I can’t believe that I failed out of AP Economics. Mr. Walton is the best teacher at Memorial High. Economic Policy & Goals

. When President Obama saw the Eiffel Tower, he asked The French President, “Did BP build that oil derrick you have there?” 1.Economics helps make us better- informed citizens and voters. 2.Economics helps improve a students analytical skills, which are in great demand in the workplace. 3.Understanding economics enables businesses to increase profits. 4.Economics helps consumers and workers make buying and employment decisions. Why study Economics?

Like the physical and life sciences economics relies on the scientific method. 1. The observation of facts, based on real-world data. Example: When looking at the recent housing slump we would gather facts on the relation between housing and interest rates. 2. Based on those facts we formulate a hypothesis, a theory for fixing a problem. Because it is unproven hypothesis implies the least degree of confidence in an economic generalization. Example: If interest rates were lowered, more houses would be sold. “Only the facts.”

When you are looking for Mr. or Miss. Right, you can concentrate on 3 billion choices. When you are looking for Mr. or Miss. Right, you can concentrate on 3 billion choices. “We’re looking for the perfect man.” But you wouldn’t concentrate on all the characteristics you are not going to Want. You look at the few qualities you want. “There is the woman I want. She doesn’t even have to like sports.”

Economists do the same thing. In constructing Theories (economic models) they make simplifying assumptions using the principle of Ceteris paribus [other things-equal]. By using this assumption economists can reason about the relationship between “X” and “Y” without the intrusion of “Z”. (There are too many Z variables in the world to test them all in a single model.) “Real World” NO

3.If the hypothesis stands up to continuous testing then it evolves into a theory. A well tested and widely accepted theory is referred to as a law or principle. A principle implies the greatest degree of confidence in an economic generalization. Example: If interest rates were lowered, more houses would be sold.

An economic principle or law is still just a generalization of what will occur. Because they are imprecise economic principles are simply the tendencies of consumers, workers, and businesses to follow a certain action. This tendency towards a certain action falls under the perspective of economic principles. So, Economists use both the scientific method and economic perspective to arrive at solutions.

4.Finally economic principles are used to create economic policy – course of action based on economic principles and intended to resolve a specific economic problem or further an economic goal. This is where politics comes into the picture. Economic policy usually deals with who get public funds, so policy is the bases for 90% of all political battles. In formulating economic policy it is important to consider the benefits and costs of the various policy options for reaching desired goals. Example: Make policy by lowering interest rates or giving tax deductions to help the housing industry.

. Policy Economics Whether you are Republican or Democrat, either poor or rich, all agree that economic policy should enhance certain goals for our society.

Eight Economic Goals 1.Economic Growth 1.Economic Growth ; An increase in GDP or per capita The U.S strives for 3% wealth. The U.S strives for 3% annual GDP growth. Full Employment 2. Full Employment – meaning that everyone who wants a job can find a job. But full employment means that only about 95-96% of the U.S. labor force is employed. “Mustang Athlete.” Economic Efficiency 3. Economic Efficiency – obtaining the maximum output from available resources or maximum benefits at minimum cost.

Eight Economic Goals Today, it takes $10 to buy what $1 bought in Stable Price Levels 4. Stable Price Levels – avoid sizable inflation or deflation. Maintain about 3% annual inflation rates. We had 13% inflation in 79. HYPERINFLATION HYPERINFLATION in Brazil Prices in 1994 were 4 million times higher than in Brazil’s inflation If we had Brazil’s inflation: $35Blue jeans$140 million 1. $35 Blue jeans would increase to $140 million per pair. Gas$1.25$5 2. Gas would increase from $1.25 to $5 million per gallon. $20 pizzamovie$80 million 3. $20 for a pizza and movie would increase to $80 million.

Eight Economic Goals Equitable Distribution of Income 5. Equitable Distribution of Income. One group shouldn’t have extreme luxury while another is in stark poverty. The richest 1%(3 million people) have greater wealth than the bottom 90% of the population.

. Economic Security 7. Economic Security – resources should be used to help those in need. There is an economic benefit to providing for those not able to take care of themselves (handicapped, disabled, old age, chronically ill, orphans, lay-offs [unemployment insurance]). Economic Freedom 6. Economic Freedom – businesses, and consumers should be free to use their recourse in order to satisfy their own needs. The market determines the use and cost of resources.

. Balance of Trade $690 billion for Balance of Trade – we should sell as much to the rest of the world as we buy from them. Our balance of trade was $690 billion for But it has declined since then.

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