slide 1 copyright © pearson education, inc.chapter 3, section 2 essential question what role should...
TRANSCRIPT
Slide 1Copyright © Pearson Education, Inc.Chapter 3, Section 2
Essential QuestionEssential Question
• What role should government play in a free market economy?
Slide 2Copyright © Pearson Education, Inc.Chapter 3, Section 2
ObjectivesObjectives
1. Explain why the government tracks and seeks to influence business cycles.
2. Describe how the government promotes economic strength.
Slide 3Copyright © Pearson Education, Inc.Chapter 3, Section 2
Key TermsKey Terms
• macroeconomics: the study of economic behavior and decision-making in a nation’s economy
• microeconomics: the study of the economic behavior and decision-making in small units, such as households and firms
• gross domestic product (GDP): the total income (value) of all final goods and services produced in a country in a given year. GDP per capita measures income per person
Slide 4Copyright © Pearson Education, Inc.Chapter 3, Section 2
Key Terms, cont.Key Terms, cont.
• business cycle: a period of macroeconomic expansion, or growth, followed by one of contraction, or decline
• recession: two or more consecutive quarters (three months) of economic decline in GDP growth
• patent: a government license that gives the inventor of a new product the exclusive right to produce and sell it
• copyright: a government license that grants an author exclusive rights to publish and sell creative works
Slide 5Copyright © Pearson Education, Inc.Chapter 3, Section 2
IntroductionIntroduction
• How does the U.S. government encourage growth and stability?
– The U.S. government encourages growth and stability by:
• Tracking business cycles• Promoting a high employment rate• Keeping prices stable• Encouraging the development of new technologies• Maintaining a strong US Dollar• Promoting US Exports and Free Trade around the
world
Slide 6Copyright © Pearson Education, Inc.Chapter 3, Section 2
GDP and the Business CycleGDP and the Business Cycle
• One measure of the nation’s economic well-being is gross domestic product (GDP).
• The US government tracks probably the most economic data of any nation (and it is reliable)
• Doesn’t say anything about the spread of income (level of inequality)
Slide 7Copyright © Pearson Education, Inc.Chapter 3, Section 2
GDP and the Business CycleGDP and the Business Cycle
• During a period of growth, GDP goes up and in a period of contraction, GDP goes down.
• This pattern of a period of expansion followed by a period of contraction is called a business cycle.– Changes in the business cycle take place because individuals
and businesses, acting in their own self-interest, make decisions about factors such as prices, production, and consumption. So, people get hired and fired, spend more or less and invest more or less.
– Government tried to manage as smooth a business cycle as possible
– This is one reason we need safety nets (more on this next section)
• Extreme periods of contraction are called recessions (or potentially a depression)
Slide 8Copyright © Pearson Education, Inc.Chapter 3, Section 2
Employment and GrowthEmployment and Growth
• Employment– The government strives to make sure there are enough jobs for
everyone who is able to work.
– An unemployment rate between 4 percent and 6 percent is considered healthy.
– Our current unemployment rate is above 9%. – BLS release unemployment data the first Friday of every month
(it’s a very important data point)
• Economic Growth– To help spur economic growth, the government can cut taxes
or increase spending.• Republicans tend to favor less taxes and Democrats more
spending. It it is not as simple as politicians make it sound– Infrastructure, education and research and development
(technology) spending lead to the most innovation and growth
Slide 9Copyright © Pearson Education, Inc.Chapter 3, Section 2
Economic Stability and Security:PricesEconomic Stability and Security:Prices• One indicator of economic stability is the general
level of prices.
• The government wants stable prices for the economy– Households and firms want to expect stable prices
• The Federal Reserve attempts to control prices (inflation)– Though funded by taxpayers, the Federal Reserve is
technically independent from the government (more on this later)
Slide 10Copyright © Pearson Education, Inc.Chapter 3, Section 2
Economic Stability and Security:Financial InstitutionsEconomic Stability and Security:Financial Institutions• Other indicators of stability are financial
institutions such as banks and the stock market. – Regulations try to keep these institutions
stable (SEC, FDIC, Federal Reserve)– Government also protects these
institutions as “too big to fail” – mega-controversial
• The bailouts of the banks and financial institutions in 2008-2009
• Many taxpayers don’t view government as spending equally on its voters (Occupy Wall Street/Chicago)
Slide 11Copyright © Pearson Education, Inc.Chapter 3, Section 2
Technology and GovernmentTechnology and Government
• The government promotes innovation and invention to help maintain the country’s technological advantage by:– Funding research and development projects
at universities
– Establishing their own research institutions, like NASA, Department of Defense (DARPA)
– Granting patents and copyrights, which are an incentive to innovation (regulation of private sector; promotes economic security; intellectual property in law)