1 / 54

Nickels McHugh McHugh

2-2. Economics: Create Wealth. Study of how society chooses to employ resources to produce goods

meir
Download Presentation

Nickels McHugh McHugh

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

    1. 2-1 Nickels McHugh McHugh

    2. 2-2 Economics: Create Wealth Study of how society chooses to employ resources to produce goods & services and distribute them among competing groups/individuals Micro v. Macro Resource Development See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34

    3. 2-3 Economics defined ECONOMICS is the study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals.  

    4. 2-4 How does Economics effect business I. HOW ECONOMIC CONDITIONS AFFECT BUSINESSES Learning Goal 1 Compare and contrast the economics of despair with the economics of growth. A. What Is Economics? B. Why Economics Was Known as “the Dismal Science” C. Growth Economics and Adam Smith D. How Businesses Benefit the Community.   See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34

    5. 2-5 Business Cycles See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle.See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle.

    6. 2-6 See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. Four “What’s” of an Economic System: These four questions are used in evaluating an economic system. Globalization has made these questions more important than ever as we trade with different global economies. How is the Peoples’ Republic of China, different than the United States economically? How would they address these questions? In a country like Russia decisions made concerning what is produced were made by the government. Who decides what is produced in the U.S.? (Consumers decide what is produced by their purchasing habits.) See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. Four “What’s” of an Economic System: These four questions are used in evaluating an economic system. Globalization has made these questions more important than ever as we trade with different global economies. How is the Peoples’ Republic of China, different than the United States economically? How would they address these questions? In a country like Russia decisions made concerning what is produced were made by the government. Who decides what is produced in the U.S.? (Consumers decide what is produced by their purchasing habits.)

    7. 2-7 WHY ECONOMICS WAS KNOWN AS “THE DISMAL SCIENCE” The English economist Thomas Malthus believed that population growth would outstrip resources. In response, Thomas Carlyle called economics “THE DISMAL SCIENCE.” Many still believe, like Malthus, that the solution to poverty is birth control. WORLD POPULATION is currently growing more slowly than expected. But population in the developing world will continue to climb quickly. See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34

    8. 2-8 Economic Theories See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34 See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34

    9. 2-9 Economic Theories See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34 See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34

    10. 2-10 How does Economics effect business II. UNDERSTANDING FREE-MARKET CAPITALISM Learning Goal 2 Explain what capitalism is and how free markets work. A. The Foundations of Capitalism B. How Free Markets Work C. How Prices Are Determined D. The Economic Concept of Supply E. The Economic Concept of Demand F. The Equilibrium Point, or Market Price G. Competition within Free Markets H. Benefits and Limitations of Free Markets   See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34

    11. 2-11 Circular Flow Model Also available on a Transparency Acetate Learning Objective 2: Explain what capitalism is and how free markets work. Circular Flow Model In a free market economy, business activity involves two major players: individuals (households) who own the resources that are the inputs into the productive process, and businesses who use these inputs (factors of production) to create goods and services. 1. In the Resource Market (top part of the model) a. Businesses demand resources. b. Households own the resources (factors of production.) c. Income from providing these resources flows back to the households d. The price of these resources set by laws of supply and demand. 2. In the Product Market (lower part of the model) a. Businesses use these resources to create goods and services. b. Households (individuals) demand these goods and services. c. Individuals use their income to purchase goods and services.Also available on a Transparency Acetate Learning Objective 2: Explain what capitalism is and how free markets work. Circular Flow Model In a free market economy, business activity involves two major players: individuals (households) who own the resources that are the inputs into the productive process, and businesses who use these inputs (factors of production) to create goods and services. 1. In the Resource Market (top part of the model) a. Businesses demand resources. b. Households own the resources (factors of production.) c. Income from providing these resources flows back to the households d. The price of these resources set by laws of supply and demand. 2. In the Product Market (lower part of the model) a. Businesses use these resources to create goods and services. b. Households (individuals) demand these goods and services. c. Individuals use their income to purchase goods and services.

