1. Chapter 21 The U.S. Economy and the World
American Civics
4/21/2017
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: Government’s Role in the U.S. Economy
Section 4: Living in a World Economy
Chapter 21

2. Section 1: Overview of the U.S. Economy
The Main Idea
In a market economy, buyers and sellers interact in the marketplace and respond to changes in prices by changing the amounts demanded and the amounts supplied.
Reading Focus
What are four basic economic systems?
What is the free-enterprise economic system?
What are three ways to invest in the economy?

3. How goods and services flow through the U.S. economy:
Section 1: Overview of the U.S. Economy
How goods and services flow through the U.S. economy:
Consumers, producers, and the government exchange resources.
Households supply resources to the government and businesses.
Businesses supply resources to the government.

4. How goods and services flow through the U.S. economy: (continued)
Section 1: Overview of the U.S. Economy
How goods and services flow through the U.S. economy: (continued)
Businesses make products and sell to households and the government.
The government produces goods and services to benefit businesses and households.
Employees earn wages, buy goods, and pay taxes.

5. The marketplace affects the price of goods:
Section 1: Overview of the U.S. Economy
The marketplace affects the price of goods:
Supply and demand—the demand and supply of a good is related to its price
Competition—competitors may lower prices to attract consumers
Effect of competition on output—competition increases selection and supply
Surpluses and shortages—prices lowered with surpluses, raised with shortages

6. How investments affect the economy:
Section 1: Overview of the U.S. Economy
How investments affect the economy:
Entrepreneurship encourages economic growth and new product development.
Venture capital is used to develop products, improve facilities, and pay for distribution.
Business investments—money raised to hire workers and improve facilities; profits generate money for shareholders and bondholders

7. How investments affect the economy: (continued)
Section 1: Overview of the U.S. Economy
How investments affect the economy: (continued)
Investment and technology—research and development investments lead to new technology products in the marketplace; new technology aids other businesses

8. Question: How does the marketplace affect the price of goods?
SECTION 1
Question: How does the marketplace affect the price of goods?
producers
consumers
supply
PRICE
shortages
demand
competition
surpluses

9. Section 2: Factors Affecting the U.S. Economy
The Main Idea
Sometimes the economy performs well. Sometimes economic activity is not as strong. Many factors affect the performance of the economy. Economists try to understand how the economy is doing and predict its direction in order to advise businesses and the government.
Reading Focus
What is the business cycle?
Why are human and capital resources important to the economy?
How do current events affect the economy?

10. Factors influencing the business cycle:
Section 2: Factors Affecting the U.S. Economy
Factors influencing the business cycle:
Business investment—creates demand and encourages competition; improves efficiency and lowers cost of production; leads to research and development
Money and credit—when borrowing declines, business investment declines
Public opinion—consumers spend more when economic future looks good, and thus businesses invest more

11. Factors influencing the business cycle: (continued)
Section 2: Factors Affecting the U.S. Economy
Factors influencing the business cycle: (continued)
Changes in the global economy—for example, oil prices have triggered recessions and expansions
War—leads to government spending, new jobs, and increased production

12. Tools used to predict the business cycle:
Section 2: Factors Affecting the U.S. Economy
Tools used to predict the business cycle:
Leading indicators—used to predict about future economic growth; example: number of building permits issued
Coincident indicators—used to understand the economy at the present time; example: personal incomes

13. Tools used to predict the business cycle: (continued)
Section 2: Factors Affecting the U.S. Economy
Tools used to predict the business cycle: (continued)
Lagging indicators—used to predict how long the current phase might last; example: appearance of new businesses during an upturn

14. The movement and location of resources affects economic growth:
Section 2: Factors Affecting the U.S. Economy
The movement and location of resources affects economic growth:
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.
Many foreign workers immigrate seeking higher wages in the United States.
More green cards are issued to skilled and educated immigrants.

15. SECTION 2
Question: What types of indicators help economics forecast the business cycle?
UPTURN
DOWNTURN
decrease in building permits
Coincident Indicators
Lagging Indicators
Leading Indicators
increase in building permits
falling sales
decreased production
rising sales
increased production
decline in number of businesses
appearance of new businesses

16. Section 3: Government’s Role in the U.S Economy
The Main Idea
The government affects the economy through regulation and through fiscal and monetary policies. Proper use of these tools helps keep the economy functioning more smoothly and effectively.
Reading Focus
What are the goals of government regulation?
How is fiscal policy used to influence the economy?
How does the Federal Reserve use monetary policy to influence the economy?

