The U.S. and Global Economies CHAPTER 2 EYE ONS CapitalFirmsLand Capital goodsHuman capitalMarket Circular flow modelGoods marketsNational debt EntrepreneurshipHouseholdsProfit.

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