Transcript Promoting Growth and Stability - PHS-Econ

Promoting Growth and
Stability
Chapter 3: Section 2
Macro Vs. Micro
 Macroeconomics--> study of economic
behavior and decision making in a
nation’s whole economy
 Microeconomics--> study of economic
behavior and decision making in small
units, such as households and firms
Macroeconomics
Microeconomics
GDP and the Business Cycle
 Gross Domestic Product (GDP)--> total
value of all final goods and services
produced in a country in a given year
 When in a recession, GDP goes down;
In a growing economy GDP goes up
GDP
 United States GDP in 2008 was 14.59
Trillion
 GDP can rise and fall
 Period of expansion, followed by a
period of decline is called a business
cycle
Business Cycles
 Business cycles are major fluctuations,
unlike the day to day ups and downs of
the stock market
Making Predictions
 Business owners who think consumers
are going to spend more in the future
may increase production and hire more
workers
 If enough employers take these steps
the the economy will grow
Concerns of Rising Prices
 Might lead consumers to buy fewer
goods
 If a decrease in consumer spending is
widespread and lasts long enough,
suppliers might be forced to cut
production and lay off workers
Promoting Economic Strength
 Government employs economists to
track and predict future business
cycles
 Government tries to create policies to
promote economic strength
3 Major Goals
 1. Employment
 2. Growth
 3. Stability
Employment
Employment
 Many economists consider an
unemployment rate of 4-6% to be good
 Latest unemployment rate for the
United States was 9.0% in January 2011
2. Economic Growth
 Always been the “American Dream”
that each generation will enjoy a
higher standard of living that previous
generations
 The economy must grow for that to
happen…Is this still a reality?
3. Stability
 Major indicator is stability is the
general level of prices
 Price surges strain consumers,
especially those living on fixed incomes
 Falling prices on the other hand harm
producers
Other Signs of Stability
 The security of our financial
institutions is another sign of our
economic stability
 We want to feel that our money is safe
and protected from fraud or
mismanagement
Economic Citizenship
 How can consumers have a say?
 Referendums--> proposed laws
submitted directly to the public, on
spending or other economic issues
 Way for voters to directly impact
government economic actions
Technology and Productivity
 Improved technology = more
productivity
 Innovation leads to obsolescence-->
situation in which older products and
processes become out of date
Obsolescence
 Workers can become obsolete
 Historical examples?
 Telephone operators
The Government’s Role
 The government promotes innovation
and invention
 The government has their own
research institutions…such as?
NASA
Government Issues Patents
 Government license that gives the
inventor of a new product the
exclusive right to produce and sell it
for 20 years
Also Issues Copyrights
 Grants an author exclusive rights to
publish and sell their creative works
 In the United States, a copyright lasts
for life + 70 years
Providing Public Goods
 Chapter 3: Section 3
Public Goods
 A shared good or service for which it
would be inefficient or impractical to
make consumers pay individually or
exclude those who do not pay
Taxes vs. Paying Individually
 What would your share of the upkeep
of Mt. Rushmore be worth?
Excluding Nonpayers?
 How would we check to see if everyone
paid for access to this road?
Taxes are the Answer
 To simplify the funding of government
projects in the public interest, the
government collects taxes
 We pay whether we go to the park or
not, use the street or not, etc
Open to All
 Any number of consumers can use
them public goods without reducing
the benefits to any single consumer
 Increasing the number of consumers
does not increase the cost of providing
the good
Costs and Benefits
 Infrastructure basic facilities that
are necessary for a society to function
and grow
 Transportation is a good example
Transportations
 Transportation goes more smoothly
when government builds roads
 We have to give up economic freedom
to do so
2 Conditions Must be present
 If something is to be produced as a
public good you need:
 1. benefit to each individual is less
than the cost that each would have to
pay if it were provided privately
 2. Total benefits to society are greater
than the total cost
Free-Rider Problem
 A free rider is anyone who does not
pay for a good or service but receives
the benefit anyway
 Free riders consume that which they
do not pay for
This is what happens without
taxes
 If the U.S. government relied on
voluntary contributions, most would
not give
 Would you give up money to pay for
roads? Would you stay off those roads?
Other Examples
 Fire protection What is your neighbor
did not want to pay for it?
 How could/would this impact you?
 Local taxes pay for this because all
residents are better of with it
Market Failures
 Situation in which the free market,
operating on its own, does not
distribute resources efficiently
 Private roads? High tolls? Not built in
sparsely populated areas?
Externalities
Externalities
 Economic side effects of a good or
service that generates benefits or costs
to a third party
 Positive and negative externalities
Positive Externality
 Example:
 Mr. Hutchins buys an old house that is
an eyesore in his neighborhood. He
paints the house, does landscaping,
and plants flowers. His neighbors are
not involved in the decision but yet
they benefit from this…how?
Negative Externality
 Example
 Mr. Hutchins’ lifelong dream is to
become a world renown salsa dancer.
He practices every night in his home
with the music blaring. You are his
neighbor and hate salsa, but you have
to put up with it.
Government’s Goals
 U.S. government may take action to
create positive externalities
 Example: Education it benefits
students and society as a whole
Government Limits Negative
Externalities
 Pollution would be an example
 Acid rain caused by auto plants and
power plants
 Harms trees, lakes, wildlife, etc.
 The EPA promotes “scrubbers” limit
pollution in smokestacks
Scrubbers at Work