    12. 2-12 See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40 Supply Curve Economics is the concept of supply and demand. This acetate illustrates the relationship between supply and demand. Supply curves slope upward to the right as demand increases. Note as demand for a product increases; it forces suppliers to increase their production to meet the demand; the result is a higher quantity of product sold at higher prices. The interaction of supply and demand plays a major role on prices. When gasoline is in short supply… prices rise; more countries will increase their production to meet this demand.See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40 Supply Curve Economics is the concept of supply and demand. This acetate illustrates the relationship between supply and demand. Supply curves slope upward to the right as demand increases. Note as demand for a product increases; it forces suppliers to increase their production to meet the demand; the result is a higher quantity of product sold at higher prices. The interaction of supply and demand plays a major role on prices. When gasoline is in short supply… prices rise; more countries will increase their production to meet this demand.

    13. 2-13 See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40 Demand Curve This slide complements the previous slide dealing with the economic concept of supply. Compare this slide to the examples in the text. Why does the demand curve shift downward to the right? (When demand is high and supply is short, prices will rise; as companies expand to meet the demand, more supply is available resulting in lower prices.) Movements along the demand curve will not improve companies profit outlook. Ideally a company wants to shift their entire demand curve upwards to the right. If a company is successful shifting the demand curve upwards to the right, it will mean increased quantity sold at higher prices; resulting in larger profits. See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40 Demand Curve This slide complements the previous slide dealing with the economic concept of supply. Compare this slide to the examples in the text. Why does the demand curve shift downward to the right? (When demand is high and supply is short, prices will rise; as companies expand to meet the demand, more supply is available resulting in lower prices.) Movements along the demand curve will not improve companies profit outlook. Ideally a company wants to shift their entire demand curve upwards to the right. If a company is successful shifting the demand curve upwards to the right, it will mean increased quantity sold at higher prices; resulting in larger profits.

    14. 2-14 See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40 Equilibrium Point This slide combines the information from the previous two slides to create the concept of market pricing or equilibrium. The intersection of the product quantity demanded and supplied is the equilibrium point. Historically, market prices tend to gravitate toward the intersection of product quantity demanded and product quantity supplied. If market forces determine prices, why do we need government involvement in pricing in certain industries? (If a company has an unfair advantage, or becomes too large, they can control price without regard to market conditions and customers will be forced to pay more.) Ask the student how a business can charge a higher price than the equilibrium point? (Through product differentiation, (real or perceived) a company can create a demand for their product resulting in higher pricing.)See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40 Equilibrium Point This slide combines the information from the previous two slides to create the concept of market pricing or equilibrium. The intersection of the product quantity demanded and supplied is the equilibrium point. Historically, market prices tend to gravitate toward the intersection of product quantity demanded and product quantity supplied. If market forces determine prices, why do we need government involvement in pricing in certain industries? (If a company has an unfair advantage, or becomes too large, they can control price without regard to market conditions and customers will be forced to pay more.) Ask the student how a business can charge a higher price than the equilibrium point? (Through product differentiation, (real or perceived) a company can create a demand for their product resulting in higher pricing.)

    15. 2-15 Understanding Competition Economies describe competition as Perfect Monopoly Oligoply Monpolistic See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34

    16. 2-16 Adam Smith See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34 See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34

    17. 2-17 See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40 See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40

    18. 2-18 Competitive market conditions How many Buyers? How many Sellers? What power or influence does the seller have over the market ? How similar are the products? See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40 See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40

    19. 2-19 Perfect Competition See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40 See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40

    20. 2-20 Perfect Competition See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40 See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40

    21. 2-21 Monopolistic Competition: Many Sellers With Perceived Differences See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40 See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40

    22. 2-22 Oligopoly: Few Sellers See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40 See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40

    23. 2-23 Monopoly: One Seller Utilities See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40 See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40

    24. 2-24 Limits of Free-Markets See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40 See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40

    25. 2-25 Understanding Market Structures Economies are identified – classified as Capitalism Communism Socialism Mixed See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34

    26. 2-26 Three Economic Systems See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40 See Learning Objective 3: Discuss the major differences between socialism and communism. See text pages: 41-42 See Learning Objective 4: Explain the trend toward mixed economies. See text pages: 43-45 See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40 See Learning Objective 3: Discuss the major differences between socialism and communism. See text pages: 41-42 See Learning Objective 4: Explain the trend toward mixed economies. See text pages: 43-45

    27. 2-27 Capitalism See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40 See Learning Objective 2: Explain what capitalism is and how free markets work. See text pages: 34-40

    28. 2-28 How does Economics effect business   III. UNDERSTANDING SOCIALISM Learning Goal 3 Discuss the major differences between socialism and communism.. A. The Benefits of Socialism B. The Negative Consequences of Socialism     See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34

