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3. Read to Learn
Describe the four types of economy that the United States has experienced.
Describe what is shown by GDP, the unemployment rate, rate of inflation, and the national debt.

4. The Main Idea
Throughout the years, the U.S. economic system has changed. Each change affected what was produced and how people were employed. To gauge the health of our economic system, we use a variety of economic indicators.

5. The Changing U.S. Economy
Sometimes major shifts in certain growth areas can change the emphasis of the U.S. economy.
The United States has experienced four major economic shifts.

6. Graphic Organizer Farming created our agriculture-based economy
The invention of computers created the information-based economy
1600s
1700s
1850s
1900s
Present
Bartering and trading created our service-based economy
The Industrial Revolution started the industry-based economy
We live in the information age, but still rely upon the other types of economies

7. Unsung Heroes
Each nation’s economy has had its unsung heroes and heroines.
One hero of the Industrial Revolution might have been French-born Joseph Jacquard, who conceived the Jacquard loom, a system for the mass production of woven fabrics.

8. Measuring Economic Activity
Economic indicators measure things such as:
how much a country is producing
whether the economy is growing
how the economy compares to other countries

9. Gross Domestic Product
Measuring gross domestic product (GDP), involves computing the sum of goods and services sold to businesses, consumers, the government, and other countries.
gross domestic product (GDP)
the total value of goods and services produced in a country in a given year

10. Standard of Living
The United States has a high standard of living because of its productive workforce.
standard of living
the level of material comfort as measured by the goods and services that are available

11. Graphic Organizer Free Enterprise System Benefits to the Community
Wealth is created by businesses
Benefits to the Community
Businesses pay taxes
Businesses provide jobs

12. Unemployment Rate
The unemployment rate measures the number of people who are able and willing to work but cannot find work during a given period.

13. With inflation, one’s buying power decreases.
Rate of Inflation
With inflation, one’s buying power decreases.
inflation
a general increase in the price of goods and services

14. Rate of Inflation War Increase in the price of raw materials
Causes of Inflation
War
Increase in the price of raw materials
Increase in expenses
Increase in salaries
Too much money circulating in the economy

15. Rate of Inflation
Deflation can occur when the supply of goods is greater than the demand.
deflation
a general decrease in
the price of goods and services

16. Graphic Organizer Deflation
Economy produces more goods than people want.
Sellers lower prices.
Sellers cut production.
People have less money to buy goods.
Demand continues to go down.

17. National Debt
To pay for a budget deficit, governments borrow money from the public, banks, and other countries.
budget deficit
when the government spends more on programs than it collects in taxes

18. National Debt
If the national debt gets too large, a nation can become dependent on other nations or unable to borrow money.
national debt
the total amount of money a government owes

19. In the late 1990s, the United States experienced a budget surplus.
National Debt
In the late 1990s, the United States experienced a budget surplus.
budget surplus
when a government’s revenue exceeds its expenditures during a one-year period

20. You are a purchasing agent for a large furniture manufacturer
You are a purchasing agent for a large furniture manufacturer. You have received several bids from lumber companies for a supply of teak, a very dense and decay-resistant type of wood. The lowest bid comes from a lumber company that has been known to abuse the environment.
Decision Making How does the lumber company’s reputation affect your decision? Explain your answer.

21. Answer
Students might suggest that all aspects of the company’s reputation should be considered before making a decision to buy from the company.

22. When did the service-based economy begin?
The service economy started in colonial times, when colonists traded among themselves for services.

23. What do economic indicators measure?
Economic indicators measure the economic health of the nation.

24. What is the difference between a budget surplus and a budget deficit?
A budget surplus occurs when revenue is more than expenses whereas a budget deficit occurs when expenses are more than revenue.

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28. The Main Idea
In a market economy, there is an economic cycle, which includes four stages: prosperity, recession, depression, and recovery. These are also the four stages of the business cycle. In the last few decades, we have experienced the economic cycle a number of times.

29. Guiding the Economy
Congress and the President enact laws that impact fiscal policy.
Government expenditures are often planned to guide the economy.

30. Guiding the Economy
The Federal Reserve (“the Fed”) is a government agency that guides the economy.

31. Graphic Organizer Guiding the Economy The Federal Reserve
Regulates the amount of money in circulation
Controls the amount of money loaned
Controls interest rates
State and local governments also take steps to influence their economies

32. Four Stages of the Business Cycle
The business cycle of one country can affect other trading partners.
business cycle
the rise and fall of economic activity

33. Figure 3.1
Business Cycle Model

34. Prosperity
Prosperity results from low unemployment, high production of goods and services, and the opening of new businesses.
prosperity
a peak of economic activity

35. Characteristics of Prosperity
Graphic Organizer
Characteristics of Prosperity
Higher wages
Greater demand for goods to be produced
More people buy houses, which creates work for builders
People buy more goods from other countries, which benefits those countries

36. Recession
During a recession, businesses produce less, so they need fewer workers.
recession
when economic activity slows down

37. Characteristics of a Recession
Graphic Organizer
Characteristics of a Recession
Businesses produce less
Unemployment increases
People have less money to spend
Fewer goods and services are produced
The GDP declines

38. Recession
A recession in one industry can cause a ripple effect throughout the entire economy.

39. Depression
A depression can be limited to one country but usually spreads to related countries.
depression
a deep recession

40. Characteristics of a Depression
Graphic Organizer
Characteristics of a Depression
High unemployment
Low production of goods and services
Can last for several years
Spreads to other countries
High number of unused manufacturing facilities
Very rare

41. Depression
The stock market crash on October 29, 1929, or “Black Tuesday,” marked the beginning of the Great Depression.

42. Graphic Organizer Many banks around the country failed
Unemployment rose nearly 800 percent
The Great Depression
Many towns
and other civic bodies printed their own money
The GDP fell nearly 50 percent
The average manufacturing wage was 5 cents an hour
The money supply fell by one-third

43. “Depressionproof”
During the Great Depression, millions of people lost their homes and livelihoods.
A large percentage of middle-class Americans were able to keep their jobs. These people were in professions considered “depressionproof.”

44. Production starts to increase during a recovery.
a rise in business activity after a recession or depression

45. Characteristics of a Recovery
People start going back to work
People have money to purchase goods and services
Demand for goods and services stimulates more production
New businesses open
Businesses become more innovative

46. Recovery
In 1939, the United States was beginning to recover from the depression when World War II began.
The war increased the rate of recovery because of the demand for production.

47. What is the stage that follows a recession or depression?
The recovery stage can happen after either a recession or a depression.

48. What is the difference between a recession and a depression?
A recession is a slight downturn; a depression is a major downturn.

49. Why may innovation play an important role in the recovery stage of a business cycle?
Innovation creates demand that leads to more employment and production, which leads to more demand.

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