1. 2. 3. C H A P T E R C H E C K L I S T. When you have completed your study of this chapter, you will be able to. Describe what, how, and for whom goods and services are produced in the United States.
3C H A P T E R C H E C K L I S T
Use the circular flow model to provide a picture of how households, firms, and governments interact.
Figure 2.1 shows the relative magnitudes of the different types of goods and services in 2002:
Factors of production are paid incomes:
Income paid for the use of land.
Income paid for the services of labor.
Income paid for the use of capital.
Profit (or loss)
Income earned by an entrepreneur for running a business.
Functional distribution of income
The percentage distribution of income among the factors of production.
Personal distribution of income
The percentage distribution of income among individual persons.
Figure 2.2 shows the functional distribution of income:
Proprietors’ income 9%
Personal rental income 2%
Corporate income 9 %
Net interest income 8%
Figure 2.3 shows the personal distribution of income:
The richest 20% earned 47% of total income.
The poorest 20% earned only 5% of total income.
During the early 2000s, the federal government is spending and collecting in taxes more than $2 trillion a year—about 20 cents in every dollar earned.
Households and firms pay taxes and receive transfers.
Governments buy goods and services from firms.
Figure 2.6(a) shows federal government expenditures.
Figure 2.6(b) shows federal government revenue.
The largest part of the state and local governments expenditures are on:
shows state and
Standard of living depends on:
The highest living standards, 28 countries
Not yet achieved a high standard of living, 128 countries
Transition from state-ownership of capital to free enterprise, 28 countries.
Figure 2.8 shows the standard of living around the world.
Average income per person ranges from $100 a day in the United States to $5 a day in Africa.
Unemployment influences the standard of living.
The harder it is to find a job, the longer is the period of unemployment.
The average unemployment rate in the United States in the past 20 years has been 6 percent and it takes about 15 weeks to find a suitable job.
Figure 2.9 shows average
unemployment rates around the world.
The unemployment rate is much higher in Spain than in most advanced economies.
The U.S. unemploy-ment rate is among the lowest.
Figure 2.10 shows inflation rates around the world.
Transition economies and Central and South America have high average inflation rates.
Figure 2.10 shows inflation
rates around the world.
Economies expand at an uneven pace and sometimes shrink for a while.
These ebbs and flow are the business cycle.
The most recent U.S. recessions occurred in 1991 and 2001.
Between these recessions, the U.S. economy expanded rapidly.
The transition economies slumped during the 1990s.
A recession occurred in Asia in 1998.