Productivity Simulation 100. Productivity Simulation Presentation Reflection 30. Upcoming Activities/Announcements

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1 Name: Period: Week: Dates: 4/13 4/27 Unit: Measuring Economic Performance Chapters: 12 & 15 Monday Tuesday Wednesday Thursday Friday 13 O *Vocabulary *Chapter 12.1 *GDP 14 E 15 O *Chapter 12.2 *Aggregate Demand/Supply *Economic Stability Project 16 E Bishop Gone 17 O CURRENT EVENT *Chapter 12 *Case Study *Project Work Day Bishop Gone 20 E Bishop Gone 21 O *Chapter 15.2 *Can Gov t Manage Nat l Econ? Bishop Gone 22 E 23 O *Chapter 15.3 *Productivity Simulation 24 E 27 O *Project Presentation Due *Unit Test *Packets Due 28 E 29 O 30 E 1 O CURRENT EVENT Assignment Your Score Total Points Possible Good To Know Vocabulary Words 26 Chapter 12 Notes 30 Chapter 12 HW: Page Chapter 15 Notes 30 Chapter 13 HW: Page Aggregate Demand and Supply 80 Can the Government Manage the National Economy? 80 Case Study: How has Tech has Affected Productivity? 50 Productivity Simulation 100 Productivity Simulation Presentation Reflection 30 TOTAL 476 Upcoming Activities/Announcements 4/16-21 FFA State Conference- Bishop Gone 4/17 & 5/1 - Current Event due 1

2 Good to Know! Word Definition Business Cycle Gross Domestic Product Gross National Product Price Level Recession Fiscal Year Inflation Multiplier Effect Congressional Budget Aggregate Demand Aggregate Supply Fiscal Policy Federal Budget 2

3 chapter 12 What Is Gross Domestic Product? *Economists monitor the macroeconomy using national accounting, a system that collects statistics on production, income, investment, and savings. *Gross domestic product (GDP) is the value of all final goods and services produced within a country s borders in a given year. *GDP does not include the value of intermediate goods. goods are goods used in the production of final goods and services. Calculating GDP The Expenditure Approach The expenditure approach totals annual expenditures on four categories of final goods or services. 1. Consumer goods and services 2. Business goods and services 3. Government goods and services 4. Net exports or imports of goods or services. The Income Approach The income approach calculates GDP by adding up all the incomes in the economy. Consumer goods include... Real and Nominal GDP Nominal GDP is GDP measured in prices. It does not account for price level increases from year to year. Real GDP is GDP expressed in, or unchanging, dollars. Limitations of GDP GDP does not take into account certain economic activities, such as: Activities GDP does not measure goods and services that people make or do themselves, such as caring for children, mowing lawns, or cooking dinner. Negative Externalities Unintended economic side effects, such as, have a monetary value that is often not reflected in GDP. The Underground Economy There is much economic activity which, although income is generated, never reported to the government. Examples include market transactions and "under the table" wages. 3

4 Quality of Life Although GDP is often used as a quality of life measurement, there are factors not covered by it. These include leisure time, pleasant surroundings, and personal. Other Income and Output Measures Gross National Product ( ) GNP is a measure of the market value of all and services produced by Americans in one year. Net National Product (NNP) NNP is a measure of the output made by in one year minus adjustments for depreciation. Depreciation is the loss of value of capital equipment that results from normal wear and tear. National Income (NI) NI is equal to NNP minus sales and excise taxes. Personal Income (PI) PI is the total pre- income paid to U.S. households. Disposable Personal Income (DPI) DPI is equal to personal income minus income taxes. Key Macroeconomic Measurements Measurements of the Macroeconomy Factors Influencing GDP Aggregate Supply Aggregate supply is the total amount of and services in the economy available at all possible price levels. As price levels rise, aggregate supply rises and real increases. Aggregate Demand Aggregate demand is the amount of goods and services that will be purchased at all possible price levels. price levels will increase aggregate demand as consumers purchasing power increases. 4