    29. 2-29 Socialism See Learning Objective 3: Discuss the major differences between socialism and communism. See text pages: 41-42 See Learning Objective 3: Discuss the major differences between socialism and communism. See text pages: 41-42

    30. 2-30 Also available on a Transparency Acetate See Learning Objective 2: Explain what capitalism is and how free markets work. Industrialized Nations’ Top Individual Tax Rate This slide illustrates the Industrialized Nations’ Top Individual Tax Rate as a comparison. Students may be surprised at the difference between the rates in the U.S. and Denmark. The U.S. rate of 35% compared to the Danish rate of 59% represents more than 65% increase in taxes. To help explain the difference from the U.S. rate (lowest rate), and Denmark’s (highest rate) rate, you can discuss the differences between capitalism and socialism. (Socialism believes that government should provide increased services for people by redistributing income from the richer people to the poor. Explain to the student that socialist countries are given free education, free health care, and more employee benefits.) Point out the major disadvantages of socialism and the higher tax rate: * Reduced incentives to work harder resulting in less innovation. * Marginal tax rates higher. Use the example of earning up to $20,000, at a tax rate of 40%. For each dollar you earn over $20,000, you could pay up to 85%, or eight-five cents of each dollar earned…. in taxes! * Loss of professionally trained individuals due to higher taxes.Also available on a Transparency Acetate See Learning Objective 2: Explain what capitalism is and how free markets work. Industrialized Nations’ Top Individual Tax Rate This slide illustrates the Industrialized Nations’ Top Individual Tax Rate as a comparison. Students may be surprised at the difference between the rates in the U.S. and Denmark. The U.S. rate of 35% compared to the Danish rate of 59% represents more than 65% increase in taxes. To help explain the difference from the U.S. rate (lowest rate), and Denmark’s (highest rate) rate, you can discuss the differences between capitalism and socialism. (Socialism believes that government should provide increased services for people by redistributing income from the richer people to the poor. Explain to the student that socialist countries are given free education, free health care, and more employee benefits.) Point out the major disadvantages of socialism and the higher tax rate: * Reduced incentives to work harder resulting in less innovation. * Marginal tax rates higher. Use the example of earning up to $20,000, at a tax rate of 40%. For each dollar you earn over $20,000, you could pay up to 85%, or eight-five cents of each dollar earned…. in taxes! * Loss of professionally trained individuals due to higher taxes.

    31. 2-31 Communism See Learning Objective 3: Discuss the major differences between socialism and communism. See text pages: 41-42 See Learning Objective 3: Discuss the major differences between socialism and communism. See text pages: 41-42

    32. 2-32 What is the major difference between free markets and controlled markets See Learning Objective 3: Discuss the major differences between socialism and communism. See text pages: 41-42 See Learning Objective 3: Discuss the major differences between socialism and communism. See text pages: 41-42

    33. 2-33 How does Economics effect business   V. THE TREND TOWARD MIXED ECONOMIES Learning Goal 4 Explain the trend toward mixed economies.   See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34

    34. 2-34 Mixed Economies See Learning Objective 4: Explain the trend toward mixed economies. See text pages: 43-45See Learning Objective 4: Explain the trend toward mixed economies. See text pages: 43-45

    35. 2-35 How does Economics effect business VI. UNDERSTANDING THE ECONOMIC SYSTEM OF THE UNITED STATES Learning Goal 5 Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. A. Key Economic Indicators 1. Gross Domestic Product 2. The Unemployment Rate 3. The Price Indexes B. Productivity in the United States C. Productivity in the Service Sector D. The Business Cycle E. Stabilizing the Economy through Fiscal Policy Learning Goal 6 Define fiscal policy and monetary policy, and explain how each affects the economy. F. Using Monetary Policy to Keep the Economy Growing See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34See Learning Objective 1: Compare and Contrast the economics of despair with the economics of growth. See text pages: 30-34

