American Free Enterprise Chapter 3 Section 2 Promoting Growth and Stability

American Free Enterprise Objectives:  Explain how the government tracks and seeks to influence business cycles.  Analyze how the government promotes economic growth.  Analyze the effect of technology on productivity.

American Free Enterprise America’s economy is big – Very BIG It consists of roughly 116 million {as of 1/2009} households of about 305 million people {as of 7/2008} who work at some 139 million jobs and earn more than $ 8 trillion. In Washington, DC armies of economists use the latest computer and other technologies to try to predict whether this massive economy will grow or shrink.

American Free Enterprise Economic policymakers pull in the reins when the economy bolts at breakneck speed, and attempt to kick start it when it gets slow and unproductive.

American Free Enterprise Tracking Business Cycles:  Macroeconomics – the study of behavior and decision making of the entire economy.  Microeconomics – the study of behavior and decision making of small units – such as individuals, families, and businesses.  “Macro” means large and “Micro” means small.  One way to calculate the nation’s well-being is to look at the Gross Domestic Product {GDP} – the total value of all final goods and services produced in an economy.

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Tracking Business Cycles:  Economists follow the country’s GDP and other key statistics to predict business cycles.  A business cycle – a period of macroeconomic expansion followed by a period of contraction or decline.

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Tracking Business Cycles:  These economic cycles are major fluctuations.  Free Enterprise Systems are subject to business cycles because of economic decisions about favors such as prices, production, and consumption made by individuals and businesses.  A business cycle can last from a few months to many years.

American Free Enterprise Promoting Economic Growth High Employment Steady GrowthStable Prices

American Free Enterprise Promoting Economic Strength:  Because the market is vulnerable to business cycles, the government creates public polices that aim to stabilize the economy.  Policymakers pursue three main outcomes 1. High Employment 2. Steady Growth 3. Stable Prices

American Free Enterprise Promoting Economic Strength: Employment  Put as many people to work as possible  Unemployment rate of between 4 and 6% is desirable {Unemployment Rate as of 12/2008 = 7.2%} Growth * Try to allow each generation a higher standard of living than their parents. * For each generation to do better, the economy must grow to provide additional goods and services.

American Free Enterprise Promoting Economic Strength:  Stability Trying to keep the economy stable and secure. Stability gives consumers/investors confidence in the economy and in our financial future. One way to do this is through stable prices.  We don’t want prices to go up and down all the time - unpredictable.  We don’t want a can of soda to go from $.25/can in the morning to $ 1.00/can by lunch time or even higher.

American Free Enterprise Technology and Productivity:  The American economy maintains a far higher standard of living in terms of GDP than most of the world.  One we do this is through our work ethic – a commitment to the value of work and purposeful activity.  Another way to increase productivity is through improved technology.  Improvements in technology allow an economy to produce more output from the same or a smaller quantity of inputs or resources.

American Free Enterprise Innovation is the main reason that technology has improved so much over time. Inventions are also the engine of the free enterprise system. Federal agencies fund scores of research and development projects at universities and other places.

American Free Enterprise The Government will grant a patent – exclusive rights to produce and sell that product for the next 20 years without competition. A copyright grants an author exclusive rights to publish and sell his or her creative works for their lifetime and another 50 years.

American Free Enterprise REVIEW: 1. Compare macroeconomics to microeconomics. 2. How does gross domestic product (GDP) provide a means to analyze economic growth? 3. What does GDP tell economists about business cycles? 4. Give one example of a new technology that has resulted in greater productivity for the US. 5. How do patents and copyrights promote innovation? 6. How does innovation help the economy?