The U.S. and Global Economies CHAPTER 2 EYE ONS CapitalFirmsLand Capital goodsHuman capitalMarket Circular flow modelGoods marketsNational debt EntrepreneurshipHouseholdsProfit.
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The U.S. and Global Economies
CHAPTER2EYE ONS
Capital Firms LandCapital goods Human capital MarketCircular flow model Goods markets National debtEntrepreneurship Households ProfitRent Wages InterestFactor markets LaborFunctional distribution of incomePersonal distribution of incomeConsumption goods & servicesGovernment goods & servicesExport goods & services
CHAPTER 2: What, How, and for Whom
WHAT we produce
Consumption goods and services
Capital goods
Government goods and services
Export goods and services
What We Produce
CHAPTER 2: What, How, and for Whom
HOW we produce
Factors of Production:
Land: Gifts of nature
Labor: Time & effort devoted by humans to production of goods and services
Capital: Tools, instruments, machines, buildings, & other items that themselves have been produced
Entrepreneurship: Human resource that organizes labor, land, and capital
CHAPTER 2: What, How, and for Whom
HOW we produce
Factors of Production:
Land: Minerals, water, air, plants, animals, birds, fish, farmland, and forests
Labor: Depends on quality of human capital
education, on-the-job training, work experience
Capital: Includes semi-finished goods, office buildings, computers.
Does not include money, stocks, or bonds.
Entrepreneurs: New ideas on WHAT and HOW to produce, make business decisions, and bear the resulting risks.
Changes in How We Produce in the New Economy
The new economy consists of the jobs and businesses that produce and use computers and equipment powered by computer chips.
In each pair of photos, the new technology enables capital to replace labor.
Changes in How We Produce in the New Economy
In the top pair of images, illustrates how the ATM (capital) is replacing many bank tellers (labor).
In the bottom pair of images illustrates how a flight check-in machine (capital) is replacing many check-in clerks (labor).
Changes in How We Produce in the New Economy
The number of bank teller and airline check-in clerk jobs is shrinking.
But new technologies are creating a range of new jobs for people who make, program, install, and repair these new machines.
CHAPTER 2: What, How, and for Whom
For WHOM we produce
Paid Incomes:
Rent: Income paid for the use of land.
Wages: Income paid for the services of labor
Interest: Income paid for the use of capital
Profit/Loss: Income earned by an entrepreneur for running a business.
Over the past 65 years, the number of people who work on farms and who produce goods have decreased.
Changes in What We Produce
While the number of people who produce services has expanded.
Over the past 90 years, the amount of education people receive has increased.
Changes in Human Captical
The importance of education has become known and more people are making sacrifices to achieve educational goals
INCOME DISTRIBUTION ‘rich become richer, the poor become ……’
Functional Personal
Income Distribution
CIRCULAR FLOWS of markets
Households People living together
making collective decisions
Firms Institutions that
produce goods & services
MARKETS ‘any arrangement that brings buyers and sellers together’
MARKET ‘any arrangement that brings buyers and sellers together’
Factor Market
Buy and Sell Factors of production Households supply
FOP Firms hire FOP
Firms pay households income for services on FOP
Goods Market
Buy and Sell Goods and services Firms supply G&S Households buy
G&S
Households pay firms for goods and services they buy
Real Flows
Money Flows
• Blue flows are incomes.
• Red flows are expenditures.
• Orange flows are Real flows
GOVERNMENT‘Expenditures and Incomes’
FEDERAL
Goods and Services Social security and
welfare Transfers to state and
local government
STATE and LOCAL
Goods and services Welfare Education
Personal Income taxes Corporate taxes Social security taxes
Sales tax Property tax State income tax
Expenditure
Income
•Households and firms pay taxes and receive transfers.
• Governments buy goods and services from firms.
Federal Government
Revenue
Expenditures
State and Local Government
Revenue
Expenditures
NATIONAL DEBT‘total amount borrowed (by govt.) in excess
of tax revenues’
U.S. population: 302,313,818 (July 11, 2007)
World population: 6,607,270,768
The U.S. clock ticks along showing a population increase of one person every 10 seconds.
The world clock spins faster, adding 25 people in the same 10 seconds
http://www.census.gov/main/www/popclock.html
Advanced Emerging Developing
Richest 29 countries 28 countries (Soviet) 118 countries
THE PEOPLE
THE COUNTRIES 1B people 1/2B people >5B people
A 100 years ago, the federal government spent 2 cents out of each dollar earned.
Government grew during two world wars and in the 1960s and 1970s social programs expanded.
After 9/11, government started to grow again.
During the 1980s and 1990s, government shrunk.
Growing Government
Value of Production
CoalNatural
GasOIL
Energy Sources
WHY the United States takes a strong interest in the Middle East.
Income Per DayIn 2007, U.S. average income was $124 a day.In advanced economies, it was about $90 a day.In Africa, it was only $8 a day.
GLOBAL ECONOMY
Human Capital Differences Physical Capital Differences Food Other goods and services
How can you use the facts and trends about what, how, and for whom goods and services are produced in the U.S. and global economies?
As you think about your future career, you know that a job in manufacturing is likely to be tough. A job in services is more likely to lead to success.
What sort of job will you take?
As you think about the stand you will take on the political question of protecting U.S. jobs, you are better informed.
But how will you vote?
The U.S. and Global Economies in Your Life
The U.S. and Global Economies
CHAPTER2EYE ONS
WHATConsumption goods & services (60%)Capital goodsGovernment goods & servicesExport goods & services
HOW FOR WHOLand RentLabor Wages (64%)Capital InterestEntrepreneurship Profit/Loss
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