Replace with revised SE page! Modern Economiesgilesc.pbworks.com/w/file/fetch/68783443/ch 2 sec 4.pdf · Modern Economies Objectives You may wish to call stu-dents’ attention to

Modern Economies

Objectives You may wish to call stu-dents’ attention to the objectives inthe Section Preview. The objectives arereflected in the main headings of thesection.

Bellringer Ask students how theywould feel if they had to pay amonthly book-rental fee at their com-munity library or buy a ticket to usemost highways. Explain that in thissection they will learn that mixedeconomies offer many advantages notfound in a pure free market economy.

Vocabulary Builder Ask students towrite definitions for those key termswhich they already understand. Havethem check their definitions againstthose in the margins of this section andmake corrections as necessary. Thenhave them copy the definitions of anyterms they did not know and use theterms in sentences.

Economic Systems To build understanding ofeconomic systems and the differences amongthem, have students use a double web graphicorganizer like the one at the right to show thedifferences between the economy of North Koreaand that of the United States. Tell students that adouble web can be used to compare and contrastinformation about two groups.

Section Reading Support Transparencies A tem-plate and the answers for this graphic organizercan be found in Chapter 2, Section 4 of the SectionReading Support Transparency System.

Graphing the Main IdeaB U I L D I NGB U I L D I NG

K E Y CONCE PTSK E Y CONCE PTS

ChaptChapter er 22 •• Section Section 44

Guided Reading and ReviewUnit 1 folder, p. 19 asks students toidentify the main ideas of the sectionand to define or identify key terms.

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YYou cannot find today any economicsystem that relies exclusively on central

planning or the individual initiative of thefree market. Instead, most economies are amixture of economic systems. Mostcontemporary mixed economies blend themarket with government intervention, orinvolvement, in the marketplace.

The Rise of Mixed EconomiesNo single economic system has all theanswers. Centrally planned economies are

cumbersome, do not adequately meetconsumer needs, and limit freedom.Traditional economies have little potentialfor growth or change. Even marketeconomies, with all their advantages, havecertain drawbacks.

The Limits of Laissez FaireAdam Smith and other early free marketphilosophers believed that, left to its owndevices, the free market system wouldprovide the greatest benefit for consumersand raise the standard of living. They

Modern EconomiesPreviewObjectivesAfter studying this section you will be able to:1. Explain the rise of mixed economic

systems. 2. Interpret a circular flow model of a mixed

economy.3. Compare the mixed economies of various

nations along a continuum betweencentrally planned and free marketsystems.

4. Understand the role of free enterprise inthe economy of the United States.

Section FocusIt is doubtful that any nation can existsuccessfully under a pure centrallyplanned economy or a pure marketeconomy. Most modern economiesmix features of both systems. Theeconomy of the United States isbased on the principles of the freemarket.

Key Termslaissez faireprivate propertyfree enterprisecontinuumtransitionprivatize

� Most public parksrely on governmentdollars for support.

Lesson PlanTeaching the Main Concepts

1. Focus Remind students that no oneeconomic system can adequately sat-isfy everyone’s wants and needs. Thatis why most modern economies are amix of economic systems.2. Instruct Discuss with students theconcept of laissez faire and how it worksin modern economies. Be sure that stu-dents understand government participa-tion by examining the circular flowdiagram in this section. Finally, discussthe advantages and drawbacks of theeconomies of North Korea, China, HongKong, Sweden, and the United States.3. Close/Reteach Remind students thatgovernment intervention is a feature ofall economies to some degree. Havestudents create charts comparing thelevels of government intervention inNorth Korea, China, Hong Kong,Sweden, and the United States.

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Answer to . . .Global Connections Most studentsare likely to describe the level ofgovernment involvement as high,especially in comparison to theUnited States.

BackgroundEconomics in HistoryEconomics in HistoryWhen Franklin D. Roosevelt becamepresident in 1933, the nation was inthe grip of the Great Depression. Theprosperity of the Roaring Twentieshad crashed along with the stockmarket, and people were looking foreconomic salvation. Roosevelt’s poli-cies illustrate one method for bal-ancing economic control andeconomic freedom.

