A merican C ivicsHOLT HOLT, RINEHART AND WINSTON1 Chapter 21 The U.S. Economy and the World Section 1:Overview of the U.S. Economy Section 2:Factors Affecting.

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Chapter 21Chapter 21The U.S. Economy and the WorldThe U.S. Economy and the World

Section 1:Section 1: Overview of the U.S. EconomyOverview of the U.S. Economy

Section 2:Section 2: Factors Affecting the U.S. EconomyFactors Affecting the U.S. Economy

Section 3:Section 3: Government’s Role in the U.S. Government’s Role in the U.S. EconomyEconomy

Section 4:Section 4: Living in a World EconomyLiving in a World Economy

Section 5:Section 5: States and International TradeStates and International Trade

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OBJECTIVESOBJECTIVES How do goods and services flow through the How do goods and services flow through the

U.S. economy?U.S. economy? How does the marketplace affect the price of How does the marketplace affect the price of

a good?a good? How do investments affect the economy?How do investments affect the economy?

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How goods and services flow How goods and services flow through the U.S. economy:through the U.S. economy: Consumers, producers, and the government Consumers, producers, and the government

exchange resources.exchange resources. Households supply resources to the Households supply resources to the

government and businesses.government and businesses. Businesses supply resources to the Businesses supply resources to the

government.government.

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How goods and services flow How goods and services flow through the U.S. economy: through the U.S. economy: (continued)(continued)

Businesses make products and sell to Businesses make products and sell to households and the government.households and the government.

The government produces goods and services The government produces goods and services to benefit businesses and households.to benefit businesses and households.

Employees earn wages, buy goods, and pay Employees earn wages, buy goods, and pay taxes.taxes.

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The marketplace affects the price of goods:The marketplace affects the price of goods: Supply and demandSupply and demand——the demand and supply of a good the demand and supply of a good

is related to its priceis related to its price CompetitionCompetition——competitors may lower prices to attract competitors may lower prices to attract

consumersconsumers Effect of competition on outputEffect of competition on output——competition increases competition increases

selection and supplyselection and supply Surpluses and shortagesSurpluses and shortages——prices lowered with prices lowered with

surpluses, raised with shortagessurpluses, raised with shortages

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How investments affect the How investments affect the economy:economy: Entrepreneurship encourages economic growth and Entrepreneurship encourages economic growth and

new product development.new product development. Venture capital is used to develop products, improve Venture capital is used to develop products, improve

facilities, and pay for distribution.facilities, and pay for distribution. Business investmentsBusiness investments——money raised to hire workers money raised to hire workers

and improve facilities; profits generate money for and improve facilities; profits generate money for shareholders and bondholdersshareholders and bondholders

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How investments affect the How investments affect the economy: economy: (continued)(continued)

Investment and technologyInvestment and technology——research and research and development investments lead to new technology development investments lead to new technology products in the marketplace; new technology aids products in the marketplace; new technology aids other businessesother businesses

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OBJECTIVESOBJECTIVES What factors influence the business cycle?What factors influence the business cycle? What tools do economists use to predict the What tools do economists use to predict the

business cycle?business cycle? How do the movement and location of How do the movement and location of

resources affect economic growth?resources affect economic growth?

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Factors influencing the business Factors influencing the business cycle:cycle: Business investmentBusiness investment——creates demand and encourages creates demand and encourages

competition; improves efficiency and lowers cost of competition; improves efficiency and lowers cost of production; leads to research and development production; leads to research and development

Money and creditMoney and credit——when borrowing declines, when borrowing declines, business investment declinesbusiness investment declines

Public opinionPublic opinion——consumers spend more when consumers spend more when economic future looks good, and thus businesses economic future looks good, and thus businesses invest moreinvest more

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Factors influencing the business Factors influencing the business cycle: cycle: (continued)(continued)

Changes in the global economyChanges in the global economy——for example, oil for example, oil prices have triggered recessions and expansionsprices have triggered recessions and expansions

WarWar——leads to government spending, new jobs, and leads to government spending, new jobs, and increased productionincreased production

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Tools used to predict the business Tools used to predict the business cycle:cycle: Leading indicatorsLeading indicators——used to predict about used to predict about

future economic growth; example: number of future economic growth; example: number of building permits issuedbuilding permits issued

Coincident indicatorsCoincident indicators——used to understand the used to understand the economy at the present time; example: economy at the present time; example: personal incomespersonal incomes

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Tools used to predict the business Tools used to predict the business cycle: cycle: (continued)(continued)

Lagging indicatorsLagging indicators——used to predict how long used to predict how long the current phase might last; example: the current phase might last; example: appearance of new businesses during an appearance of new businesses during an upturnupturn

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The movement and location of The movement and location of resources affects economic growth:resources affects economic growth: New companies seek locations with quality workers at New companies seek locations with quality workers at

the lowest wages.the lowest wages. Low cost of foreign workers has caused many businesses Low cost of foreign workers has caused many businesses

to move factories and jobs out of the country.to move factories and jobs out of the country. Many foreign workers immigrate seeking higher wages Many foreign workers immigrate seeking higher wages

in the United States.in the United States. More green cards are issued to skilled and educated More green cards are issued to skilled and educated

immigrants.immigrants.