5 Aggregate Supply/Aggregate Demand Equilibrium By combining aggregate supply curves and aggregate demand curves, equilibrium for the can be determined. Section 1 Assessment 1. Real GDP takes which of the following into account? (a) changes in supply (b) changes in prices (c) changes in demand (d) changes in aggregate demand 2. Which of the following is an example of a durable good? (a) a refrigerator (b) a hair cut (c) a pair of jeans (d) a pizza What Is a Business Cycle? A modern industrial economy experiences cycles of goods times, then times, then good times again. Business cycles are of major interest to macroeconomists, who study their causes and effects. There are four main phases of the business cycle:, peak, contraction, and trough. A business cycle is a... Phases of the Business Cycle Expansion An expansion is a period of economic growth as measured by a in real GDP. Economic is a steady, long-term rise in real GDP. Peak When real GDP rising, the economy has reached its peak, the height of its economic expansion. Contraction Following its peak, the economy enters a period of contraction, an economic marked by a fall in real GDP. A recession is a prolonged economic contraction. An especially long or severe recession may be called a. Trough The trough is the point of economic decline, when real GDP stops falling. What Keeps the Business Cycle Going? Business cycles are affected by four main economic variables: Business Investment When an economy is expanding, firms expect sales and profits to keep, and therefore they invest in new plants and equipment. This investment creates new jobs and furthers. In a recession, the opposite occurs. Interest Rates and Credit When interest rates are, companies make investments, often adding jobs to the economy. When interest rates climb, investment dries up, as does job growth. 5

6 Consumer Expectations Forecasts of a expanding economy often fuel more, while fears of recession tighten consumers' spending. External Shocks External shocks, such as of the oil supply, wars, or natural disasters, greatly influence the output of an economy. Forecasting Business Cycles Economists try to, or predict, changes in the business cycle. Leading indicators are key economic variables economists use to predict a new of a business cycle. Examples of leading indicators are stock market, interest rates, and new home sales. Business Cycle Fluctuations The Great Depression The Great Depression was the most severe in the nation s history. Between 1929 and 1933, GDP fell by almost one, and unemployment rose to about 25 percent. Later Recessions In the 1970s, an OPEC embargo caused oil prices to. This led to a recession that lasted through the 1970s into the early 1980s. U.S. Business Cycles in the 1990s Following a brief recession in 1991, the U.S. economy grew steadily during the 1990s, with real GDP rising each year. Section 2 Assessment 1. A business cycle is (a) a period of economic expansion followed by a period of contraction. (b) a period of great economic expansion. (c) the length of time needed to produce a product. (d) a period of recession followed by depression and expansion. 2. A recession is (a) a period of steady economic growth. (b) a prolonged economic expansion. (c) an especially long or severe economic contraction. (d) a prolonged economic contraction. Measuring Economic Growth GDP and Population Growth *In order to account for population increases in an economy, economists use a measurement of real GDP per capita. It is a measure of real GDP divided by the total population. *Real GDP per capita is considered the measure of a nation s standard of living. GDP and Quality of Life Like measurements of GDP itself, the measurement of real GDP per capita excludes many factors that affect the quality of. The basic measure of a nation s economic growth rate is... 6

