A merican C ivicsHOLT HOLT, RINEHART AND WINSTON1 Chapter 21 The U.S. Economy and the World Section 1:Overview of the U.S. Economy Section 2:Factors Affecting the U.S. Economy Section 3:Governments Role in the U.S. Economy Section 4:Living in a World Economy Section 5:States and International Trade

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON2 Chapter 21 OBJECTIVES How do goods and services flow through the U.S. economy? How do goods and services flow through the U.S. economy? How does the marketplace affect the price of a good? How does the marketplace affect the price of a good? How do investments affect the economy? How do investments affect the economy? Section 1:Overview of the U.S. Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON3 Chapter 21 How goods and services flow through the U.S. economy: Consumers, producers, and the government exchange resources. Consumers, producers, and the government exchange resources. Households supply resources to the government and businesses. Households supply resources to the government and businesses. Businesses supply resources to the government. Businesses supply resources to the government. Section 1:Overview of the U.S. Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON4 Chapter 21 How goods and services flow through the U.S. economy: (continued) Businesses make products and sell to households and the government. Businesses make products and sell to households and the government. The government produces goods and services to benefit businesses and households. The government produces goods and services to benefit businesses and households. Employees earn wages, buy goods, and pay taxes. Employees earn wages, buy goods, and pay taxes. Section 1:Overview of the U.S. Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON5 Chapter 21 The marketplace affects the price of goods: Supply and demandthe demand and supply of a good is related to its price Supply and demandthe demand and supply of a good is related to its price Competitioncompetitors may lower prices to attract consumers Competitioncompetitors may lower prices to attract consumers Effect of competition on outputcompetition increases selection and supply Effect of competition on outputcompetition increases selection and supply Surpluses and shortagesprices lowered with surpluses, raised with shortages Surpluses and shortagesprices lowered with surpluses, raised with shortages Section 1:Overview of the U.S. Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON6 Chapter 21 How investments affect the economy: Entrepreneurship encourages economic growth and new product development. Entrepreneurship encourages economic growth and new product development. Venture capital is used to develop products, improve facilities, and pay for distribution. Venture capital is used to develop products, improve facilities, and pay for distribution. Business investmentsmoney raised to hire workers and improve facilities; profits generate money for shareholders and bondholders Business investmentsmoney raised to hire workers and improve facilities; profits generate money for shareholders and bondholders Section 1:Overview of the U.S. Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON7 Chapter 21 How investments affect the economy: (continued) Investment and technologyresearch and development investments lead to new technology products in the marketplace; new technology aids other businesses Investment and technologyresearch and development investments lead to new technology products in the marketplace; new technology aids other businesses Section 1:Overview of the U.S. Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON8 Chapter 21 OBJECTIVES What factors influence the business cycle? What factors influence the business cycle? What tools do economists use to predict the business cycle? What tools do economists use to predict the business cycle? How do the movement and location of resources affect economic growth? How do the movement and location of resources affect economic growth? Section 2:Factors Affecting the U.S. Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON9 Chapter 21 Factors influencing the business cycle: Business investmentcreates demand and encourages competition; improves efficiency and lowers cost of production; leads to research and development Business investmentcreates demand and encourages competition; improves efficiency and lowers cost of production; leads to research and development Money and creditwhen borrowing declines, business investment declines Money and creditwhen borrowing declines, business investment declines Public opinionconsumers spend more when economic future looks good, and thus businesses invest more Public opinionconsumers spend more when economic future looks good, and thus businesses invest more Section 2:Factors Affecting the U.S. Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON10 Chapter 21 Factors influencing the business cycle: (continued) Changes in the global economyfor example, oil prices have triggered recessions and expansions Changes in the global economyfor example, oil prices have triggered recessions and expansions Warleads to government spending, new jobs, and increased production Warleads to government spending, new jobs, and increased production Section 2:Factors Affecting the U.S. Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON11 Chapter 21 Tools used to predict the business cycle: Leading indicatorsused to predict about future economic growth; example: number of building permits issued Leading indicatorsused to predict about future economic growth; example: number of building permits issued Coincident indicatorsused to understand the economy at the present time; example: personal incomes Coincident indicatorsused to understand the economy at the present time; example: personal incomes Section 2:Factors Affecting the U.S. Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON12 Chapter 21 Tools used to predict the business cycle: (continued) Lagging indicatorsused to predict how long the current phase might last; example: appearance of new businesses during an upturn Lagging indicatorsused to predict how long the current phase might last; example: appearance of new businesses during an upturn Section 2:Factors Affecting the U.S. Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON13 Chapter 21 The movement and location of resources affects economic growth: New companies seek locations with quality workers at the lowest wages. New companies seek locations with quality workers at the lowest wages. Low cost of foreign workers has caused many businesses to move factories and jobs out of the country. Low cost of foreign workers has caused many businesses to move factories and jobs out of the country. Many foreign workers immigrate seeking higher wages in the United States. Many foreign workers immigrate seeking higher wages in the United States. More green cards are issued to skilled and educated immigrants. More green cards are issued to skilled and educated immigrants. Section 2:Factors Affecting the U.S. Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON14 Chapter 21 OBJECTIVES What are the goals of government regulation? What are the goals of government regulation? How is fiscal policy used to influence the economy? How is fiscal policy used to influence the economy? How does the Federal Reserve use monetary policy to influence the economy? How does the Federal Reserve use monetary policy to influence the economy? Section 3:Governments Role in the U.S Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON15 Chapter 21 Goals of government regulation: Protect workersEqual Employment Opportunity Commission, Occupational Safety and Health Administration Protect workersEqual Employment Opportunity Commission, Occupational Safety and Health Administration Protect consumersFood and Drug Administration, Consumer Product Safety Commission Protect consumersFood and Drug Administration, Consumer Product Safety Commission Limit negative effectsEnvironmental Protection Agency Limit negative effectsEnvironmental Protection Agency Encourage competitionregulations to ensure fair competition Encourage competitionregulations to ensure fair competition Section 3:Governments Role in the U.S Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON16 Chapter 21 Fiscal policy is used to influence the economy. Taxeslowering taxes creates spending money, aids business, and leads to new jobs; raising taxes slows growth and lowers prices; tax incentives encourage business investments Taxeslowering taxes creates spending money, aids business, and leads to new jobs; raising taxes slows growth and lowers prices; tax incentives encourage business investments Government spendingincreased spending raises demand and creates jobs; decreased spending reverses effects Government spendingincreased spending raises demand and creates jobs; decreased spending reverses effects Section 3:Governments Role in the U.S Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON17 Chapter 21 Fiscal policy is used to influence the economy. (continued) Public transfer paymentsgovernment funds enable poor and unemployed to continue spending Public transfer paymentsgovernment funds enable poor and unemployed to continue spending Timingeconomic forecasts used to time fiscal policy changes Timingeconomic forecasts used to time fiscal policy changes Section 3:Governments Role in the U.S Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON18 Chapter 21 The Fed influences the economy: Monetary policy determines the amount of money available in the economy. Monetary policy determines the amount of money available in the economy. Open-market operationssecurities are bought or sold to contract or expand money supply Open-market operationssecurities are bought or sold to contract or expand money supply Discount rateinterest rate charged to banks is lowered to expand the economy, raised to slow growth; banks borrow more when rate is low Discount rateinterest rate charged to banks is lowered to expand the economy, raised to slow growth; banks borrow more when rate is low Section 3:Governments Role in the U.S Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON19 Chapter 21 The Fed influences the economy: (continued) Reserve requirementlowered to expand the economy, raised to slow growth; banks lend more when reserve is low Reserve requirementlowered to expand the economy, raised to slow growth; banks lend more when reserve is low Timing and monetary policychanges take time to affect economy Timing and monetary policychanges take time to affect economy Section 3:Governments Role in the U.S Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON20 Chapter 21 OBJECTIVES Why do nations trade with one another? Why do nations trade with one another? How do free trade and protectionism differ? How do free trade and protectionism differ? What effects does international trade have on jobs and consumers? What effects does international trade have on jobs and consumers? Section 4:Living in a World Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON21 Chapter 21 Nations trade with one another. Specializationresources determine types of goods nations produce; countries specialize in certain goods and services Specializationresources determine types of goods nations produce; countries specialize in certain goods and services Trade increases a countrys supply of goods, services, and resources. Trade increases a countrys supply of goods, services, and resources. Trade barriers are used to protect a countrys industries from foreign competition. Trade barriers are used to protect a countrys industries from foreign competition. Section 4:Living in a World Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON22 Chapter 21 Nations trade with one another. (continued) Reciprocal trade agreements, regional trade organizations, and international trade agreements work to improve trade. Reciprocal trade agreements, regional trade organizations, and international trade agreements work to improve trade. Section 4:Living in a World Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON23 Chapter 21 Free trade versus protectionism: Free tradeSupporters believe exports and imports should flow freely between countries; free trade promotes competition and efficient businesses; trade barriers result in business and job losses; removing trade barriers promotes economic growth. Free tradeSupporters believe exports and imports should flow freely between countries; free trade promotes competition and efficient businesses; trade barriers result in business and job losses; removing trade barriers promotes economic growth. Section 4:Living in a World Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON24 Chapter 21 Free trade versus protectionism: (continued) ProtectionismSupporters believe that tariffs will protect domestic industries; reducing foreign competition creates more jobs at home; infant industries are vulnerable to foreign competition; businesses overspecialize; other nations do not promote free trade. ProtectionismSupporters believe that tariffs will protect domestic industries; reducing foreign competition creates more jobs at home; infant industries are vulnerable to foreign competition; businesses overspecialize; other nations do not promote free trade. Section 4:Living in a World Economy

A merican C ivicsHOLT HOLT, RINEHART AND WINSTON25 Chapter 21 Effects of international trade on jobs and consumers: Impact on jobsnew markets can increase demand and create more jobs; however, lower wages in foreign countries results in job losses Impact on jobsnew markets can increase demand and create more jobs; however, lower wages in foreign countries results in job losses Impact on consumerstrade allows consumers access to goods scarce in their countries; increases competition and lowers prices; consumers have more choices Impact on consumerstrade allows consumers access to goods scarce in their countries; increases competition and lowers prices; consumers have more choices Section 4:Living in a World Economy