Roosevelt saw government actionas the best way to accomplish hisgoal of improving America’s ravagedeconomy. Toward that end Roosevelt,his advisors, and members ofCongress developed a plan for gov-ernment intervention in the economiccrisis. The plan was called the NewDeal. During a period that came to beknown as the Hundred Days,Roosevelt proposed and Congresspassed sweeping legislation to helpthe nation weather the economicstorm. This legislation included thefollowing:• Emergency Banking Act—enabled

financially sound banks to reopen• Glass-Steagall Banking Act—

created the Federal DepositInsurance Corporation (FDIC) toinsure bank deposits

• Civilian Conservation Corps andPublic Works Administration—putpeople to work, at governmentexpense, in conservation projectsand the building of courthouses,dams, bridges, and other publicstructures.

The “Second Hundred Days” sawthe passage of the Social SecurityAct and the National Labor RelationsAct as well as the creation of theWorks Progress Administration.

The New Deal did not end theGreat Depression, but most econo-mists agree that it did much to relieveeconomic suffering and preserve thebasics of the free enterprise system.

Government One of the key concepts in this sec-tion is the transferring of money by the govern-ment. The government transfers money not topenalize the rich or to make everyone financialequals but rather to provide financial assistanceto those who need it most. Offer students thisexample: a late-night explosion at an auto partsfactory destroys the building. In that instant thefactory’s workers have lost their income. Theworkers then apply for unemployment compen-

sation, a government program that collectsmoney from employers to fund unemploymentinsurance and redistributes the funds to thosewho have lost their jobs. The workers willreceive income from the government until theyfind new jobs or until their unemployment com-pensation expires.Ask students to think of other examples of thegovernment transferring money. Have them sharetheir examples with the class.

Econ 101: Key Concepts Made EasyEcon 101: Key Concepts Made Easy$

Replace with revised SE page!preached laissez faire, the doctrine thatgovernment generally should not intervenein the marketplace. (See the Profile ofAdam Smith on page 33.) Even Smithacknowledged, however, the need for acertain limited degree of government inter-vention in the economy.

As market economies have evolved sinceSmith’s time, government intervention hasbecome greater because some needs andwants of modern society are difficult toanswer in the marketplace. How well, forexample, could the marketplace providefor national defense or for roads andhighway systems?

Some needs that markets could meet fallto governments so that all members ofsociety can participate. Education is oneexample. Other needs that could fall intothis category are health care and masstransit.

Governments create laws protectingproperty rights and enforcing contracts.There would be little incentive to developnew products without property rights orpatent laws (laws that give the inventor of anew product the exclusive right to sell it fora certain period of time). Without lawsinsisting on competition, many people fearthat some firms would dominate others intheir industry and be able to chargeconsumers any price.

You will recall from your study ofAmerican history that the 5th and 14thamendments to the Constitution declarethat no person may be deprived of “Life,liberty, or property, without due process oflaw.” The 5th Amendment also says that“just compensation” must be paid toowners when private property is taken forpublic use. Private property is property thatis owned by individuals or companies, notby the government or the people as awhole. The Framers of the Constitutionensured that the United States governmentwould protect this fundamental right.

Balancing Control and FreedomA society must assess its values and priori-tize its economic goals. Some goals are

better met by the open market and othersare better met by government action. Inaddition, societies must evaluate the oppor-tunity cost of pursuing each goal.