7 Capital Deepening *The process of increasing the amount of per worker is called capital deepening. Capital deepening is one of the most sources of growth in modern economies. *Firms increase physical capital by purchasing more. Firms and employees increase human capital through additional training and. The Effects of Savings and Investing *The proportion of disposable income spent to income saved is called the savings. *When consumers save or invest, money in banks, their money becomes available for firms to borrow or use. This allows firms to capital. *In the long run, more savings will lead to higher output and income for the population, raising GDP and standards. The Effects of Technological Progress *Besides capital deepening, the other key source of economic is technological progress. *Technological progress is an increase in gained by producing more output without using more inputs. *A variety of factors contribute to technological : Innovation When new products and ideas are successfully brought to market, output goes up, boosting GDP and business profits. Scale of the Market Larger markets provide more incentives for innovation since the potential profits are greater. Education and Experience Increased human capital makes workers more productive. Educated workers may also have the necessary needed to use new technology. Other Factors Affecting Growth Population Growth If population grows while the supply of capital remains constant, the amount of capital per worker will actually. Government Government can affect the process of economic growth by raising or lowering taxes. Government use of tax revenues also affects growth: funds spent on goods increase investment, while funds spent on consumption decrease net investment. Foreign Trade Trade deficits, the result of importing goods than exporting goods, can sometimes increase investment and capital deepening if the imports consist of goods rather than consumer goods. Section 3 Assessment 1. Capital deepening is the process of (a) increasing consumer spending. (b) selling off obsolete equipment. (c) decreasing the amount of capital per worker. (d) increasing the amount of capital per worker. 2. Taxes and trade deficits can contribute to economic growth if the money involved is spent on (a) consumer goods. (b) investment goods. (c) additional services. (d) farming. 7

8 chapter 15 What Is Fiscal Policy? *The tremendous flow of cash into and out of the economy due to government spending and taxing has a large impact on the economy. *Fiscal policy decisions, such as how much to spend and how much to tax, are among the most important decisions the federal government makes. Fiscal Policy- Fiscal Policy and the Federal Budget *The federal is a written document indicating the amount of money the government expects to receive for a certain year and authorizing the amount the government can spend that year. *The federal government prepares a new budget for each year. A fiscal year is a twelve-month period that is not necessarily the same as the January December calendar year. The Budget Process Congress and the White House work together to develop a federal budget. Creating the Federal Budget 8

9 Fiscal Policy and the Economy The total level of government spending can be changed to help or decrease the output of the economy. Expansionary Policies Fiscal policies that try to increase are known as expansionary policies. Contractionary Policies Fiscal policies intended to output are called contractionary policies. Expansionary Fiscal Policies Increasing Government Spending *If the federal government increases its spending or buys more goods and services, it triggers a chain of events that raise output and creates jobs. Cutting Taxes *When the government cuts taxes, consumers and businesses have more money to spend or invest. This increases demand and output. Effects of Expansionary Fiscal Policy High prices Price level Low prices Low output Total output in the economy High output 9

10 Contractionary Fiscal Policies Decreasing Government Spending *If the federal government spends, or buys fewer goods and services, it triggers a chain of events that may lead to slower GDP growth. Raising Taxes If the federal government increases taxes, consumers and businesses have dollars to spend or save. This also slows growth of GDP. Limits of Fiscal Policy Difficulty of Changing Spending Levels In general, significant changes in federal spending must come from the part of the federal budget that includes spending. Predicting the Future Understanding the current state of the economy and predicting future economic performance is very, and economists often disagree. This lack of agreement makes it difficult for lawmakers to know when or if to enact changes in policy. Delayed Results Even when fiscal policy changes are enacted, it takes for the changes to take effect. Political Pressures Pressures from the voters can fiscal policy decisions, such as decisions to cut spending or raising taxes. Coordinating Fiscal Policy *For fiscal policies to be effective, various branches and levels of government must plan and work together, which is sometimes difficult. *Federal policies need to take into account regional and state economic. *Federal fiscal policy also needs to be with the monetary policies of the Federal Reserve. Section 1 Assessment 1. Fiscal policy is (a) the federal government s use of taxing and spending to keep the economy stable. (b) the federal government s use of taxing and spending to make the economy unstable. (c) a plan by the government to spend its revenues. (d) a check by Congress over the President. 2. Two types of expansionary policies are (a) raising taxes and increasing government spending. (b) raising taxes and decreasing government spending. (c) cutting taxes and decreasing government spending. (d) cutting taxes and increasing government spending. Classical Economics *The idea that markets regulate is at the heart of a school of thought known as classical economics. *Adam Smith, David Ricardo, and Thomas Malthus are all considered economists. *The Great Depression that began in 1929 challenged the ideas of classical economics. 10

