american history unit iv- u.s. economic history introductiontoeconomics to insert your company logo...

American HistoryAmerican History

Unit IV- Unit IV-

U.S. Economic U.S. Economic HistoryHistory

IntroductionIntroductiontoto

EconomicsEconomics

Handy Dandy Guide to Handy Dandy Guide to Economic ThinkingEconomic Thinking

$ 1. People choosechoose to do the things they think are best for them.

$ 2. People’s choices have costschoices have costs. $ 3. People choose to do the things for which they are choose to do the things for which they are

rewardedrewarded.. (People respond to incentivesPeople respond to incentives)- such as money.$ 4. People create rulescreate rules that affect their choices and how

they act. (People create ECONOMIC SYSTEMS that influence individual choices and incentives.)

$ 5. People gaingain when they freely decide to trade with one another. Free trade creates wealth.

$ 6. People’s choices today have future resultsfuture results. People often live for tomorrow.

Economic QuestionsEconomic Questions

$ What is economicseconomics?$ EconomicsEconomics:The study of choice and decision-making in a world with limited

resources.

$ Economic GrowthEconomic Growth: A sustained increase in total output or output per person for an economy over a long period of time.

$ Economics is based on two factsEconomics is based on two facts:

$ 1. Society's material wants are virtually unlimited or insatiableUtility is the economist's term for pleasure or satisfaction. Society has insatiable utility

$ 2. Economic resources are scarce

$ Economic resourcesEconomic resources are all natural, human, and manufactured resources that go into the production of goods and services:

$ 1. Land and all "gifts of nature" (arable land, forests, mineral deposits)$ 2. Capital: all manufactured aids to production (tools, machinery)$ 3. Labor: all physical and mental talents of men and women.$ 4. Entrepreneurial Ability: entrepreneurs have initiative, make basic business-policy

decisions, be innovative, and take risks


$ What is economicseconomics?

$ Economic SystemsEconomic Systems -The way a society organizes the production, consumption, and distribution of goods and services.

$ Market EconomyMarket Economy -An economic system where most goods and services are exchanged through private transactions by private households and businesses. Prices are determined by buyers

and sellers making exchanges in private markets.


$ What are goods, services and resourcesgoods, services and resources?

• GoodsGoods-Objects that can be held or touched that can satisfy people’s wants.

• ServicesServices- Activities that can satisfy people’s wants.

• ResourcesResources-All natural, human and human-made aids to the production of goods and services. Also called productive resources.

• Natural Resources-"Gifts of nature" that are present without human intervention (also called land). Human Resources-The quantity and quality of human effort directed toward producing goods and services (also called labor). Capital Resources-Goods made by people and used to produce other goods and

services (also called intermediate goods).


$ What is supply and demandsupply and demand?

$ DemandDemand - A schedule of how much consumers are willing and able to buy at all possible prices during some time period.

$ SupplySupply - A schedule of how much producers are willing and able to produce and sell at all possible prices during some time period.

$ Equilibrium PriceEquilibrium Price - The market clearing price at which the quantity demanded by buyers equals the quantity supplied by sellers.


$ What are unemployment, shortages and unemployment, shortages and surplusessurpluses?

$ UnemploymentUnemployment - The situation in which people are willing and able to work at current wages but do not have jobs.

$ ShortagesShortages- The situation resulting when the quantity demanded exceeds the quantity supplied of a good, service, or resource.

$ SurplusesSurpluses -The situation resulting when the quantity supplied exceeds the quantity demanded of a good, service, or resource, usually because the price is for some reason above the equilibrium price in the market


$ What are producers, consumers and producers, consumers and marketsmarkets?

• Production/ProducersProduction/Producers- People who use resources to make goods and services, also called workers.

• ConsumersConsumers-People whose wants are satisfied by using goods and services.

• MarketsMarkets-Any setting where buyers and sellers exchange goods, services, resources, and currencies.


$ What are stocks, bull markets and bear stocks, bull markets and bear marketsmarkets?