    36. 2-36 Number of Workers per Social Security Recipient See Learning Objective 2: Explain what capitalism is and how free markets work. Number of Workers per Social Security Recipient Discuss the dramatic decline of workers per recipients as illustrated. From 1960 to 2000, workers contributing to the Social Security fund per recipient, dropped by 36.5% What options does the Government have to keep Social Security solvent? Discuss the following options: *Raise the retirement age for full benefits. *Increase the employee/employer contribution. *Raise the cap, or ceiling from $87,000 per year that can be taxed. *Reduce benefits. Ask the student which options they would choose to keep the program solvent? (Be sure to point out the effects of each decision on individuals and companies. You may want to draw a “T” diagram on the board to illustrate the impact of their choices on business, and individuals.)See Learning Objective 2: Explain what capitalism is and how free markets work. Number of Workers per Social Security Recipient Discuss the dramatic decline of workers per recipients as illustrated. From 1960 to 2000, workers contributing to the Social Security fund per recipient, dropped by 36.5% What options does the Government have to keep Social Security solvent? Discuss the following options: *Raise the retirement age for full benefits. *Increase the employee/employer contribution. *Raise the cap, or ceiling from $87,000 per year that can be taxed. *Reduce benefits. Ask the student which options they would choose to keep the program solvent? (Be sure to point out the effects of each decision on individuals and companies. You may want to draw a “T” diagram on the board to illustrate the impact of their choices on business, and individuals.)

    37. 2-37 Why is the U.S. an Economic Success? Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. Why is the U.S. an Economic Success? This slide points out several reasons why the U.S. is the world’s largest economy. Ask the student to analyze each reason given and how it contributes to the nation’s economic success? *Constitution – allows individual freedom to create and prosper. *Free Elections – stable political environment supports economic prosperity. *Free Enterprise System – allows production of products needed. *Abundant Resources – natural resources for production and intellectual resources contribute to our nation’s success. *Cultural Diversity – tolerance and ability to assimilate and learn from others.Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. Why is the U.S. an Economic Success? This slide points out several reasons why the U.S. is the world’s largest economy. Ask the student to analyze each reason given and how it contributes to the nation’s economic success? *Constitution – allows individual freedom to create and prosper. *Free Elections – stable political environment supports economic prosperity. *Free Enterprise System – allows production of products needed. *Abundant Resources – natural resources for production and intellectual resources contribute to our nation’s success. *Cultural Diversity – tolerance and ability to assimilate and learn from others.

    38. 2-38 U.S. Economy Key Economic Indicators Productivity in the U.S. Productivity in the Service Sector Business Cycles Recession Depression Recovery Stabilization Fiscal Policy National Debt Economic Growth through Monetary Policy See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. See text pages: 46-50 See also Learning Objective 6: Define Fiscal policy and monetary policy, and explain how each affects the economy. See page: 50-51See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. See text pages: 46-50 See also Learning Objective 6: Define Fiscal policy and monetary policy, and explain how each affects the economy. See page: 50-51

    39. 2-39 Key Economic Indicators See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. See text pages: 46-50See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. See text pages: 46-50

    40. 2-40 Key Economic Indicators See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. See text pages: 46-50See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. See text pages: 46-50

    41. 2-41 Key Economic Indicators See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. See text pages: 46-50See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. See text pages: 46-50

    42. 2-42 U.S. Gross Domestic Product Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. U.S. Gross Domestic Product In 2005, the U.S. gross domestic product was $12,766 billion. This compares to the GDP of $ 5,803 billion in 1990 and $ 2,796 billion in 1980. As can be seen that the U.S. GDP has grown over 350% since 1980.Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. U.S. Gross Domestic Product In 2005, the U.S. gross domestic product was $12,766 billion. This compares to the GDP of $ 5,803 billion in 1990 and $ 2,796 billion in 1980. As can be seen that the U.S. GDP has grown over 350% since 1980.

    43. 1975 2004 G-8 Countries 55 44 U.S. only 22 21 China 5 13 India 3 6 Latin America 7 6 Africa 3 3 Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. Share of World GDP (%) The GDP is the total value of goods and services produced by a continent as it relates to the world economy. Note the increase of the world’s GDP by the Asian Continent. Over 100% increase since 1975. America is often referred to as, “The engine that runs the world’s economy.” As you can see from this slide, the Asian Continent, in particular China will have a greater impact in the future. Interesting Note: In the last 15 years, China’s average annual increase in GDP has been 8.9%; 38% higher than the U.S. GDP for the year 2000.Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. Share of World GDP (%) The GDP is the total value of goods and services produced by a continent as it relates to the world economy. Note the increase of the world’s GDP by the Asian Continent. Over 100% increase since 1975. America is often referred to as, “The engine that runs the world’s economy.” As you can see from this slide, the Asian Continent, in particular China will have a greater impact in the future. Interesting Note: In the last 15 years, China’s average annual increase in GDP has been 8.9%; 38% higher than the U.S. GDP for the year 2000.