11 Keynesian Economics *Keynesian economics is the idea that the economy is composed of sectors individuals, businesses, and government and that government actions can make up for changes in the other two. *Keynesian economists argue that fiscal policy can be used to both recession or depression and inflation. *Keynes believed that the government could spending during a recession to counteract the decrease in consumer spending. The Multiplier Effect *For example, if the federal government increases spending by $10 billion, there will be an initial increase in GDP of $10 billion. The businesses that sold the $10 billion in goods and services to the government will spend part of their earnings, and so on. *When all of the rounds of spending are added up, the government spending leads to an increase of $50 billion in GDP. Multiplier Effect- Automatic Stabilizers *A economy is one in which there are no rapid changes in economic factors. Certain fiscal policy tools can be used to help ensure a stable economy. *An stabilizer is a government tax or spending category that changes automatically in response to changes in GDP or income. Supply-Side Economics *Supply-side economics stresses the influence of on the economy. Supplysiders believe that taxes have a strong, negative influence on output. *The Laffer curve shows how both and low tax revenues can produce the same tax revenues. Laffer Curve High revenues Tax revenues b Low revenues a 0% Low taxes 50% Tax rate c 100% High taxes 11

12 Fiscal Policy in American History The Great Depression Franklin D. Roosevelt government spending on a number of programs with the goal of ending the Depression. World War II Government spending dramatically as the country geared up for war. This spending helped lift the country out of the Depression. The 1960s John F. Kennedy s administration proposed to the personal and business income taxes in an effort to stimulate demand and bring the economy closer to full productive capacity. Government spending also increased because of the Vietnam war. Supply-Side Policies in the 1980s In 1981, Ronald Reagan s administration helped pass a bill to taxes by 25 percent over three years. Section 2 Assessment 1. What are the two main economic problems that Keynesian economics seeks to address? (a) business and personal taxes (b) military and other defense spending (c) periods of recession or depression and inflation (d) foreign aid and domestic spending 2. Government taxes or spending categories that change in response to changes in GDP or income are called (a) fiscal policy. (b) automatic stabilizers. (c) income equalizers. (d) expansionary aids. Balancing the Budget Budget Surpluses *A budget surplus occurs when revenues expenditures. Budget Deficits *A budget deficit occurs when exceed revenue. Balanced budget- Responding to Budget Deficits Creating Money *The government can pay for budget deficits by creating money. Creating money, however, increases demand for goods and services and can lead to. Borrowing Money *The government can also for budget deficits by borrowing money. *The government borrows money by selling, such as United States Savings Bonds, Treasury bonds, Treasury bills, or Treasury notes. The government then pays the bondholders back at a later date. The National Debt The Difference Between Deficit and Debt *The deficit is amount the government owes for fiscal year. The national debt is the total amount that the government. 12

13 Measuring the National Debt In dollar terms, the debt is extremely large: $5 trillion at the end of the twentieth century. Economists often measure the debt as a of GDP. National Debt- Is the Debt a Problem? Problems of a National Debt *To cover deficit spending the government sells. Every dollar spent on a government bond is one fewer dollar that is available for businesses to borrow and invest. This encroachment on investment in the private sector is known as the crowding-out effect. *The the national debt, the more interest the government owes to bondholders. Dollars spent paying interest on the debt cannot be spent on anything else, such as defense, education, or health care. Other Views of a National Debt *Keynesian economists argue that if government borrowing and spending help the economy achieve its full productive capacity, then the national debt the costs. Deficit and Debt Reduction Legislative Solutions *In reaction to large budget deficits during the 1980s, Congress passed the Gramm-Rudman laws which would have automatically spending across-the-board if spending increased too much. *The Gramm-Rudman laws were declared in the early 1990s. Constitutional Solutions *In 1995 Congress came close to passing a Constitutional amendment requiring budgets. *Proponents of such a measure argue that a balanced budget is to make the government more disciplined about spending. *Opponents of the measure argue that it is not enough to deal with rapid changes in the economy. Section 3 Assessment 1. A balanced budget is (a) a budget in which expenditures equal revenues. (b) a budget in which expenditures do not equal revenues. (c) a budget in which the government spends money. (d) a budget in which revenues equal taxes. 2. Which of the following are problems associated with a national debt? (a) increased spending on defense and education (b) the crowding-out effect and interest payments on the debt (c) interest payments on the debt and too much individual investment (d) increased individual investment and decreased government spending 13

