Presentation on theme: "Economic Systems Benchmark: Compare how different economic systems answer the fundamental economic questions of what goods and services to produce, how."— Presentation transcript:
1 Economic SystemsBenchmark: Compare how different economic systems answer the fundamental economic questions of what goods and services to produce, how to produce them, and who will consume them.
2 I. Trade, Specialization, and Interdependence A. International Trade1. US sells goods to other nations2. US buys goods from other nationsQuestion: Why doesn’t the US just make and sell to our own country???Answer: Other countries have goods that we don’t have.Ex: coffee, tea, bananas, chocolate
3 B. Cost and Specialization 1. Opportunity cost: the value of the next best alternative when a choice is madeEx: If you make $120/day and you decide to go fishing instead of work, the opportunity cost is $1202. Trade involves opportunity costEx: US business buys goods from other nations because they are cheaper to produce there
4 3. Absolute Advantage: when a country is able to produce more of a particular good, due to increased efficiency or cheaper labor costs.a. specialization: when a country specializes in the making of a good
5 C. Interdependence: The US depends on trade with other countries in order to stay competitive and profitablea. results:Negative: move plants to foreign countries, loss of US jobsPositive: cheaper prices for goods, greater choice of products
6 D. Global Organization: The WTO 1. World Trade Organizationa. US is a memberb. enforces standing trade agreementsc. encourages trade talks between countriesd. attempts to settle disputese. tries to help developing nations
7 E. Regional Organization: NAFTA 1. North Atlantic Free Trade Agreementa. signed in 1994 (Clinton), but was an idea of the Bush administrationb. free trade zone that includes US, Mexico, and Canadac. abolished tariffs between the 3 countriesd. established 1 big market
8 II. Labor Unions, Business Organizations, and Farm Organizations A. In terms of the economy, what are pros and cons of labor unions and farm organizations in the United States?
9 The U.S. Government and the Economy Explain how the U.S. government provides public services, redistributes income, regulates economic activity, and promotes economic growth and stability.
10 I. Effects of Governmental Actions on Individuals and Business A. Gov. has played an important role in our economy1. gov. action or lack of actionExamples:a. Interstate Commerce Commission: regulates trade within US and makes it fairb. passes laws against tainted food, impure drugs, air and water pollution, and unsafe autos2. US gov. is one of largest consumers in our economy (armed forces)** Throughout history, the US gov. has become increasingly involved in our economy
11 II. Taxes A. Gov. must levy taxes 1. pay employees 2. buy equipment 3. provide assistance to those in needTax increase1. less money for businesses to research2. less money for individuals to buy things
12 Types of Taxes C. “sin” tax: taxes on cigarettes and alcohol A. Income Tax: Tax on income earned at a job1. individuals2. businesses3. Income taxes are progressive: the more you make, the more you are taxedExcise Tax: Tax on the manufacture or sale of certain items (Ex: gas and airline tickets)1. Excise (or sales) taxes are regressive: they are the same, but it hurts those who make less money more than someone who makes a lot of moneyEx: If Person A makes $50K/year and pays $5K in excise tax, that is 10% of his earnings.If Person B makes $100K/year and pays $5K in excise tax, that is 5% of his earnings.C. “sin” tax: taxes on cigarettes and alcohol
13 III. Government Regulation of Business A. laws the encourage competitionB. regulate monopoliesC. Antitrust Legislation (prevent monopolies)1. Interstate Commerce Act: passed in 1887 to regulate railroads prices and interstate trade2. Sherman Antitrust Act: broke up many industrial monopolies (Standard Oil). President Teddy Roosevelt enforced this law3. Others: Clayton Antitrust Act, Federal Trade Commission, Meat Inspection Act, Securities and Exchange Act, Truth in Packaging Act
14 IV. The Federal Reserve System The Fed: the central bank of the United Statesa network of 12 banking districts in major cities around the United Statesestablished in 1913managed by a board of governorsFed’s decisions do NOT have to be approved by the President
15 Federal Reserve’s Responsibilities A. to set the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable pricesB. to supervise and regulate banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumersC. to maintain the stability of the financial system and contain risk that may arise in financial marketsD. to provide certain financial services to the U.S. government, to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nation’s payments systems
