1. Ch. 3 The Economic Impact بسم الله الرحمن الرحيم

2. Chapter Objectives 1. Distinguish between microeconomics and macroeconomics. 2. Explain the factors that drive demand and supply. 3. Compare the three major types of economic systems. 4. Describe each of the four different types of market structures in a private enterprise system. 5. Identify and describe the four stages of the business cycle. 6. Explain how productivity, price-level changes, and employment levels affect the stability of a nation ’ s economy. 7. Discuss how monetary policy and fiscal policy are used to manage an economy ’ s performance. 8. Describe the major global economic challenges of the 21 st century.

3. Chapter Overview  Economics — social science that analyzes the choices made by people and governments in allocating scarce resources.

4. Economics  Microeconomics — study of small economic units, such as individual consumers, families, and businesses.  Macroeconomics — study of a nation ’ s overall economic issues, such as how an economy maintains and allocates resources and how government policies affect the standards of living of its citizens.

5. Microeconomics: The Forces of Demand and Supply  Demand — willingness and ability of buyers to purchase goods and services.  Supply — willingness and ability of sellers to provide goods and services.

6. Factors Driving Demand  Each person must choose Between saving and spending How to allocate spending

7. Factors Driving Demand  Demand Curve Graph of the amount of a product that buyers will purchase at different prices Demand curves typically slope downward and to the right, meaning that lower prices attract larger purchases

8.  Demand Curve for Gasoline

9.  Shift in the Demand Curve for Gasoline

10.  Expected Shifts in Demand Curves

11. Factors Driving Supply  Businesses must chose how to use their resources to obtain the best profits  Supply Curve Shows the relationship between different prices and the quantities that sellers will offer for sale, regardless of demand

12.  Supply Curve for Gasoline

13. Factors Driving Supply  Central role in determining the overall supply of goods and services is played by factors of production Natural resources Human resources Physical facilities Entrepreneurship

14.  Expected Shifts in Supply Curves

15. How Demand and Supply Interact  Separate shifts in demand and supply have obvious effects on product price and availability  Equilibrium price

16.  Law of Supply and Demand

17. Macroeconomics: Issues for the Entire Economy  Capitalism: The Private Enterprise System and Competition. Private enterprise system — economic system in which business success or failure depends on how well firms match and counter the offerings of competitors; also known as capitalism.

18. Macroeconomics: Issues for the Entire Economy  Capitalism: The Private Enterprise System and Competition Pure competition Monopolistic competition Oligopoly Monopoly Deregulation

19.  Types of Competition

20. Planned Economies: Communism and Socialism  Communism: planned economic system in which private property is eliminated, goods are owned in common, and factors of production and production decisions are controlled by the state  Socialism: planned economic system characterized by government ownership and operation of all major industries

21. Planned Economies: Communism and Socialism  What ’ s Ahead for Communism? Many formerly communist nations have undergone dramatic changes in recent year after introducing private enterprise systems Has not been smooth Communism remains firmly entrenched in just a few countries

22. Mixed Market Economies  Economic system that combines characteristics of both planned and market economies in varying degrees, including the presence of both government ownership and private enterprise Privatization

24. Evaluating Economic Performance  Flattening the Business Cycle Economies flow through various stages of a business cycle Recession — cyclical economic contraction that lasts for six months or longer.

25.  Four Stages of the Business Cycle

26. Productivity and the Nation’s Gross Domestic Product  Productivity — relationship between the goods and services produced in a nation each year and the inputs needed to produce them.  Gross domestic product — the sum of all goods and services produced within a nation ’ s boundaries each year.

27. Price-Level Changes  Inflation — rising prices caused by a combination of excess consumer demand and increases in the costs of raw materials, human resources, and other factors of production. Hyperinflation — economic situation characterized by soaring prices

28. Price-Level Changes  Demand-pull inflation Excess consumer demand  Cost-push inflation Generated by rises in costs of factors of production  Recent Fears about Deflation

29. Measuring Price Level Changes  Consumer Price Index (CPI) — measures the monthly average change in prices of goods and services Market Basket — compilation of the goods and services most commonly purchased by urban consumers  Producers Price Index (PPI) For Finished Goods For Intermediate Goods

30.  Contents of the CPI Market Basket

31. Employment Levels  Unemployment rate — an indicator of a nation ’ s economic health Top Job Losses by Industry in the Recent Recession

32.  Four Types of Unemployment

33. Managing the Economy’s Performance  Monetary Policy — government actions to increase or decrease the money supply and change banking requirements and interest rates to influence banker ’ s willingness to make loans.

34. Managing the Economy’s Performance  Fiscal Policy — government spending and taxation decisions designed to control inflations, reduce unemployment, improve the general welfare of citizens, and encourage economic growth.

35. Fiscal Policy  Budget — organization ’ s plan for how it will raise and spend money during a given period of time.  Budget deficit — funding shortfall that results when the government spends more than the amount of money it raises through taxes and fees  National debt  Budget surplus  Balanced budget

36.  Where Federal Tax Revenues Come from

37.  How Your Tax Dollars Are Spent

38. The U.S. Economy: A Roller Coaster Ride  Economic recession, wars, and terrorism battered the U.S. economy. Unemployment Inflation and Deflation Productivity Consumer Spending

39. Creating a Long-Term Global Strategy  Global Economic Challenges International terrorism Shift to a global Information economy Aging of the world ’ s populations Improving quality and customer service Enhancing competitiveness of every country ’ s workforce.