 1 It is an exaggerated claim in terms of the number of patients and results, so it is probably not true.

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Vocab1 private goods goods that, when consumed by one individual, cannot be consumed by another

Vocab2 public goods economic goods that are consumed collectively, such as highways and national defense

Vocab3 externality the unintended side effect of an action that affects someone not involved in the action

Vocab4 monopoly when the market creates a sole provider for a good or service

Vocab5 antitrust law legislation to prevent new monopolies from forming and police those that already exist

Vocab6 merger a combination of two or more companies to form a single business

Vocab7 natural monopoly a market situation in which the costs of production are minimized by having a single firm produce the product

Vocab8 recall situation in which a company pulls a product off the market or agrees to change it to make it safe

Vocab9 exclude to shut out

Vocab10 achieve to accomplish or successfully gain

Vocab11 minimize to make as small as possible

Vocab12 real GDP GDP after adjustments for inflation

Vocab13 business cycle alternating periods of growth and decline that the economy goes through

Vocab14 civilian labor force all civilians 16 years old or older who are either working or are looking for work

Vocab15 unemployment rate the percentage of people in the civilian labor force who are not working but are looking for jobs

Vocab16 fiscal policy the federal government’s use of spending and taxation policies to affect overall business activity

Vocab17 inflation sustained increase in the general level of prices

Vocab18 consumer price index (CPI) measure of change in price over time of specific group of goods and services

Vocab19 period a length of time

Vocab20 implement to put into practice

Vocab21 food stamps coupons that can be used to purchase food

Vocab22 Women, Infants, and Children (WIC) a program that provides help for nutrition and health care to low- income women, infants, and children up to age 5

Vocab23 workfare programs that require welfare recipients to exchange some of their labor in return for benefits

Vocab24 progressive income tax a tax that takes a larger percentage of higher incomes than lower incomes

Vocab25 Earned Income Tax Credit (EITC) a program that gives tax credits and even cash payments to qualified workers

Vocab26 survive to continue to exist

Vocab27 supplement something that supplies what is needed or makes an addition

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