1. AN ECONOMIC SYSTEM CHARACTERIZED BY… 1. PRIVATE OR CORPORATE OWNERSHIP OF CAPITAL GOODS; 2. INVESTMENTS THAT ARE DETERMINED BY PRIVATE DECISION RATHER THAN BY STATE CONTROL ; 3. AND DETERMINED IN A FREE MARKET Ch 3 Part 1 American Free Enterprise

2. 1 st what are we looking at?? Macro Economics vs Micro Economics 1. Macroeconomics: the study of entire economies 2. Microeconomics: the study of individual people, groups or businesses 3. Gross Domestic Product (GDP): the total of all goods produced in a country in one year 4. Business Cycle: period of economic expansion followed by a period of contraction (growth then fall)

3. Business Cycle 1. Peak: height of economic expansion 2. Contraction: an economic decline marked by a fall in the real GDP; causes unemployment to rise 3. Trough: economy has “bottomed out”; lowest point in contraction when real GDP stops falling 4. Expansion: economic growth with a rise in the real GDP

4. What Constitutional Protections are in place in a Free Enterprise system? 1. Property Rights a. 5 th Amendment – No person shall “be deprived of life, liberty or property without due process of law; nor shall private property be taken for public use without just compensation.” b. 14 th Amendment – Extends this restriction to states 2. Taxation – a. Constitution provides for taxation, but limits it according to population b. 16 th Amendment provides for an income tax

5. 2 Basic Principles of Free Enterprise 1. Profit Motive – the idea that by innovating and improving you can increase your well- being 2. Open Opportunity – the Marketplace is open to all

6. 5 Economic Rights in Free Enterprise 1. Legal Equality – everyone is equal under the law 2. Private Property Rights – you (and only you) control your property 3. Free Contract – you decide what contracts you want to enter into 4. Voluntary Exchange – you decide what and when to buy and sell 5. Competition – rivalry amongst seller

7. What is the Role of the Consumer (you!) in a Free Enterprise? By purchasing some things and not purchasing others, the consumer influences the market. Interest Groups – Private organizations that try to influence the market

8. How does the Govt. Protect People in a free enterprise? I. Public Disclosure Laws- Government requires that companies give you some information. II. Environmental Laws restricting pollution

9. What are the Negative Effects of Government Involvement? 1. Adds to costs of business 2. Restrictions sometimes unnecessary p.55 chart of regulations

10. How does Govt. try to strengthen the economy? 1. Employment: tries to keep unemployment low (Unemployment between 4% and 6% in “normal”) 2. Growth: tries to keep GDP going up 3. Stability: tries to keep things from fluctuating too fast

11. How does Technology and Productivity impact the economy? 1. Work ethic: a commitment to the value of work 2. Technological Progress: creates growth and innovation

12. What Government Protections (regulations) are in place to aid the economy? 1. Patents  A. Limited years of exclusivity 2. Copyrights:  Exclusive right to publish and sell your own works

13. Review What are the benefits of free enterprise or a market economy? What are problems with a free market? How does the government hurt the free market? What protections does the government provide for Americans? What is micro economics? Macro economics?

14. Video Review… Market Economy: The Government's Role