16 Federal Reserve System and the Economy To help when the economy is bad, the Fed will:a. lower the reserve requirements that banks must hold, therefore……..b. interest rates will decrease, therefore……c. banks will lend out more money, therefore………..d. there will be more money in the economy, therefore……….e. more items are being bought, therefore…..f. the economy becomes better, because people now have jobs and are spending more money
17 To help when inflation is high, the Fed will: a. raise the reserve requirements that banks must hold, therefore……..b. interest rates will increase, therefore…….c. banks will lend out less money, therefore………..d. there will be less money in the economy, therefore……….e. less items are being bought, therefore…..f. the economy slows down, and prices of items stay the same or decrease
18 1. OGT Multiple Choice(Blue Book 2007) Which of the following is a “progressive” tax?A. excise taxB. state income taxC. sales tax on an automobileD. “sin” tax on tobacco
19 2. OGT Multiple Choice(Blue Book 2007) Why did many people in the late 1800’s and early 1900’s want the government to break up monopolies?A. Monopolies created excessive competition.B. Monopolies decreased dividends for their shareholdersC. Monopolies advocated an increase in labor union membershipD. Monopolies decreased competition and fixed prices
20 3. OGT Multiple Choice(Blue Book 2007) Which of the following would result in the Fed increasing interest rates?A. The Fed buys securities on the open marketB. The Fed keeps the reserve requirment the sameC. The Fed lowers the reserve requirementD. The Fed raises the reserve requirement
21 4. OGT Multiple Choice(Orange OGT Study Guide 2007) A business in Country A has a productive capacity that outstrips consumer demand in its country. The best economic decision for that business would be toA. reduce the product’s price so more consumers in Country A could purchaseB. store the product in warehouses until more consumers in Country A could purchase itC. reduce its workforce so it produces less of its productsD. sell its products to consumers in other countries in addition to Country A
22 5. OGT Multiple Choice(Orange OGT Study Guide 2007) Which of the following is most likely to contribute to international trade between two countries.A. High unemployment in both countriesB. Equal distribution of natural resourcesC. Production of specialized goods in each countryD. Different economic systems in each country
23 6. OGT Multiple Choice(Orange OGT Study Guide 2007) Generally when two parties trade with each other there should be a rise in their standard of living becauseA. each is gaining access to a wider variety of productsB. each is limiting choices for its consumersC. one side will benefit to the detriment of the otherD. both sides will see a loss of consumer confidence
24 7. OGT Multiple Choice(Orange OGT Study Guide 2007) What is one major change countries participating in international trade may see in their economic infrastructure?A. A greater variety of products being produced in their countryB. Increased production of goods for which the country has a comparative advantageC. Higher prices for all manufactured goods produced in the countryD. The elimination of all goods for which the country has the absolute advantage
25 8. OGT Multiple Choice(Orange OGT Study Guide 2007) Which of the following statements best describes trade by people in the United States with people in other nations.A. The US has not traded at all with other nationsB. The US has always traded at all with other nationsC. The US has reduced its trade with other nationsD. The US has increased its trade with other nations
26 9. OGT Multiple Choice(Orange OGT Study Guide 2007) Labor unions in the U.S. have been interested in all of the following exceptA. higher wagesB. longer work weekC. safer working conditionsD. shorter work week
27 10. OGT Short Answer(Orange OGT Study Guide 2007) Saudi Arabia is one of the world’s largest produces of oil. However, it does not produce many manufactured goods. On the other hand, Japan does not have much oil as a natural resource but does produce a large number of manufactured goods. Explain why it would be beneficial for these two countries to trade with each other (2 points).
28 11. OGT Extended Response(BASE TEST 2006) One way the Federal Reserve Systemseeks to influence the U.S. economy is by raising or lowering the rate of interest (discount rate) that member banks must pay to borrow money from the Federal Reserve.Considering that the inflation rate rose significantly from 1976 to 1980, identify the change (increase or decrease) the Federal Reserve System could have made in the discount rate to reverse that trend.Describe the expected impact this change in the discount rate would have had on: consumer spending business spendingExplain why this change in the discount rate would produce the desired effects on spending.