1. Promoting Growth and Stability
Chapter 3: Section 2

2. Macro Vs. Micro
Macroeconomics--> study of economic behavior and decision making in a nation’s whole economy
Microeconomics--> study of economic behavior and decision making in small units, such as households and firms

3. Macroeconomics

4. Microeconomics

5. GDP and the Business Cycle
Gross Domestic Product (GDP)--> total value of all final goods and services produced in a country in a given year
When in a recession, GDP goes down; In a growing economy GDP goes up

6. GDP United States GDP in 2008 was 14.59 Trillion GDP can rise and fall
Period of expansion, followed by a period of decline is called a business cycle

7. Business Cycles
Business cycles are major fluctuations, unlike the day to day ups and downs of the stock market

8. Making Predictions
Business owners who think consumers are going to spend more in the future may increase production and hire more workers
If enough employers take these steps the the economy will grow

9. Concerns of Rising Prices
Might lead consumers to buy fewer goods
If a decrease in consumer spending is widespread and lasts long enough, suppliers might be forced to cut production and lay off workers

10. Promoting Economic Strength
Government employs economists to track and predict future business cycles
Government tries to create policies to promote economic strength

11. 3 Major Goals
1. Employment
2. Growth
3. Stability

12. Employment

13. Employment
Many economists consider an unemployment rate of 4-6% to be good
Latest unemployment rate for the United States was 9.0% in January 2011

14. 2. Economic Growth
Always been the “American Dream” that each generation will enjoy a higher standard of living that previous generations
The economy must grow for that to happen…Is this still a reality?

15. 3. Stability
Major indicator is stability is the general level of prices
Price surges strain consumers, especially those living on fixed incomes
Falling prices on the other hand harm producers

16. Other Signs of Stability
The security of our financial institutions is another sign of our economic stability
We want to feel that our money is safe and protected from fraud or mismanagement

17. Economic Citizenship How can consumers have a say?
Referendums--> proposed laws submitted directly to the public, on spending or other economic issues
Way for voters to directly impact government economic actions

18. Technology and Productivity
Improved technology = more productivity
Innovation leads to obsolescence--> situation in which older products and processes become out of date

19. Obsolescence Workers can become obsolete Historical examples?
Telephone operators

20. The Government’s Role The government promotes innovation and invention
The government has their own research institutions…such as?

21. NASA

22. Government Issues Patents
Government license that gives the inventor of a new product the exclusive right to produce and sell it for 20 years

23. Also Issues Copyrights
Grants an author exclusive rights to publish and sell their creative works
In the United States, a copyright lasts for life + 70 years

24. Providing Public Goods
Chapter 3: Section 3

25. Public Goods
A shared good or service for which it would be inefficient or impractical to make consumers pay individually or exclude those who do not pay

26. Taxes vs. Paying Individually
What would your share of the upkeep of Mt. Rushmore be worth?

27. Excluding Nonpayers?
How would we check to see if everyone paid for access to this road?

28. Taxes are the Answer
To simplify the funding of government projects in the public interest, the government collects taxes
We pay whether we go to the park or not, use the street or not, etc

29. Open to All
Any number of consumers can use them public goods without reducing the benefits to any single consumer
Increasing the number of consumers does not increase the cost of providing the good

30. Costs and Benefits
Infrastructure basic facilities that are necessary for a society to function and grow
Transportation is a good example

31. Transportations
Transportation goes more smoothly when government builds roads
We have to give up economic freedom to do so

32. 2 Conditions Must be present
If something is to be produced as a public good you need:
1. benefit to each individual is less than the cost that each would have to pay if it were provided privately
2. Total benefits to society are greater than the total cost

33. Free-Rider Problem
A free rider is anyone who does not pay for a good or service but receives the benefit anyway
Free riders consume that which they do not pay for

34. This is what happens without taxes
If the U.S. government relied on voluntary contributions, most would not give
Would you give up money to pay for roads? Would you stay off those roads?

35. Other Examples
Fire protection What is your neighbor did not want to pay for it?
How could/would this impact you?
Local taxes pay for this because all residents are better of with it

36. Market Failures
Situation in which the free market, operating on its own, does not distribute resources efficiently
Private roads? High tolls? Not built in sparsely populated areas?

37. Externalities

38. Externalities
Economic side effects of a good or service that generates benefits or costs to a third party
Positive and negative externalities

39. Positive Externality Example:
Mr. Hutchins buys an old house that is an eyesore in his neighborhood. He paints the house, does landscaping, and plants flowers. His neighbors are not involved in the decision but yet they benefit from this…how?

40. Negative Externality Example
Mr. Hutchins’ lifelong dream is to become a world renown salsa dancer. He practices every night in his home with the music blaring. You are his neighbor and hate salsa, but you have to put up with it.

41. Government’s Goals
U.S. government may take action to create positive externalities
Example: Education it benefits students and society as a whole

42. Government Limits Negative Externalities
Pollution would be an example
Acid rain caused by auto plants and power plants
Harms trees, lakes, wildlife, etc.
The EPA promotes “scrubbers” limit pollution in smokestacks

43. Scrubbers at Work