American Free Enterprise Chapter 3 Section 2 Promoting Growth and Stability

American Free Enterprise

Chapter 3 Section 2

Promoting Growth and Stability


Objectives: Explain how the government tracks and

seeks to influence business cycles. Analyze how the government promotes

economic growth. Analyze the effect of technology on

productivity.


America’s economy is big – Very BIG It consists of roughly 116 million {as of 1/2009}

households of about 305 million people {as

of 7/2008} who work at some 139 million jobs and earn more than $ 8 trillion.

In Washington, DC armies of economists use the latest computer and other

technologies to try to predict whether this massive economy will grow or shrink.


Economic policymakers pull in the reins when the economy bolts at breakneck speed, and attempt to kick start it when it gets slow and unproductive.


Tracking Business Cycles: Macroeconomics – the study of behavior and

decision making of the entire economy. Microeconomics – the study of behavior and

decision making of small units – such as individuals, families, and businesses.

“Macro” means large and “Micro” means small. One way to calculate the nation’s well-being is to

look at the Gross Domestic Product {GDP} – the total value of all final goods and services produced in an economy.



Tracking Business Cycles: Economists follow the country’s GDP and other

key statistics to predict business cycles. A business cycle – a period of macroeconomic

expansion followed by a period of contraction or decline.



Tracking Business Cycles: These economic cycles are major fluctuations. Free Enterprise Systems are subject to business

cycles because of economic decisions about favors such as prices, production, and consumption made by individuals and businesses.

A business cycle can last from a few months to many years.


Promoting Economic Growth

High Employment Steady Growth Stable Prices


Promoting Economic Strength: Because the market is vulnerable to business

cycles, the government creates public polices that aim to stabilize the economy.

Policymakers pursue three main outcomes 1. High Employment

2. Steady Growth

3. Stable Prices


Promoting Economic Strength:Employment Put as many people to work as possible Unemployment rate of between 4 and 6% is

desirable {Unemployment Rate as of 12/2008 = 7.2%}

Growth

* Try to allow each generation a higher standard of living than their parents.

* For each generation to do better, the economy must grow to provide

additional goods and services.


Promoting Economic Strength: Stability

Trying to keep the economy stable and secure. Stability gives consumers/investors confidence in the

economy and in our financial future. One way to do this is through stable prices.

We don’t want prices to go up and down all the time - unpredictable.

We don’t want a can of soda to go from $ .25/can in the morning to $ 1.00/can by lunch time or

even higher.


Technology and Productivity: The American economy maintains a far higher

standard of living in terms of GDP than most of the world.

One we do this is through our work ethic – a commitment to the value of work and purposeful activity.

Another way to increase productivity is through improved technology.

Improvements in technology allow an economy to produce more output from the same or a

smaller quantity of inputs or resources.


Innovation is the main reason that technology has improved so much over time.

Inventions are also the engine of the free enterprise system.

Federal agencies fund scores of research and development projects at universities and other places.


The Government will grant a patent – exclusive rights to produce and sell that product for the next 20 years without competition.

A copyright grants an author exclusive rights to publish and sell his or her creative works for their lifetime and another 50 years.


REVIEW:1. Compare macroeconomics to microeconomics.2. How does gross domestic product (GDP) provide

a means to analyze economic growth?3. What does GDP tell economists about business

cycles?4. Give one example of a new technology that has

resulted in greater productivity for the US.5. How do patents and copyrights promote innovation?6. How does innovation help the economy?

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American Free Enterprise Chapter 3 Section 2 Promoting Growth and Stability