1. Economics Review

2. Warm-Up What goods and services should be produced? How should goods and services be produced? Who consumes the goods and services?

3. What is it? Economic System is the method used by a society to make and distribute goods and services. 3 types Free Market (Capitalism / Free-Enterprise) There is private ownership of resources and goods. Basic idea = producers are driven by the desire to make a profit. Centrally Planned (Command / Socialist / Communist) Government ownership of the means of production and decision making. In theory – workers own means of production. In practice – the government does. Mixed (Social Democratic / Liberal Socialist) A mix of Free Market & Centrally Planned. The government plays a significant role in making economic decisions. United States Germany Canada Japan China Cuba North Korea United Kingdom Italy, France Russia, India

4. Stop ~Think ~ Discuss  Which has the least amount of government interaction?  Which has the most?  What is the main type of economic system in the United States? Free Market Centrally Planned / Communism Free Market

5. History “The Father of Economics” Adam Smith & Capitalism Government should stay out of way of businesses in the economy. Less regulation Hands off of business Laissez-faire

6. The American Free Market/ Capitalist Economy  Producers & consumers motivated by self-interest Try to make goods and services producers want in order to make more money Engage in competition (lowering prices, advertising, improving quality) to get more consumers Purchase the best goods & services for the lowest price. Government plays a limited but important role.

7. United States Workforce, by Occupation, 2005* * Percentages are rounded 36% 14%

8. Exit Out

9. Warm - Up

10. Gross Domestic Product  The value of goods and services produced by a nation in a given time period.  Measures how a nations economy is doing!  If the GDP is not increasing, then the economy is probably in a recession.

12. GDP continued  Interest Rates – the cost of borrowing money.  Inflation – a rise in the average level of prices. A decrease in the purchasing value of money.  Stagflation – Inflation + no growth in the economy  Recession – a period of declining economic activity. The GDP falls 6 months in a row.

13. Budget Deficit – when the government spending exceeds revenue. National Debt – when there is a budget deficit, the government must borrow money to pay the shortfall. The borrowed money overtime is added together to form the national debt. Federal Reserve System – national banking system that controls the money supply and the availability of credit. http://www.theusdebtclock.com/

16. Exit Out

17. Warm-Up

18. Federal Budget – written document indicating the amount of money the government expects to receive during a year and authorizes the amount the government can spend that year. The Government debates how much should be spent on specific programs (ex. defense, education, scientific research)

19. Entitlement Programs government program that provides individuals with personal financial benefits hard to predict in advance just how many individuals will meet the various entitlement criteria during any given year, so it is therefore difficult to predict what the total costs to the government will be Since the mid 1980s, entitlement programs make up more than half of all federal spending. entitlement programs leave Congress with no more than about 25% of the annual budget

22. Money Supply  currency—dollar bills and coins issued by the F EDERAL R ESERVE S YSTEM and the U.S. Treasury—and various kinds of deposits held by the public at commercial banks.F EDERAL R ESERVE S YSTEM  M1, M2, M3 slightly different ways of measuring the money supply (ex. US money held outside the US, things than can be exchanged in place of money)  Too much money in circulation = inflation

24. Exit Out  What happens if the money supply increases faster than production? A.Surplus B.Inflation C.Recession D.Depression A.Surplus B.Inflation C.Recession D.Depression

25. Warm up  What determines the price of goods (and services?)

26. Supply & Demand Supply - the amount of a good or service that producers are willing and able to make at a given price. Demand – the amount of a good or service consumers are willing and able to buy at a given price. Equilibrium Price – point at which supply and demand intersect. Market operates efficiently. Surplus – quantity supplied is greater than the quantity demanded. Shortage – quantity supplied is less than the quantity demanded. This is what determines the price of goods & services

28. Stop ~ Think ~ Discuss  What is the point at which supply and demand intersect known as?  When does a surplus occur?  When the price of something increases, what happens to supply? to demand? Equilibrium Price Quantity supplied is greater than demand increases decreases

29. The Stock Market or Stock Exchange  The place where stocks and bonds are sold.  Large companies sell stocks (or shares)of ownership in their companies in order to raise money.  Individuals invest in stocks to make money.  The sale takes place on the Stock Exchange. The largest exchange in the U.S. is the New York Stock Exchange.  Activity on The Exchanges signals how well the economy is doing.  Dow Jones Industrial Average based on the prices of stocks of 30 large companies – indicates how the stock market is doing.

31. Foreign Trade  Many goods are produced globally by multinational corporations, with parts produced in one country and assembled in another.  Free-trade zone – region where a group of countries agrees to reduce or eliminate trade barriers, such as tariffs on imports.  NAFTA – Canada, United States, and Mexico

36. Exit Out How would making and buying American made goods affect the GDP? Workforce? Exports & Imports? Both decrease? Less unemployment? Increase goods / services, decrease exports, inflation

37. HOMEWORK Find 5 items in your house that you use or wear frequently. Make a list of the items and where they are made. Example: 1. iphone - China 2. Hudson Jeans - USA 3. 4. 5.