    44. 2-44 U.S. Unemployment (%) See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle.See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle.

    45. 2-45 Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. What Makes Up the Consumer Price Index? This slide is the key indicator that government analyzes to gauge the rate of inflation in the economy. Review with the students what inflation means to the Consumer Price Index (CPI). The CPI represents changes in prices of all goods and services purchased for consumption in urban areas. User’s fees such as water and sales and excise taxes paid by consumers are included. Income taxes and investment income are not included. Sources of Data: *Prices for the goods and services used to calculate CPI are collected from 87 urban areas throughout four regions, and from 23,000 retail and service establishments. *Data on rent are collected from 50,000 landlords and tenants. *Prices are taken throughout each month. (Source: CPI.Bls.gov.) We use the CPI Index for the following: *Economic Indicator of Inflation *As a deflator to translate to inflation-free dollars. (Used to compare dollars for present and future values.) *As a means for Adjusting Income Payments. (Social Security payments, Welfare payment increases, other government programs.)Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. What Makes Up the Consumer Price Index? This slide is the key indicator that government analyzes to gauge the rate of inflation in the economy. Review with the students what inflation means to the Consumer Price Index (CPI). The CPI represents changes in prices of all goods and services purchased for consumption in urban areas. User’s fees such as water and sales and excise taxes paid by consumers are included. Income taxes and investment income are not included. Sources of Data: *Prices for the goods and services used to calculate CPI are collected from 87 urban areas throughout four regions, and from 23,000 retail and service establishments. *Data on rent are collected from 50,000 landlords and tenants. *Prices are taken throughout each month. (Source: CPI.Bls.gov.) We use the CPI Index for the following: *Economic Indicator of Inflation *As a deflator to translate to inflation-free dollars. (Used to compare dollars for present and future values.) *As a means for Adjusting Income Payments. (Social Security payments, Welfare payment increases, other government programs.)

    46. 2-46 Consumer Price Index See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle.

    47. 2-47 Percent Change in Labor Productivity- U.S. See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle.See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle.

    48. 2-48 Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. Where does the Government Get Its Money? This slide identifies where the government gets its receipts to operate and fund programs. Students may find it interesting that Individual Income taxes (43%) make up the highest category for government receipts. The year 2004 projections, show receipts declining by approximately 14% for individual taxes; Corporate Income taxes are projected to increase by 14.2%. (Source: Access, gpo.gov.)Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. Where does the Government Get Its Money? This slide identifies where the government gets its receipts to operate and fund programs. Students may find it interesting that Individual Income taxes (43%) make up the highest category for government receipts. The year 2004 projections, show receipts declining by approximately 14% for individual taxes; Corporate Income taxes are projected to increase by 14.2%. (Source: Access, gpo.gov.)

    49. 2-49 Federal Spending Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. Federal Spending The largest percentage increase from 1966 to 2006 has been in the area of Medicare and Medicaid. Ask the students: What is the impact of these spiraling Health Care Costs? (As we spend more money on one category, others must suffer, in this case defense had taken a significant dive). The largest decline from 1966 to 2006 has been in defense spending. What is the impact? Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. Federal Spending The largest percentage increase from 1966 to 2006 has been in the area of Medicare and Medicaid. Ask the students: What is the impact of these spiraling Health Care Costs? (As we spend more money on one category, others must suffer, in this case defense had taken a significant dive). The largest decline from 1966 to 2006 has been in defense spending. What is the impact?

    50. 2-50 Biggest Economic Challenges Over the Next 3-5 years the U.S. can be expected to face these challenges: Pension & Health care costs The Federal Deficit High Energy and Commodity Costs Balance of payments Terrorism Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. Biggest Economic Challenges Pension and Health care costs is the highest challenge that the economy must overcome with 43% Federal Deficit consists of 25%, High energy and commodity costs 18% While Balance of Payment (7%) and Terrorism (6%) are the lowest percentages they are still a major issue.Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. Biggest Economic Challenges Pension and Health care costs is the highest challenge that the economy must overcome with 43% Federal Deficit consists of 25%, High energy and commodity costs 18% While Balance of Payment (7%) and Terrorism (6%) are the lowest percentages they are still a major issue.