Each nation decides what it is willing togive up to meet its goals. What are youwilling to give up? Are you willing to paytaxes to fund the army? To give money topeople without jobs? To give all people aneducation? To subsidize farms? Should thegovernment establish job-safety guidelinesor a minimum wage?

laissez faire thedoctrine that states thatgovernment generallyshould not intervene inthe marketplace

private propertyproperty owned byindividuals orcompanies, not by thegovernment or thepeople as a whole

Sweden’s Mixed Economy Sweden’s mixed economy has mixedbenefits for the Swedish people. The Swedish government redistributes morethan half of Sweden’s wealth through social benefit programs. When a child isborn, his or her parents are entitled to a combined 450 days of parental leave,with three quarters of their base salary paid by the government. Swedish patientsrarely pay more than 1,800 Swedish kronor (about $230) per year for prescriptions.If you were a teen in Sweden, your new braces would be free. Employers arerequired to give employees a minimum of 30 days vacation. The trade-off forthese benefits is the second-highest tax burden of any industrialized country.Swedes pay around 56 percent of their gross domestic product in taxes,compared to only 32 percent in the United States. How would you describe thelevel of government involvement in Sweden’s economy?

Global Connections

� Thesekindergartenstudents in thisschool lunchprogram are enjoyinga benefit of govern-ment intervention.

You may wish to have students addthe following to their portfolios. Havestudents use an almanac to investigatefour of the world’s economies. Askthem to create a chart that shows eco-nomic data for two countries in whichgovernment intervention dominatesthe mixed economy and two countriesin which the market system dominatesthe mixed economy. Then have stu-dents write a brief report summarizingthe data. Students should create aneconomic model using a circular flow-chart to illustrate their findings andshould include it with their report.

Transparency Resource PackageEconomics Concepts, 2F:

Circular Flow Diagram of a MixedEconomy

Ask students to create a poster thatarranges the economies profiled in the“Comparing Mixed Economies” sec-tion from the most centrally planned tothe most purely free market. Studentsmay want to illustrate their work withpictures of economic activities in eachcountry. LPR

Learning Styles ActivityLearning Styles Lesson Plans folder, p. 10 asks students to prepare writtenreports assessing the degree to whichgovernment and free enterprise domi-nate the mixed economies of selectedcountries.


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Answer to . . .Building Key Concepts Studentsshould mention taxes, governmentpurchases, and various other gov-ernment expenditures.

Consider these suggestions to take advantage ofextended class time:� Extend the Bellringer activity on p. 40 by havingstudents work as a group to compile a list of goodsand services that the government, rather than thefree market, provides. Then discuss how students’lives would be different if these goods and serviceswere left up to the free market to provide.� Present the Background note on p. 41. Thenhave students find and read a short story, an

excerpt from a book, or a contemporary news arti-cle that discusses the Depression and Roosevelt’seconomic decisions. Ask students to give short oralpresentations that focus on how control and free-dom were balanced during this era.� Have students bring the results of the firstactivity described on this page to class. Have stu-dents compare data and draw conclusions aboutwhich type of mixed economy seems to producethe best results.

Block Scheduling StrategiesBlock Scheduling Strategies


A Circular Flow Model of aMixed EconomyTo illustrate the structure of most moderneconomies accurately, we need to addgovernment to our picture of the circularflow of economic activity. Figure 2.4 illus-trates the government’s role in the market-place in a mixed economy. The governmentcan enter the circular flow of economicactivity in many ways.

Government in the Factor MarketJust like businesses, the governmentpurchases land, labor, and capital from

households in the factor market. Forexample, the United States governmentpays 2.8 million employees $9.7 billion ayear for their labor.

Government in the Product MarketGovernments purchase goods and servicesin the product market. They need buildingsand office supplies, telephones, computers,and fax machines, for example.

Governments also provide certain goodsand services through the factor resourcesthat they combine. The federal, state, andlocal governments in the United States, forexample, provide 4 million miles of roads.

monetary flow

monetary flow

physical flow

physical flow

taxes

taxes

government -

owned factors

gove

rnment

purchases

Product market

Factor market

Figure 2.4 Circular Flow Model of a Mixed EconomyFigure 2.4 Circular Flow Model of a Mixed Economy

Governmentexpenditures expendituresHouseholds Firms

This circular flowmodel shows howgovernment typicallyinteracts withhouseholds andbusinesses in themarketplace.Economic SystemsExplain howgovernment actionsaffect the circularflow model in amixed economy.