17. Goals of government regulation:
Section 3: Government’s Role in the U.S Economy
Goals of government regulation:
Protect workers—Equal Employment Opportunity Commission, Occupational Safety and Health Administration
Protect consumers—Food and Drug Administration, Consumer Product Safety Commission
Limit negative effects—Environmental Protection Agency
Encourage competition—regulations to ensure fair competition

18. Fiscal policy is used to influence the economy.
Section 3: Government’s Role in the U.S Economy
Fiscal policy is used to influence the economy.
Taxes—lowering taxes creates spending money, aids business, and leads to new jobs; raising taxes slows growth and lowers prices; tax incentives encourage business investments
Government spending—increased spending raises demand and creates jobs; decreased spending reverses effects

19. Fiscal policy is used to influence the economy. (continued)
Section 3: Government’s Role in the U.S Economy
Fiscal policy is used to influence the economy. (continued)
Public transfer payments—government funds enable poor and unemployed to continue spending
Timing—economic forecasts used to time fiscal policy changes

20. The Fed influences the economy:
Section 3: Government’s Role in the U.S Economy
The Fed influences the economy:
Monetary policy determines the amount of money available in the economy.
Open-market operations—securities are bought or sold to contract or expand money supply
Discount rate—interest rate charged to banks is lowered to expand the economy, raised to slow growth; banks borrow more when rate is low

21. The Fed influences the economy: (continued)
Section 3: Government’s Role in the U.S Economy
The Fed influences the economy: (continued)
Reserve requirement—lowered to expand the economy, raised to slow growth; banks lend more when reserve is low
Timing and monetary policy—changes take time to affect economy

22. encourage competition Government Regulation limit negative effects
SECTION 3
Question: What are the four main economic goals of government regulation?
Four Main Goals of Government Regulation
encourage competition
protect workers
Government Regulation
protect consumers
limit negative effects

23. Section 4: Living in a World Economy
The Main Idea
International trade allows countries to specialize in producing the goods and services where they are most efficient. Trade gives people access to more goods and services. Trade also makes countries interdependent.
Reading Focus
Why do countries trade with one another?
What are the differences between free trade and protectionism?
How does international trade affect jobs and consumers?

24. Nations trade with one another.
Section 4: Living in a World Economy
Nations trade with one another.
Specialization—resources determine types of goods nations produce; countries specialize in certain goods and services
Trade increases a country’s supply of goods, services, and resources.
Trade barriers are used to protect a country’s industries from foreign competition.

25. Nations trade with one another. (continued)
Section 4: Living in a World Economy
Nations trade with one another. (continued)
Reciprocal trade agreements, regional trade organizations, and international trade agreements work to improve trade.

26. Free trade versus protectionism:
Section 4: Living in a World Economy
Free trade versus protectionism:
Free trade—Supporters 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.

27. Free trade versus protectionism: (continued)
Section 4: Living in a World Economy
Free trade versus protectionism: (continued)
Protectionism—Supporters 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.

28. Effects of international trade on jobs and consumers:
Section 4: Living in a World Economy
Effects of international trade on jobs and consumers:
Impact on jobs—new markets can increase demand and create more jobs; however, lower wages in foreign countries results in job losses
Impact on consumers—trade allows consumers access to goods scarce in their countries; increases competition and lowers prices; consumers have more choices

29. SECTION 4
Question: What effects can international trade have on jobs and consumers?
Effects of International Trade
Jobs
Consumers
As demand increases, companies build new factories and hire more workers.
Consumers have access to goods that are scarce in their country.
Increased competition causes prices to decline.
Jobs are lost when companies move to foreign countries for inexpensive labor.
The standard of living rises because consumers can afford more goods.
Consumers can enjoy more choices.

30. Chapter 21 Wrap-Up 1. What is the circular-flow model?
2. Why is investment important in a free-enterprise system?
3. How does the location of capital and human resources affect the U.S. economy?
4. What role do current events play in a country’s economy?
5. What are the goals of government regulation?
6. What is the role of the Federal Reserve System in the U.S. economy?
7. Why do countries have tariffs?
8. What industries do both protectionists and free-trade supporters believe must be protected from foreign competition?