1. C HAPTER 2 Economics and the Global Economy

2. D O N OW : Why do you need to be concerned about the views of those running for government offices? What is the role of money in the economy? Trading, saving, investing, lending What are some benefits and drawbacks of government involvement in the economy? Main Idea-Chapter 2: The more you know about how an economy operates and the government’s role in the economy, the better educated you will be when making life decisions about the use of your financial resources, voting for government officials, and planning your future career.

3. F UNCTIONS OF M ONEY Medium of Exchange Unit of Value Compare prices on goods and services Store of Value Accumulate & save $$$ Retrieve at later time Loss of value High inflation Fiat Money Legal tender

4. C HARACTERISTICS OF M ONEY Divisible is ¼ of a Usable Stable Use = amounts of $$$$ from week to week

5. M ONEY S UPPLY Total amount of $$$$ in circulation Effect on prices Inflation $$$ supply increases more than production (more money than goods) Cause: borrowed money in circulation Deflation Lots of productivity and low money supply Prices decrease

6. D EFLATION

7. W HAT TYPES OF SERVICES ARE FUNDED WITH THIS MONEY ?

8. R OLE OF G OVERNMENT IN THE E CONOMY Do Now: Read page 36, 37, 39, 40. What is a budget deficit, budget surplus? How does a budget deficit add to the national debt? What three roles does the Government serve to the economy? List one example for each role Explain why the government spends money on various assistance programs. How does this assistance affect the economy? Choose 3 of the assistance programs and explain what they do. Are the programs worth the opportunity cost? Explain!

9. R OLE OF G OVERNMENT IN THE E CONOMY : R EGULATION Regulatory Agencies Investors Securities and Exchange Commission Federal Reserve System Workers Occupational Safety and Health Administration (OSHA) Guidelines for worker safety Equal Employment Opportunity Commission Regulates hiring, firing, promotions Purpose- equal treatment based on ability

10. R OLE OF G OVERNMENT IN THE E CONOMY Consumers Food and Drug Administration Federal Trade Commission Consumer Product Commission Environment EPA

11. R OLE OF G OVERNMENT IN THE E CONOMY : P ROTECTION Protection of business Patents Protects inventors Copyrights Must get permission to use intellectual property Trademarks Protects company name and reputation Protection of Citizens Military, police, CIA, etc… Lawyers, doctors, hair stylists, etc….

12. R OLE OF G OVERNMENT IN E CONOMY : A SSISTANCE Education Disaster relief Energy Food Housing Insurance Health care Assistance Programs: FICA Food stamps FEMA

13. D O NOW What is the government’s role in supporting and stabilizing the economy? How do these actions impact your personal finances? govt. controls the federal rate. If govt raises the rate, rates on loans will increase.

14. F EDERAL R ESERVE S YSTEM 12 Fed Reserve Banks The Federal Reserve System is the Central Bank of the United States Guides Monetary Policy Regulates the U.S. Banking System Foreign Exchange Rates Interest Rates

15. E CONOMIC I NDICATORS AND Y OU Economic Goals Growth, stable prices, and full employment Indicators Study state of the economy to measure goals

16. E CONOMIC I NDICATORS Gross Domestic Product (GDP) Value of all goods and services produced inside a country Consumer Spending- largest % of GDP Consumer Price Index (CPI) Measure cost of goods & services for urban family (food, medical, transportation) Purpose Determine inflation, deflation, stability

17. E CONOMIC I NDICATORS Unemployment Rate % of workforce ACTIVELY looking for work 5% is acceptable rate

18. B USINESS C YCLES Expansion Positive economic indicators Decrease unemployment Peak- then begins to decline Recession Economic downturn Increase unemployment Decrease consumer demand Govt- loss of revenue Trough Low point in business cycle Between recession & recovery phase Economic indicators slowly become positive Recovery Business invest in more capital, hire more workers Decrease unemployment Stable prices

20. Roles of Trade Individuals Organizations Nations Trade skills for wages Trade goods and services for revenue Trade with other nations for resources

21. R OLE OF T RADE : E VERYONE G AINS Division of Labor and Specialization Division of tasks Increase productivity International Trade Imports, Exports- create global marketplace Benefit- increase competition

22. W HY N ATIONS TRADE Scarcity of resources Absolute Advantage Produce more of a product than any other nation Comparative Advantage Produce products more efficiently than other nations

23. B ALANCE OF T RADE Difference between value of a country’s imports and exports during a specific period Trade Deficit Not always a bad thing Opportunity for foreign investors Ex-Japanese cars

25. F REE T RADE VS. P ROTECTIONISM Free Trade No regulations amongst global trade Output, competition increase NAFTA, EU World Trade Organization (WTO) Protectionism Barriers to free trade Protect domestic industries Tariffs Quota embargo