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(Reteaching) Organize the class intotwo groups. One group will play thepart of a group of economic plannersfrom North Korea. The other groupwill play economic planners fromHong Kong. Each group of plannersmust address the following situation:

North Korea and Hong Kongeach have 10 idle factories that mustbe brought up to full productionwithin a year. The planners mustanswer the questions below andexplain how they arrived at theiranswers.• What will we produce?• To whom will we sell our

products?• How will we find workers for the

factories?• How much will we charge for our

products?When both groups have formu-

lated their plans, a volunteer fromeach should present the plans to theclass. Be sure to remind students thattheir plans must reflect the economicsystem of the country they represent.

After students have read this section,ask them to create a web graphicorganizer that shows the significanceof free enterprise in the economy ofthe United States.

Economic Detective ActivityUnit 1 folder, p. 23, “EconomicRecovery in Sunnhilla,” provides anintegrated application of chapterconcepts.

Economic Video LibraryVideo segment “Internet Impact”discusses the impact of the Interneton modern business.

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Answer to . . .Building Key Concepts China is in atransition, moving away from cen-tral planning toward a market-based system. Hong Kong is aspecial administrative district ofChina that uses a largely free eco-nomic system.

Have students read the section titled “Comparing Mixed Economies” and then answerthe question below.Which of the following is true of North Korea’s economy?

A Private enterprise produces 95 percent of its goods.

B North Korea imports many foreign goods.

C “Black markets” do not exist.

D Its economy is almost completely state controlled.

Preparing for Standardized TestsPreparing for Standardized Tests�

Replace with revised SE page!Transferring MoneyAs you can see from the outer ring of Figure 2.4, governments collect taxesfrom both households and businesses.Governments then transfer the money theycollect to businesses and individuals for avariety of reasons ranging from workerdisability to the survival of an industry. Thegreatest expenditure of the United Statesgovernment is Social Security.

Comparing Mixed EconomiesThe foundation of the United Stateseconomy is the free market. An economicsystem characterized by private or corpo-rate ownership of capital goods is calledfree enterprise. In a free enterprise systeminvestments are determined in a freemarket by private decision rather than bystate control. Figure 2.5 below shows acontinuum of mixed economies. Acontinuum is a range with no clear divisions.On one end of the scale is the centrallyplanned economy. On the opposite end isthe free market economy.

Mixed Economies Where GovernmentIntervention DominatesReflecting an economy almost totallydominated by the government, NorthKorea occupies one end of the scale.

Government owns all theproperty and all economicoutput. State-owned industriesproduce 95 percent of NorthKorea’s goods. Almost allimports are banned, andproduction of goods andservices by foreign companiesis forbidden.

In China, where the economyis dominated by government,one quarter of all enterprisesare at least partly owned byindividuals. China, like many nations thathave relied heavily on central planning inthe past, is in transition, a period of changein which an economy moves away fromcentral planning toward a market-basedsystem. To make the transition, state firmsmust be privatized, or sold to individuals, andthen allowed to compete with one anotherin the marketplace. As you will read inChapter 18, economic transition is a diffi-cult, and often painful, process.

Mixed Economies Where the MarketSystem DominatesAt the other end of the scale, with one of theworld’s freest markets, is Hong Kong. HongKong, once administered by Great Britain, isnow a special administrative region of China.It continues, at the beginning of the twenty-

free enterprise aneconomic systemcharacterized by privateor corporate ownershipof capital goods;investments that aredetermined by privatedecision rather than bystate control; anddetermined in a freemarket

continuum a range withno clear divisions

transition period ofchange in which aneconomy moves awayfrom a centrally plannedeconomy toward amarket-based system

privatize to sell state-runfirms to individuals

Figure 2.5 Continuum of Mixed Economies Figure 2.5 Continuum of Mixed Economies

North Korea

Iran

Cuba Russia Poland Japan United States

China South Africa Canada Singapore

Mexico France United Kingdom Hong Kong

Free marketCentrally planned

Source: 2003 Index of Economic Freedom, Bryan T. Johnson, Kim R. Holmes, and Melanie Kirkpatrick

In competition with foreign fast-food restaurant chains, Chinese entrepreneur Shen Qing started his own restaurant chain—the Baked Pig Face restaurants. The seasoned pigs‘ heads, served in a modern setting, are wildly popular. Mr. Shen benefits by receiving profits, and consumers benefit by being able to choose a traditional Chinese dish over Western-style fast food.