• StocksStocks- Ownership of a corporation represented by shares

that are a claim on the corporation's earnings and assets. • Bull MarketsBull Markets-prolonged period in which investment prices rise faster than

their historical average. Bull markets can happen as a result of an economic recovery, an economic boom, or investor psychology. The longest and most famous bull market is the one that began in the early 1990s in which the U.S. equity markets grew at their fastest pace ever

• Bear MarketsBear Markets-A prolonged period in which investment prices fall, accompanied by widespread pessimism. Bear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly. The most famous bear market in U.S. history was the Great Depression of the 1930s


$ What is MoneyMoney? Medium of ExchangeMedium of Exchange: Money allows people to avoid the

complications of barter. For example, a bookseller does not want to be paid in bagels because others may not accept bagels as a means of trade. Money is convenient because it is accepted by all.

What gives money it's value?What gives money it's value? Everybody accepts it Legal Tender - currency has been designated as legal tender

by government, which means it must be accepted as payment Relative Scarcity - money derives its value from it's scarcity

relative to utility

What is the Federal ReserveFederal Reserve? It manages the countries money

system; regulates the banking system; is a bankers bank; and is the government’s bank.


$ What is profitprofit?

$ ProfitProfit - The difference between the total revenue and total cost of a business; entrepreneurial income- (The human resource that assumes the risk of organizing other productive resources to produce goods and services.)

$


$ What is GDPGDP?$ GDP is Gross domestic productGross domestic product. For a region, the GDP is “the

market value of all the goods and services produced by labor and

property located in the region, usually a country”. GDP measures the market value of annual output

It is a monetary measure

GDP includes only market value of final goods and ignores transactions involving intermediate goods to avoid double counting. Intermediate sales of goods are all the steps before the final selling of the good. For an example the cotton to make a shirt may be sold to the shirt manufacturer but it is not counted in the GDP because the cotton was an intermediate good…the final good is the shirt.


$ What is inflationinflation?$ InflationInflation: Inflation is a sustained increase in the average

price level, or general rise in the price of the entire economy. Tight Money PolicyTight Money Policy:This policy is exercised in times of inflation.

Components:1). Selling securities to banks and the public. 2). Increase the Federal Funds Rate. 3). Increasing the Discount Rate. 4). Increase the Reserve Ratio

Easy Money PolicyEasy Money Policy: This monetary policy is used when the economy is faced with recession and unemployment.

Components: 1.) Buy Securities from commercial banks and public. 2.) Reduce the Federal Funds Rate. 3.) Lowering the Discount Rate. 4.) Reduce the Reserve Ratio


$ What are TaxesTaxes?$ TaxesTaxes- Required payments of money made to

governments by households and business firms.

$ Income TaxesIncome Taxes - Taxes paid by households and business firms on the income they receive.

$ Property TaxesProperty Taxes - Taxes paid by households and businesses on land and buildings.

$ Sales TaxesSales Taxes - Taxes paid on the goods and services people buy.


$ What is a depressiondepression?• There’s an old joke among economists that states: A recession is when your neighbor loses

his job. A depression is when you lose your job.

• The difference between the two terms is not very well understood for one simple reason: There isn’t a universally agreed upon definition. If you ask 100 different economists to define the terms recession and depression, you’d get at least 100 different answers.

• A depressiondepression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe. By this yardstick, the last depression in the United States was from May 1937 to June 1938, where real GDP declined by 18.2 percent. A time of economic crisis or bad times in commerce, finance, and industry, characterized by falling prices, restriction of credit, low output and investment, many bankruptcies, and a high level of unemployment (many people without jobs).

• A recessionrecession could be defined as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out. When the business activity starts to rise again it’s called an expansionary period. By this definition, the average recession lasts about a year.


$ What precisely is the national debtnational debt?$ It's the total amount of funds that the federal government has borrowed over It's the total amount of funds that the federal government has borrowed over

the years and not yet repaidthe years and not yet repaid. And what about the deficitdeficit? That's the amount that the government spends each

year in excess of what its tax, tariff, and fee revenues bring in. The government then must borrow to make up the difference. It's the accumulation of deficits year after year that makes up the total national debt.