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OBJECTIVESOBJECTIVES What are the goals of government regulation?What are the goals of government regulation? How is fiscal policy used to influence the How is fiscal policy used to influence the

economy?economy? How does the Federal Reserve use monetary How does the Federal Reserve use monetary

policy to influence the economy? policy to influence the economy?

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Goals of government regulation:Goals of government regulation: Protect workersProtect workers——Equal Employment Opportunity Equal Employment Opportunity

Commission, Occupational Safety and Health Commission, Occupational Safety and Health AdministrationAdministration

Protect consumersProtect consumers——Food and Drug Administration, Food and Drug Administration, Consumer Product Safety Commission Consumer Product Safety Commission

Limit negative effectsLimit negative effects——Environmental Protection AgencyEnvironmental Protection Agency Encourage competitionEncourage competition——regulations to ensure fair regulations to ensure fair

competitioncompetition

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Fiscal policy is used to influence the Fiscal policy is used to influence the economy.economy. TaxesTaxes——lowering taxes creates spending money, aids lowering taxes creates spending money, aids

business, and leads to new jobs; raising taxes slows business, and leads to new jobs; raising taxes slows growth and lowers prices; growth and lowers prices; tax incentivestax incentives encourage encourage business investmentsbusiness investments

Government spendingGovernment spending——increased spending raises increased spending raises demand and creates jobs; decreased spending demand and creates jobs; decreased spending reverses effectsreverses effects

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Fiscal policy is used to influence the Fiscal policy is used to influence the economy. economy. (continued)(continued)

Public transfer paymentsPublic transfer payments——government funds enable government funds enable poor and unemployed to continue spendingpoor and unemployed to continue spending

TimingTiming——economic forecasts used to time fiscal economic forecasts used to time fiscal policy changespolicy changes

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The Fed influences the economy:The Fed influences the economy: Monetary policy determines the amount of money Monetary policy determines the amount of money

available in the economy.available in the economy. OpenOpen--market operationsmarket operations——securities are bought or securities are bought or

sold to contract or expand money supplysold to contract or expand money supply Discount rateDiscount rate——interest rate charged to banks is interest rate charged to banks is

lowered to expand the economy, raised to slow lowered to expand the economy, raised to slow growth; banks borrow more when rate is lowgrowth; banks borrow more when rate is low

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The Fed influences the economy:The Fed influences the economy: (continued)(continued)

Reserve requirementReserve requirement——lowered to expand the lowered to expand the economy, raised to slow growth; banks lend more economy, raised to slow growth; banks lend more when reserve is lowwhen reserve is low

Timing and monetary policyTiming and monetary policy——changes take time to changes take time to affect economyaffect economy

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OBJECTIVESOBJECTIVES Why do nations trade with one another?Why do nations trade with one another? How do free trade and protectionism differ?How do free trade and protectionism differ? What effects does international trade have on What effects does international trade have on

jobs and consumers?jobs and consumers?

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Nations trade with one another.Nations trade with one another. SpecializationSpecialization——resources determine types of resources determine types of

goods nations produce; countries specialize in goods nations produce; countries specialize in certain goods and servicescertain goods and services

Trade increases a country’s supply of goods, Trade increases a country’s supply of goods, services, and resources.services, and resources.

Trade barriersTrade barriers are used to protect a country’s are used to protect a country’s industries from foreign competition.industries from foreign competition.

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Nations trade with one another. Nations trade with one another. (continued)(continued)

Reciprocal trade agreements, regional trade Reciprocal trade agreements, regional trade organizations, and international trade agreements organizations, and international trade agreements work to improve trade.work to improve trade.

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Free trade versus protectionism:Free trade versus protectionism: Free trade—Supporters believe exports and Free trade—Supporters believe exports and

imports should flow freely between countries; imports should flow freely between countries; free trade promotes competition and efficient free trade promotes competition and efficient businesses; trade barriers result in business businesses; trade barriers result in business and job losses; removing trade barriers and job losses; removing trade barriers promotes economic growth.promotes economic growth.

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Free trade versus protectionism:Free trade versus protectionism: (continued)(continued)

Protectionism—Supporters believe that tariffs Protectionism—Supporters believe that tariffs will protect domestic industries; reducing will protect domestic industries; reducing foreign competition creates more jobs at foreign competition creates more jobs at home; “infant industries” are vulnerable to home; “infant industries” are vulnerable to foreign competition; businesses foreign competition; businesses overspecialize; other nations do not promote overspecialize; other nations do not promote free trade.free trade.

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Effects of international trade on jobs Effects of international trade on jobs and consumers:and consumers: Impact on jobsImpact on jobs——new markets can increase new markets can increase

demand and create more jobs; however, lower demand and create more jobs; however, lower wages in foreign countries results in job losseswages in foreign countries results in job losses

Impact on consumersImpact on consumers——trade allows consumers trade allows consumers access to goods scarce in their countries; access to goods scarce in their countries; increases competition and lowers prices; increases competition and lowers prices; consumers have more choicesconsumers have more choices

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