7.1 Types of Economies

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1 7.1 Types of Economies

2 I. Types of Economic Systems: All economies must answer 3 key economic questions: what to produce, how to produce, for whom to produce

3 Traditional Economies custom, culture, or ritual to decide revolves around family/community Examples: The Amish or Massai

4 Market Economies free market, free enterprise, capitalism individuals and companies decide, not govt Examples:

5 Command Economies centrally planned economy the central gov t alone decides Examples: Soviet Union or Cuba

but the gov t intervenes to keep order, regulate, provide

6 Mixed Economies combination of other three economies most modern economies are mixed US is a free market economy but the gov t intervenes to keep order, regulate, provide services, and promote general welfare Examples: United States

II. Free Market Economies Adam Smith s Wealth of Nations (1776) called for restricting gov t in the economy (laissez-faire- leave alone) promotes free

7 II. Free Market Economies Adam Smith s Wealth of Nations (1776) called for restricting gov t in the economy (laissez-faire- leave alone) promotes free enterprise few restrictions are placed on business activities and ownership Competition and Self-Interest would regulate the economy the invisible hand

producers for consumer s money Advantages: Economic

8 Self-Interest- personal gain (ownership/incentives) is motivating force in economy Competition- struggle among producers for consumer s money Advantages: Economic efficiency Economic freedom Economic growth Consumer sovereignty

9 Capitalism 1. Factors of Production are privately owned 2. Profit motivates Us 3. Competition & Self Interest regulate the market

III. Centrally Planned Economies Government controls resources and production Karl Marx s Communist Manifesto (1848) believed politics and history is driven

10 III. Centrally Planned Economies Government controls resources and production Karl Marx s Communist Manifesto (1848) believed politics and history is driven by the struggle of the: proletariat (working lower class) bourgeoisie (rich upper class) believed a socialist society can only come after a violent revolution

11 Socialism wealth should be redistributed throughout society and everyone has a role to fulfill within the economy can allow for a mix of private and public ownership gov t often owns most major industries and uses wealth for social programs

12 Communism centrally planned economy with all economic and political power residing in the central government little to no private ownership with societal equality authoritarian- strict obedience to the government, no individual Capitalism

13 + 7.2 Revenue and Expenditures of the Gov t

14 + 14 Think back to Unit 2 What is the power of the purse?

15 + The Government s Budget BudgetCreated by the President and Congress Fiscal YearOctober 1st to September 30th

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18 + Budget Process 1. The budget is created by the President and the Office of Management and Budget 2. The budget is sent to congress for approval 3. Congress passes a budget resolution which lists: revenue and spending for the year how money will be spent 4. Congress must approve the budget to sign it into law think bill to law

19 + Two types of government spending Mandatory Spending spending that does not need annual approval Entitlements & interest payments on debt Discretionary Spending expenditures that must be approved each year Defense & education

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23 + Budget Breakdown Entitlement programs = 50% Social Security, Medicare & Welfare Defense = 20%, Interest on debt = 8-9% Borrowing Deficit- spending more revenue than we make Debt- money owed

24 + The U.S. Federal budget deficit is $441 billion as of the most current budget estimate. That's for Fiscal Year 2017 which covers October 1, 2016, through September 30, The deficit occurs because U.S. government spending of $4.073 trillion is higher than its revenue of $3.632 trillion.

25 + 7.2 Revenue and Expenditures of the Gov t

26 + II. Types of Taxes Direct Taxes: taxes paid straight to the government Income Tax Payroll Tax Estate Tax Corporate Income Tax

27 Income Tax: a + tax taken directly from your income & paid to the government Payroll Tax: a tax taken from your payroll check for government programs SS, Medicare

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29 + Estate Tax: a tax paid on any property or money left to another individual Inheritance

30 + Corporate Income Tax: extra tax on businesses profits corporations are treated like individuals) investopedia clip Capital Gains Tax: on stock market profits investopedia clip

31 + Indirect Taxes: taxes paid to a third party who pages them to the government Sales Tax Excise Tax

32 + Sales Tax: a consumption tax on the sale of goods Excise Tax: a tax on a specific specialty goods alcohol, cigarettes, tanning

33 + The United States has a Progressive Tax say what??? Your tax rate is based on your income. The more income you make, the higher tax bracket you are in.

34 + This means we have a Regressive Tax System say what again?!? The lower your income the higher you are affected by taxes. The higher your income the less you are affected by taxes.

35 + Taxing Limitations finally! 1. No taxes for churches of federally recognized religions 2. Taxes can only be used for public purposes

36 Objective 7.3: Labor Unions

during early 1900s, unions were illegal Working conditions New Deal

37 I. Labor Movement Labor Union- people of same trade organizing to get better conditions, benefits, or pay Rise of labor movement during early 1900s, unions were illegal Working conditions New Deal gave workers: right to organize, minimum wage, overtime pay, and no child labor

38 4. Upton Sinclair wrote the classic novel The Jungle a. exposed conditions in the US meat packing industry b. caused a public uproar which led to the creation of the (1). Pure Food and Drug Act requires all labels on food and drugs to inform consumer of active ingredients (2). Meat Inspection Act all meat products must be inspected to ensure they are sanitary

39 Upton Sinclaire

40 Fall of labor movement C right-to-work laws- ban mandatory union membership Recently unions have dropped in popularity o

41 II. Negotiations A. Collective bargaining- when union and company representatives meet periodically to negotiate new labor contracts

42 Labor tools B protest and use of media strike- union workers refuse to go to work until demands are met political contributions and lobbying

court order to stop protest or strike Third party D. 1. 2.