Why do we have deficits? Because the government makes commitments to spending programs without raising enough revenue to pay for them. Therefore, the government has to borrow.

How does the government borrow money? Does it just go to the bank? No. The U.S. Treasury issues securities, or IOUs, such as savings bonds and Treasury bills, notes, and bonds. Lenders buy these securities and the money goes to the government. In return, the government pays interest to the owners of the securities.


$ National National

$ DebtDebt?

Economic QuestionsEconomic Questions$ The National debtThe National debt$ How large is the debt? As of Jan. 13, 2005, the gross federal debt was $7,607.526,534,472.54 trillion$7,607.526,534,472.54 trillion.

The estimated population of the United States is 295,313,752 so each citizen's share of this debt is $25,760.83. The National Debt has continued to increase an average of $2.17 billion per day since September 30, 2004

$ Wow! When did the debt get so big? Well, for the past two decades the net debt has risen very rapidly. At the end of fiscal 1973, it was about a third of a trillion dollars; in 1983, a little over $1 trillion; and in 1993, it was more than $3 trillion. The government has been increasing its spending ––particularly on such items as Social Security, Medicare, and, for a time, national defense –– at a rate faster than revenues have been growing. Also, there is a snowball effect resulting from each increase in the debt: as the debt expands, so do the interest payments.

$ Anything else? In addition, the inflation and high interest rates of the 1970s and early 1980s contributed to the rapidly growing debt. Even with inflation and interest rates declining in recent years, the debt has not been reduced, because spending has continued to outpace revenues.

$ Has the debt always been rising? The first great surge in the national debt was caused by U.S. participation in World War I. By the time the war ended in 1918, the debt had increased from a little over $1billion to about $15 billion. The second surge took place during the Great Depression. There was high unemployment and, therefore, less taxable income. New social programs meant that the government had to borrow in order to finance increased spending. As a result, the debt climbed to almost $50 billion by the start of World War II.

$ What does "fiscalfiscal" mean? For budget purposes, the government year runs from October 1 to September 30; this is a called a fiscal year. For example, the 1996 fiscal year starts October 1, 1995, and ends September 30, 1996.

Test your economic IQTest your economic IQ

How much do you know about our how our economy works and how it affects you? According to the National Council on Economic Education, the average graduating H.S. student should be able to score 100% on the following quiz. Can you?

#1#1

The town of Bedford Falls wants to buy four new police cars. The opportunity cost of buying the police cars is the:

(a) cost of buying the cars now vs. buying them later.

(b) ability to make more arrests and reduce the total annual crime rate.

(c) other desirable goods or services that must be given up to buy the cars.

(d) dollar cost of the new cars.

Answer for #1Answer for #1

COpportunity Cost: the next best

alternative that must be given up when a choice is made.

#2#2

The bestbest measure of the economy’s performance is:

(a) the unemployment rate.

(b) gross domestic product.

(c) consumer price index.

(d) Dow Jones industrial Average.


BGross Domestic Product (GDP): The

market value of all final goods and services produced in the economy in a given period of time.

#3#3

The best definition of profitprofit is:

(a) total assets minus total liabilities.

(b) total sales minus total taxes.

(c) total revenues minus total costs.

(d) total sales minus total wages.


CProfits: total revenues from exchange

minus total costs associated with production of a good or service. Profits are the resource payment to the entrepreneur or the owners of a business enterprise.

#4#4

Gross Domestic ProductGross Domestic Product is a measure of:

(a) total market value of all final goods and services produced in one year.

(b) the price level of goods and services sold in one year.

(c) the total amount of refrigerators, washing machines and other household appliances produced in one year.

(d) the total amount of goods and services produced by private companies in one year.


AGross Domestic Product (GDP): The

market value of all final goods and services produced in the economy in a given period of time.

#5#5

Who would benefit from an unexpected 10% inflation rateunexpected 10% inflation rate?

(a) Sam, who has $5,000 in a savings account.

(b) Maria, who has a $5,000 life insurance policy.

(c) John, who loaned Bonnie $5,000 last year.

(d) Bonnie, who borrowed $5,000 from John and must pay it back this year.


