1. Chapter 3 Section 4

2. where we are in a given business cycle affects our lives every day.
If the economy doesn’t create enough jobs, high school graduates have trouble finding work.
If prices rise, but incomes don’t, our ability to buy what we need declines.

3. Because the market is vulnerable to business cycles, the government creates public policies that aim to stabilize the economy.

4. Policymakers pursue three main outcomes as they seek to stabilize the economy:
High employment
Steady growth
Stable prices

5. Free enterprise systems are subject to business cycles because economic decisions about factors such as prices, production, and consumption are made by individuals and business acting in their own self interest.

6. Employment: One aim of federal economic policy is to provide jobs for everyone who is able to work.
In the United States many Economists consider an unemployment rate of between 4.5 percent and 5.5 percent to be desirable.

7. Growth: part of the American Dream has always been each generation to enjoy a higher standard of living than the previous generation. For each generation to do better the economy must grow to provide goods and services to succeeding generations.

8. Stability: Stability gives consumers, producers, and investors confidence in the economy and in our financial institutions, promoting economic freedom and growth.

9. One indicator of stability is general price levels
One indicator of stability is general price levels. The government’s aim is to help prevent sudden, drastic shifts in prices. A surge in overall prices puts a strain on consumers, especially people on fixed incomes. When prices sink, producers feel the pain.

10. A jump in the price of milk, for example, is hard on families with children, while a plunge in milk prices hurts dairy farmers. In either direction, major fluctuations in price levels can cause a macroeconomic chain reaction that policymakers seek to avoid.

11. Another sign of economic stability is the health of the nation’s financial institutions. None of us want to go to the bank and find it boarded up and empty. When we make a bank deposit, a stock purchase, or any other financial transaction, we want to know that our money is protected from fraud or mismanagement.

12. To provide such assurances, the federal government monitors and regulates American banks and other financial institutions. It produces hundreds of regulations, and it has the power to enforce them.

13. Federal banking regulations protect bank deposits and retirees’ pensions; they investigate illegal stock trading and other types of fraud; they manage interest rates and the flow of money through the economy.

14. Macroeconomics-is the study of the behavior and decision making of entire economies.
Microeconomics-is the study of the economic behavior and decision making of small units, such as individuals, families, and businesses.

15. Gross domestic product (GDP)-the total value of all final goods/services produced in a particular economy, within that nations borders.

16. Business cycle-a period of macroeconomic expansion followed by a period of contraction.

17. The American economy maintains a far higher standard of living, in terms of GDP, than most of the world.
You’ve learned that one way to preserve that high standard is by increasing productivity-shifting the production possibilities frontier outward.

18. That means producing more from the resources we have.
And how do we do that?
One way is through improved technology.

19. Technology can describe the process used to produce a good or service.

20. Improvements in technology allow an economy to produce more output from the same or a smaller quantity of inputs, or resources.
Technological progress allows the United States economy to operate more efficiently and productively, increasing GDP and giving U.S businesses a competitive advantage in the world.

21. Recognizing the need for innovation to maintain America’s technological advantage, the government provides incentives for innovation.
Federal agencies fund scores of research and development (R&D) projects at universities and private firms.

22. *The government encourages innovation by issuing patents, grants and copyrights.
*A U.S. patent gives the inventor of a new product the exclusive right to produce and sell it for a certain number of years.

23. A copyright grants an author exclusive rights to publish and sell his or her creative works.
Grants exist to provide businesses, schools, or individuals money to conduct research to make improvements in some area

24. 1. Compare macroeconomics with microeconomics, and give an example of each.
Macroeconomics is the entire decision of everything.
Macroeconomics is the whole economy, Microeconomics is individuals

25. 2. What does gross domestic product (GDP) represent?
The total value of all final goods and services produced in a particular economy.

26. 3. What does GDP tell economists about business cycles?
Tells the total value of all final goods and services.

27. 4. Give one example of a new technology that has resulted in greater productivity for the United States.
Computers

28. 5. (a) How do patents and copyrights promote innovation
5. (a) How do patents and copyrights promote innovation? (b) How does innovation help the economy?
Because nobody can take the idea away from you.
People can’t make the same thing and it keeps competition down a little.

29. 6.What is macroeconomics?
The study of the behavior and decision making of entire ecomonics.

30. 7. Explain how the government tracks and seeks to influence business cycles.
By the GDP.