FAST FACT

The degree of government intervention in the marketplace varies among nations.Economic Systems How would you explain China’s position on this continuum?Why is Hong Kong, technically part of China, so far to the right on this diagram?

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Guide to the EssentialsChapter 2, Section 4, p. 9 providessupport for students who need addi-tional review of the section content.Spanish support is available in theSpanish edition of the guide on p. 9.

Quiz Unit 1 folder, p. 20 includesquestions to check students’ under-standing of Section 4 content.

Presentation Pro CD-ROMQuiz provides multiple-choice

questions to check students’ under-standing of Section 4 content.

Answers to . . .

Section 4 AssessmentSection 4 Assessment1. Laissez faire is the doctrine that states

that government should not intervenein the marketplace.

2. Some centrally planned nations areswitching to free enterprise systemsin order to keep pace with the evolv-ing global economy.

3. Privatization is usually a slow processin centrally planned economiesbecause, typically, few enterprises orbusinesses exist when privatizationbegins.

4. Answers should focus on the free-doms inherent in the U.S. free enter-prise system. And on the fact thatindividuals, not government, makeeconomic decisions.

5. Citizens would probably gain moreeconomic freedom and consumerchoices.

6. Students should locate articles fromreliable sources and be able to placethem appropriately on the bulletinboard.

GTE


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Answer to . . .Photo Caption the free enterprisesystem


Section 4 Assessment

Key Terms and Main Ideas1. What is laissez faire?2. Why have some nations begun a transition to free

enterprise? 3. Why are nations with centrally planned economies some-

times slow to succeed when they privatize industry?4. Compare the U.S. free enterprise system with other

economic systems you have read about in this chapter.

Applying Economic Concepts5. Critical Thinking What benefits might citizens of a

centrally planned economy derive from a move toward amarket-based system?

6. Try This Survey newspapers and magazines to findarticles describing life in different economic systems.Construct a bulletin board of the continuum ofeconomies in Fig. 2.5. Place each article on the appro-priate location on the continuum.

first century, largely under the free economicsystem it enjoyed under British rule.

In Hong Kong, the private sector rules.The government protects private propertyand rarely interferes in the free market,aside from establishing wage and pricecontrols on rent and some public services.It is highly receptive to foreign investmentand imposes virtually no barriers on

foreign trade. Banks in Hong Kong operateindependently of the government, andforeign-owned banks have nearly all thesame rights as domestic ones.

The United States EconomyThe United States has a free enterpriseeconomy. Still, the government intervenesto keep order, provide vital services, and topromote the general welfare. Some peopleargue for more government services, whileothers say that the government alreadyintervenes too much in the economy.Nevertheless, the United States enjoys ahigh level of economic freedom.

United States law protects privateproperty. The marketplace operates with alow level of government regulation.Foreign investment is encouraged. So, too,is free trade, although the United Statesdoes protect some domestic industries anddoes retaliate against trade restrictionsimposed by other nations. The bankingindustry operates under relatively fewrestrictions, and foreign-owned banks havefew additional restrictions. In the nextchapter, you will read in detail about thegovernment and the free enterpriseeconomy of the United States.

� What type ofeconomic system doyou see reflected inthis busy mall?

PHSchool.com

For: Research ActivityVisit: PHSchool.comWeb Code: mnd-1024

Progress Monitoring OnlineFor: Self-quiz with vocabulary practiceWeb Code: mna-1028

Typing in the Web Codewhen prompted will bring students directlyto detailed instructions for this activity.

Progress Monitoring OnlineFor additional assessment, have students accessProgress Monitoring Online at Web Code: mna-1028

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