    51. 2-51 Health Expenditure Projections (Percent of National GDP) Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. Health Expenditure Projections (percent of National GDP) As shown in the previous slides, the number one economic challenge facing the US in the next 3-5 years will be the health care costs. This slide shows the heath care projections escalating from 15.5% to about 18% as a percent of national GDP. Ask the students: What types of problems could this create for a country like USA? (One of the trend facing the US is increasing the life expectancy. As people live longer, there will be an increasing need for the healthcare, which puts a further strain on the federal spending on health care. In turn again, other items such as defense and other items would have to be cut.)Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. Health Expenditure Projections (percent of National GDP) As shown in the previous slides, the number one economic challenge facing the US in the next 3-5 years will be the health care costs. This slide shows the heath care projections escalating from 15.5% to about 18% as a percent of national GDP. Ask the students: What types of problems could this create for a country like USA? (One of the trend facing the US is increasing the life expectancy. As people live longer, there will be an increasing need for the healthcare, which puts a further strain on the federal spending on health care. In turn again, other items such as defense and other items would have to be cut.)

    52. 2-52 Rising US Trade Deficit Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. Rising US Trade Deficit 1. Trade Deficit rises to 725.8 billion in ’05, 17.5% up from 2004. 2. Domestic demand must weaken drastically for import levels to drop. 3. Trade gap will continue to widen in the next year, but because stable oil prices are expected, not as fast.Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. Rising US Trade Deficit 1. Trade Deficit rises to 725.8 billion in ’05, 17.5% up from 2004. 2. Domestic demand must weaken drastically for import levels to drop. 3. Trade gap will continue to widen in the next year, but because stable oil prices are expected, not as fast.

    53. 2-53 Where are the Homeland Security Dollars Spent? Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. Where are the Homeland Security Dollars Spent? This slide shows the breakdown of spending in the United State’s homeland security department. The largest amount, close to $14 billion is spent on Border and Port Security, about $4 billion on immigration enforcement, and a little over $2 billion on bio defense. Ask the students: Given what they have read or heard about terrorism activities, do we have appropriate spending on these categories—both where and how much being spent? (Students opinion obviously will differ subject to their knowledge as well as how strongly they feel toward these spending?) Also available on a Transparency Acetate See Learning Objective 5: Discuss the economic system of the United States, including the significance of key economic indicators (especially GDP), productivity, and the business cycle. Where are the Homeland Security Dollars Spent? This slide shows the breakdown of spending in the United State’s homeland security department. The largest amount, close to $14 billion is spent on Border and Port Security, about $4 billion on immigration enforcement, and a little over $2 billion on bio defense. Ask the students: Given what they have read or heard about terrorism activities, do we have appropriate spending on these categories—both where and how much being spent? (Students opinion obviously will differ subject to their knowledge as well as how strongly they feel toward these spending?)

    54. 2-54 Also available on a Transparency Acetate See Learning Objective 6: Define Fiscal Policy and Monetary policy, and explain how each affects the economy. How Much is the National Debt? Discuss with the class the size of the debt and what impact this has on the economy? (Increased borrowing by the government takes money out of the consumer and business markets, impacting the cost of borrowing.) The national debt has continued to increase roughly $1.75 billion per day since September 30, 2005. On a per person basis, each citizen’s share of this debt is roughly $28,000. A family of four shares the debt burden of about $112,000. The debt interest per hour spent each and every hour for the year 2000, amounted to $41 million in interest per hour, 24 hours per day, and 365 days per year. (Source: Grandfather Economic Report Series.)Also available on a Transparency Acetate See Learning Objective 6: Define Fiscal Policy and Monetary policy, and explain how each affects the economy. How Much is the National Debt? Discuss with the class the size of the debt and what impact this has on the economy? (Increased borrowing by the government takes money out of the consumer and business markets, impacting the cost of borrowing.) The national debt has continued to increase roughly $1.75 billion per day since September 30, 2005. On a per person basis, each citizen’s share of this debt is roughly $28,000. A family of four shares the debt burden of about $112,000. The debt interest per hour spent each and every hour for the year 2000, amounted to $41 million in interest per hour, 24 hours per day, and 365 days per year. (Source: Grandfather Economic Report Series.)

More Related