Transcript Economics Overview

ECONOMICS REVIEW
ECONOMIC SYSTEMS
• Economic System- the method used by a society to make
and distribute goods and services.
• 3 Types of Systems
• Free Market
• Centrally Planned
• Mixed
FREE MARKET
(CAPITALISM/FREE
ENTERPRISE)
• Private ownership of
resources and goods.
• Producers are driven by the
desire to make a profit.
• Country examples: USA,
Canada, Germany, Japan
CENTRALLY PLANNED
(COMMUNISM/SOCIALISM)
• Government ownership of ‘means of
production’ and decision making. In
theory – workers own means of
production. In practice – the government
does.
• Country Examples: China, Cuba, North
Korea
MIXED
• A mix of Free Market & Centrally Planned.
The government plays
a significant role in making economic decisions.
• Country Examples:
United Kingdom, Italy, France, Russia
STOP AND THINK
• What are the 3 types of economic systems?
• Which one has the most amount of government involvement?
• The least government involvement?
ADAM SMITH
• Considered the ‘Father of Economics’
• His book The Wealth of Nations (1776) was
groundbreaking in explaining the idea of a capitalist
system
• Major Points
• Less government regulation
• Lassiez Faire- “Hands Off” approach to business in terms of
government
AMERICAN FREE MARKET/CAPITALIST ECONOMY
• Producers and Consumers are motivated by self-interest
• Producers Strive to…
• Make goods and services that consumers want in order to make
money
• Engage in competition- (lowers prices, advertise, improve quality)
in order to sell to consumers and make money
• Consumers…
• Purchase the best goods and services for the lowest prices
• Government plays important but limited role!
GROSS DOMESTIC PRODUCT
• GDP- The value of goods and services
produced by a nation in a given time
period.
• Measures how a nation’s economy is
doing
• If the GDP is not increasing, then the
economy is probably in a recession.
STOP AND THINK
• Who is Adam Smith? What is he known for?
• Explain what the GDP is.
https://www.youtube.com/watch?v=UMAELCrJxt0
GDP CONTINUED…
• Interest Rates – the cost of borrowing money.
• Inflation – a rise in the average level of prices.
A decrease in
the purchasing value of money.
• Stagflation – Inflation + no growth in the economy
• Recession – a period of declining economic activity.
GDP falls 6 months in a row.
The
GDP
CONTINUED…
• Budget Deficit – when the government spending
exceeds revenue.
• National Debt – when there is a budget deficit,
the government must borrow money to pay the
shortfall. The borrowed money over time is
added together to form the national debt.
• Federal Reserve System – national banking
system that controls the money supply and the
availability of credit.
FEDERAL BUDGET
• Federal Budget – The amount of money the Government has to
spend in a given year. (ex. defense, education, scientific research)
STOP AND THINK
• What are interest rates?
• Explain the idea of inflation.
• Where does national debt come from?
https://www.youtube.com/watch?v=Hf9vN_VKpXw
• Supply -
the amount of a good or service that
producers are willing and able to make at a given
price.
• Demand – the amount of a good or service
consumers are willing and able to buy at a given
price.
• Equilibrium Price – point at which supply and
demand intersect. Market operates efficiently.
• Surplus – quantity supplied is greater than the
quantity demanded.
• Shortage – quantity supplied is less than the quantity
demanded.
SUPPLY AND
DEMAND
THE STOCK MARKET
• Large companies sell stocks (or shares) of ownership in
their companies in order to raise money.
• Individuals invest in stocks to make money.
• New York Stock Exchange -- Wall Street.
• Activity on The Exchanges signals how well the economy is
doing.
• Dow Jones- average of 30 large companies – indicator
of economy
FOREIGN TRADE
• Many goods are produced globally by
multinational corporations, with parts
produced in one country and assembled in
another.
• Free-trade zone – region where a group of
countries agrees to reduce or eliminate trade
barriers, such as tariffs on imports.
• NAFTA – (North American Free Trade
Agreement) Canada, United States, and
Mexico
STOP AND THINK
• Explain the connection between supply and demand.
• 3 lines.
• What is equilibrium price?
• What are stocks?