Transcript American Free Enterprise

American Free Enterprise
Chapter 3 Section 2
Promoting Growth and
Stability
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Objectives:
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Explain how the government tracks and
seeks to influence business cycles.
Analyze how the government promotes
economic growth.
Analyze the effect of technology on
productivity.
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America’s economy is big – Very BIG
It consists of roughly 116 million {as of 1/2009}
households of about 305 million people {as
of 7/2008} who work at some 139 million jobs
and earn more than $ 8 trillion.
In Washington, DC armies of economists
use the latest computer and other
technologies to try to predict whether this
massive economy will grow or shrink.
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Economic policymakers pull in the reins
when the economy bolts at breakneck
speed, and attempt to kick start it when it
gets slow and unproductive.
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Tracking Business Cycles:
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Macroeconomics – the study of behavior and
decision making of the entire economy.
Microeconomics – the study of behavior and
decision making of small units – such as
individuals, families, and businesses.
“Macro” means large and “Micro” means small.
One way to calculate the nation’s well-being is to
look at the Gross Domestic Product {GDP} –
the total value of all final goods and services
produced in an economy.
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American Free Enterprise
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Tracking Business Cycles:
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Economists follow the country’s GDP and other
key statistics to predict business cycles.
A business cycle – a period of macroeconomic
expansion followed by a period of contraction or
decline.
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Tracking Business Cycles:
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These economic cycles are major fluctuations.
Free Enterprise Systems are subject to business
cycles because of economic decisions about
favors such as prices, production, and
consumption made by individuals and
businesses.
A business cycle can last from a few months to
many years.
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Promoting Economic
Growth
High Employment
Steady Growth
Stable Prices
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Promoting Economic Strength:
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Because the market is vulnerable to business
cycles, the government creates public polices
that aim to stabilize the economy.
Policymakers pursue three main outcomes
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1. High Employment
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2. Steady Growth
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3. Stable Prices
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Promoting Economic Strength:
Employment
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Put as many people to work as possible
Unemployment rate of between 4 and 6% is
desirable {Unemployment Rate as of 12/2008 = 7.2%}
Growth
* Try to allow each generation a higher standard of
living than their parents.
* For each generation to do better, the economy
must grow to provide additional goods
and services.
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Promoting Economic Strength:
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Stability
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Trying to keep the economy stable and secure.
Stability gives consumers/investors confidence in the
economy and in our financial future.
One way to do this is through stable prices.
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We don’t want prices to go up and down all the time unpredictable.
We don’t want a can of soda to go from $ .25/can in the
morning to $ 1.00/can by lunch time or even higher.
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Technology and Productivity:
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The American economy maintains a far higher
standard of living in terms of GDP than most of the
world.
One we do this is through our work ethic – a
commitment to the value of work and purposeful
activity.
Another way to increase productivity is through
improved technology.
Improvements in technology allow an economy to
produce more output from the same or a smaller
quantity of inputs or resources.
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Innovation is the main reason that
technology has improved so much over
time.
Inventions are also the engine of the free
enterprise system.
Federal agencies fund scores of research
and development projects at universities
and other places.
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The Government will grant a patent –
exclusive rights to produce and sell that
product for the next 20 years without
competition.
A copyright grants an author exclusive
rights to publish and sell his or her creative
works for their lifetime and another 50 years.
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REVIEW:
1. Compare macroeconomics to microeconomics.
2. How does gross domestic product (GDP) provide
a means to analyze economic growth?
3. What does GDP tell economists about business
cycles?
4. Give one example of a new technology that has
resulted in greater productivity for the US.
5. How do patents and copyrights promote
innovation?
6. How does innovation help the economy?