43 Employer tools C cutting benefits lockout- prevent people from working injunction- court order to stop protest or strike Third party D mediation- when a third party helps to create a compromise arbitration- if negotiations break down, third party forces an agreement

Triangle Factory Fire https://www.youtube.com/watch?v=4ulag9x4gpe 1.Read the article above Posted on my weebly ( bacheldor.weebly.com) 2.

44 Triangle Factory Fire 1.Read the article above Posted on my weebly ( bacheldor.weebly.com) 2.Once you are finished reading the article complete a reflection (10 sentence min.) and submit it in google classroom Your reflection should detail a brief summary of the article and what you think could have been done to prevent the situation

45 + 7.4 The Roles of Money and Economic Indicators

46 Money, Money, Money MoneySpending money is easy, right? 46

47 The Characteristics of Money Durable: money must be able to withstand being used repeatedly

48 Money must be Portable: individuals are able to carry money with them and transfer it easily to other individuals

49 Money must be Divisible: means that the money can easily be divided into smaller units of value

50 Money must be Limited in Supply: restrictions on the amount of money in circulation ensure that values remain relatively construct for the currency

51 7.4 Economic Indicators

52 I. Value of Money A. Inflation- value of money goes down, prices go up Determined by the Consumer Price Index (CPI)change in prices of essential goods/services Deflation- value of money goes up, prices down

53 Inflation NdqSere0 Zvm_fqYRM

54 Say What?!?! Suppose that an ice-cream cone that costs you a dollar doubles in price. This price increase causes the purchasing power of your dollar to fall because you have to use twice as many dollars to buy the same item. This is why inflation is particularly hard on people who have fixed incomes people who get pensions or other fixed amounts of money.

55 B. GDP (Gross Domestic Product) value of all final goods and services produced w/in a country s borders in a year

56 GDP 10 $200 each = $2, Computers 10 $1,500 each = $100 each = $1,000 GDP = $18,000

57 C. Gross National Product (GNP)- goods and services produced by Americans **Think ABOUT IT! Even if a country produces the same amount of goods and services from one year to the next, the GDP could go up simply because prices increase. That would make it seem like the economy was growing even though it wasn t D. Real GDP- adjusted for inflation

58 E. Per capita GDP- average per person

1913 in response to leaving the Gold Standard ( value of currency was backed by

59 II. The Federal Reserve The Federal Reserve: regulates & supports banks, controls money supply and stabilizes economic growth Created by the Federal Reserve Act of 1913 in response to leaving the Gold Standard ( value of currency was backed by gold) Think of the Fed as the Wells Fargo of America, It is the United Sates national bank

60 Operates mostly independent of the government Janet Yellen, Chairman of the Fed Made up of: Chairman, Board of Governors & 12 Districts

61 II. Economic Policies Monetary Policy: the actions the Fed takes to regulate interest rates and the total supply of money in circulation (inflation) Fiscal Policy: the federal government s use of spending and taxation policies to monitor and influence a nation's economy

Reserve requirementamount of money banks must keep in Federal banks as a reserve Discount rate- the cost for banks borrowing from the Fed Reducing

62 Reserve requirementamount of money banks must keep in Federal banks as a reserve Discount rate- the cost for banks borrowing from the Fed Reducing the rate- encourages banks to borrow more money so they lend more to other people Increasing the rate- slows down economy by discouraging borrowing

63 Fed Policies Loose-money policy- reduce rates, lower reserve requirement, print currency= more money in economy Tight-money policy- increase rates, raise reserve requirement= less money in the economy

64 Economics 7.6 International Economics

65 Why nations Trade? Comparative advantage Nations try to produce goods at a lower cost or more efficiently than others Nations specialize on the goods that they produce the best, trade for other goods

66 Global interdependence In our globalized economy, every nation is dependent on the rest helps increase production among all

67 Balance of Trade Balance of Trade- relationship b/w a nation s imports and exports that affects its currency Trade Surplus- more exports than imports, leads to a strong currency

68 Trade deficit- more imports than exports, leads to a weak currency US can maintain a high deficit because there is a large demand for US dollars as the int l currency

69 Trade Barriers quota- strict limit on imported goods tariff- tax on imported goods subsidies- US gov t supporting a US industry financially

70 Protectionism creating trade barriers to foreign trade in order to make a nation s goods more competitive Protectionism may restrict competition, hurt innovation, and lead to trade wars

71 Free Trade The goal of free trade agreements are to eliminate trade barriers Advantagescompetition, growth among all, int l specialization Disadvantages- economic vulnerability, jobs can be outsourced (sent to an external provider)

72 World Trade Organization (WTO)negotiates new trade agreements and works to expand world trade

73 European Union (EU)European nations have eliminated trade barriers and created a common currency North American Free Trade Agreement (NAFTA)- goal to eliminate barriers b/w Mexico, Canada, and US

74 Developing Nations Developing nations have low per capita GDP, poor health, infrastructure, etc Free trade has helped developing nations out of poverty more than economic aid

75 World Bank- lends to developing nations to reduce poverty International Monetary Fund (IMF)- seeks to stabilize exchange rates and encourage good economic policy

AP Gov Chapter 17 Outline

AP Gov Chapter 17 Outline A major economic policy issue is how to maintain stable economic growth without falling into either excessive unemployment or inflation (rising prices). Key concept: Inflation, a sustained rise in the