DBonnie would benefit. Inflation is a

sustained increase in the average price level, or general rise in the price of the entire economy. She benefits because even though prices go up, her loan rate and amount will remain the same. Cheap money.

#6#6

Who would benefit if the U.S. dollar becomes stronger against the dollar becomes stronger against the Japanese YenJapanese Yen?

(a) a Japanese company selling products in the U.S.

(b) a U.S. company buying a building in Japan.

(c) a U.S. tourist taking a two week vacation in Japan.

(d) all of the above.

(e) none of the above.


DThey all benefit. This has to do with

exchange rates: the price of a nation’s currency in terms of the currency of another nation.

#7#7

The limit of the economy’s real limit of the economy’s real outputoutput at any time is set by:

(a) the quantity and quality of human and natural resources and capital goods.

(b) the total amount of money, stocks, and bonds in circulation.

(c) business demand for goods and services.

(d) the amount of government spending and taxes.


AEconomic resources: land, labor,

capital goods and entrepreneurs.

#8#8

If your annual moneyannual money income goes up 10%, while the prices of what you buy go up 20% then:

(a) your real income has risen.

(b) your real income is unchanged.

(c) your real income has fallen.

(d) you’re shopping in the wrong stores.


CReal Income: money income adjusted

to compensate for inflation.

#9#9

Three major productive resources are natural and human resources and natural and human resources and capital goodscapital goods. Which best illustrates these three productive resources?

(a) rent, workers and money.

(b) iron ore, taxi drivers and bonds.

(c) farmers, importers, and exporters.

(d) oil, engineers, and drills.


DEconomic resources: land, labor,

capital goods and entrepreneurs.

#10#10

Nation A grows bananas and Nation B produces cheese. If they exchange bananas and cheeseexchange bananas and cheese:

(a) Nation A gains and Nation B loses.

(b) Nation B gains and Nation A loses.

(c) Both Nations lose.

(d) Both Nations gain.


DThey both benefit. This has to do with

international trade: the exchange of goods and services between people and institutions in different countries.

#11#11

True or FalseTrue or False: Most millionaires are college graduates


TrueTrueFour of five millionaires are college

graduates. Eighteen percent have Master’s degrees, eight percent law degrees, six percent medical degrees and six percent Ph.D.’s.

#12#12

Most millionaires work fewer than 40 hours a week.


FalseFalseAbout 2/3 of millionaires work 45-55

hours a week.

#13#13

More than half of all millionaires never received money from a trust fund or estate.


TrueTrueOnly 19% of millionaires received any

income or wealth of any kind from a trust fund or an estate. Fewer than 10 % of millionaires inherited 10% or more of their wealth.

#14#14

Most millionaires work in glamorous jobs, such as sports, entertainment, or high tech.


FalseFalseA majority of millionaires are in

ordinary industries and jobs. They are proficient in targeting marketing opportunities.

#15#15

Many poor people become millionaires by winning the lottery.


FalseFalseFew people get rich the easy way. If you play the

lottery, the chances of winning are about 1 in 12 million. The average person who plays the lottery every day would have to live about 33,000 years to win once. In contrast, you have a 1 in 9 million chance of being struck by lightning. A pregnant woman has one chance in 750,000 births to have quadruplets. How many sets of quadruplets do you know?

Time spent on the jobTime spent on the job

If you work from the time you’re 21 years old, until you’re 70 years old, you’ll work 49 years49 years.

If you work an average of 50 weeks for each of those 49 years, you’ll work 2450 weeks2450 weeks.

If you average 40 hours for each of those 2450 weeks, you’ll work 98,000 hours minimum98,000 hours minimum. (A high school dropout works 10 hours a week more to earn the same pay as a high school graduate.)

And that doesn’t include your lunch hour, the time it will take to get to and from work, overtime hours and time you will spend keeping up to date on new skills required for your career.

Rules for improving Rules for improving your financial lifeyour financial life

1) Get a good education.

2) Work long, hard and smart.

3) Learn money management skills.

4) Spend less than you can spend.

5) Save early and often.

6) Invest in common stocks for the long term.

7) Gather information before making decisions.

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