Todays Objective SWB reintroduced to important economic concepts

Today’s Objective: SWB reintroduced to important economic concepts in order to train their minds for the Government High School Assessment.

Economics and the Government Economics is the study of how people make decisions.

What are the 3 Basic Economic Questions that Governments have to answer? 1. What to produce? 2. How to produce it? 3. Whom to produce it for?

Even though every country will have to answer the same questions, why will they have different answers? Every country has different needs.

Traditional Economic System § Custom and tradition dictates what is bought and sold. § You do what your ancestors did. Examples: Native tribes & Amish

Market Economic System § Producers and consumers decide what is bought and sold. § You can buy what ever you want. § Examples: Hong Kong & Black Market

Command Economic System § Government makes all economic decisions. § Consumer has little choice in what they can buy. OTHER NAMES: Centrally Planned, Communist, & Socialism Examples: Former Soviet Union & Cuba

Mixed Economic System § Combination of all systems. § You can buy and sell whatever you want with government regulations. § Government protects you. Examples: United States

How does the United States determine its worth? § The dollar value of all final goods and services produced within a country in a given year. § Gross Domestic Product (GDP)

What is Opportunity Cost? § The cost of choosing one thing over another. § The thing that you gave up but still wanted. EXAMPLE = Go to the store to buy a new pair of pants and a sweat shirt. You can only afford to buy one or the other. You buy the sweat shirt. The Opportunity Cost is the pair of pants.

Why is opportunity cost important to Economics? § You have tough decisions to make. § You must determine if the choice you make is a good one.

Scarcity vs. Shortage Notes § Scarcity § Limited quantities of resources to meet unlimited wants EXAMPLES = gold, oil, money § Shortage § A situation in which a good or service is unavailable. EXAMPLES = new video games

Does the economy always do good? § NO!!!!! Example = Great Depression. § The economy has periods of ups and downs called expansion and contraction. § Expansion = people working and businesses making money § Contraction = people not working and businesses losing money § This is called the Business Cycle.

Business Cycle Recession Depression

What is Inflation? § The decrease in the value of the dollar. § Government tries to control inflation. § Inflation = Bad Example = When I was a kid a candy bar cost a nickel.

What is Monetary Policy? § Actions the “Fed” takes to control the size of the money supply § What are the Goals of monetary policy? Keep prices stable, keep employment high and keep the economy growing § What is the “Fed”? Federal Reserve System is the central bank of the U. S. since 1913 Manages the money supply by influencing the lending activity of commercial banks (Bank of America, M&T Bank, etc. . )

How does the Fed influence lending activity? § Open market operations —the fed buys and sells securities (savings bonds and other government issued notes) to increase or decrease the money supply § Reserve Requirements —the fed requires that banks keep as reserves a certain percentage of deposits they hold to increase or decrease the money supply § Discount Rate —the interest rate the Fed charges to banks that borrow money from the Fed to increase or decrease the money supply

What is fiscal policy? § The government uses taxes and spending to speed up or slow the economy. § Taxes § Increasing taxes takes money out of circulation increasing its value. § Decreasing taxes puts money into your hands so you can spend it to help businesses. § Spending § Increasing government spending puts people to work. § Example = road work on 695 and 95. § Decreasing government spending takes money out of the hands of the people and increases its value.

Now what do I do? § You will receive a copy of the slide show. § Use the slide show to complete the review worksheet.