1. Coping with Economic Challenges

2. Cause of Economic Problems
Inflation
If prices increase faster than wages, people can’t buy as much
Hurts the purchasing power of the dollar, standards of living may decrease
Unemployment
Unemployed cannot pay bills or taxes, buy fewer goods and services
Sometimes have to seek government assistance, which cost taxpayers money
Recessions
Production, spending, and consumer demand decline during recessions
Businesses produce less which leads to higher unemployment
Unemployment decreases individual savings, which hurts the banks who lend money to businesses

3. Money & Loans
Some economists believe a major cause of inflation is having too much money in circulation
Additional money spent causes prices to rise
Some economists argue the banks make too many loans
People and businesses will spend that money on goods and services, same effect as increasing the money supply
Businesses that borrow and expand too rapidly may produce more than they can sell
Must slow production, contributing to a recession

4. Government & Consumer Spending
Some argue the government is borrowing and spending too much
Borrowing puts more money into the economy, helps raise prices, and adds to the national debt
Increased taxes needed to pay this debt take money out of the hands of individuals
Consumers share responsibility for the country’s economic difficulties
Spending or borrowing money for things we can’t afford affect consumer savings

5. Productivity
Productivity refers to the amount a worker produces per hour
Rising productivity leads to higher wages, higher profits, lower prices
Productivity in other countries has increased faster than in the U.S.
Means more cheaper foreign goods that American businesses have to compete with
Many American businesses find the only way to increase productivity is to modernize their factories
Costs millions, jobs go to automated machines/robots instead of actual people
Because of these costs, many businesses have relocated overseas to reduce their costs and increase productivity- this results in thousands of jobs lost

6. The Government’s Response
Changing Fiscal Policy
Reducing taxes gives people more money to spend and save
Increased consumer spending (because of lower taxes) encourages businesses to produce more, which leads to more jobs
Increased consumer savings (because of lower taxes) gives banks more money to lend to expanding businesses
Government increases its own spending
Buys goods and services, hires people to work for the government
May give larger payments to impoverished or unemployed

7. The Government’s Response
Changing Monetary Policy
FED may increase money supply or lower interest rates banks pay to the FED
Low interest rates encourage businesses to expand
In a boom, the FED will take the opposite actions
Federal govt. will raise taxes and reduce spending
FED will increase the interest rate and make it harder for banks to lend out money

8. Other Ways to Help the Economy
Reduce Government Spending
Govt. can reduce wasteful spending/halt unnecessary programs
Govt. could try to spend only the money it receives in taxes to help with borrowing and the national debt
Increase Savings
Consumers can reduce spending and save more of their income
Buy American-Made Products
Helps American businesses prosper
Preserves jobs for American workers or can create new jobs
Increase Productivity
Businesses should try to operate more efficiently
If workers increase their productivity, they may earn higher wages without contributing to inflation (wealth should not increase faster than productivity)

9. ? What are three major causes of economic problems?
How does the money supply and loans contribute to economic problems?
How does government and consumer spending contribute to economic problems?
What are some of the challenges that modernization presents to business owners?
List three ways in which consumers can help the economy grow.