14 Aggregate Demand and Supply Define aggregate: 1. What factors can cause the aggregate demand curve to shift rightward, or increase? 1. What factors can cause the aggregate supply curve to shift rightward, or increase? 2. What factors can cause the aggregate demand curve to shift leftward, or decrease? 2. What factors can cause the aggregate supply curve to shift leftward, or decrease? 1. If AD increases, what will happen to the price level and really GDP? 2. If AD decrease, what will happen to the price level and really GDP? 3. What factor determines whether the price level or real GDP increase more? 1. What effect does a decrease in aggregate supply have on the price level and really GDP? 2. What effect does an increase in aggregate supply have on the price level and real GDP? 14

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24 Read the following with your group then discuss and record reasons why Economists disagree bellow: Record Points of Disagreement: 24

25 Keynesian Theory vs New Classical Theory 1. Does the evidence show that the government can or cannot mange the economy? 2. Can something be good in theory but bad in practice?why? 3. Students are late to class. The teacher lectures them but does not penalize them. The next day the same students are late. How does this relate to the New Classical theory? 25

26 case study How Has Technology Affected Productivity? DIRECTIONS: Read the article on page 325 in your textbook. Take notes for each of the five paragraphs including the main points. 1. How has technology affected office productivity? 2. The graph on page 325 shows the value of computers sold in the United States. What might this graph indicate about the growth of GDP in the late 1990 s and early 2000 s? 26

27 Increasing Productivity Simulation Page DIRECTIONS: Using your Economics textbook on pages follow the steps to discover how to increase productivity in business. STEP 1 Preparing the Simulation Company Name: Company Members: Draw a simple picture of your company s airplane design: STEP 2 Gather your Materials (paper, scissors, pencils) Select the Quality Control Manager: STEP 3 Gather your desks and materials together to prepare for factory production of your company s airplanes 27

28 Conducting the Simulation As you complete each 4 minute shifts using the guidelines in the yellow boxes on page 329, fill in the chart below using the Quality Control Manager s notes. Criteria Shift 1 Shift 2 Shift 3 a. Number of acceptable airplanes completed b. Number of workers c. Cost of materials $.25 per plane d. Wages $1.00 per worker e. Factory rent $1.00 per desk f. Investment in equipment $.50 per scissors $.25 per pencil g. Total cost h.cost per airplane i. Total time worked j. Output per minute k. Productivity per worker 28

29 Simulation Analysis Questions page 329 DIRECTIONS: Turn to page 329 and answer the Simulation Analysis questions using the space below What was it like to work in a group and make production decisions? What would you do differently if you did this simulation over again? 29

30 Economic Stability Project DUE: 4/27 Points Possible: 50 (Test grade points) 1. May work in a group of up to THREE PEOPLE MAXIMUM! 2. Choose a country (not United States) 3. Create a poster that includes the following information: a. Name of country b. Brief History and governmental structure c. Real Gross Domestic Product per capita d. Live Expectancy at Birth e. Unemployment Rate f. Population g. What have you learned about this country s economic stability that you did not know before? h. At least two pictures i. At least two listed references in MLA FORMAT (no pasted urls) j. Group names on FRONT k. Presentation to class on 4/27! 30

31 Economic Stability Presentations DIRECTIONS: During the class s presentations, choose three different countries and record the following information: Country Real GDP per capita Life Expectancy at Birth Unemployment Rate Current Population After presentation, answer the following based on the group s presentation: How does this county look in terms of economic stability and growth? 31