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Chapter 1
Economics
“…the study of how wealth* iscreated and distributed**.”
*“anything of value,” including products produced andsold by business
**“who gets what”
Economic Systems Differ
o Ownership of factors of productiono The answer to four basic economic
questions about nation’s economic activityWhat & how much will be produced?How will it be produced?For whom will it be produced?Who owns/controls factors of production?
Factors of Production
“…resources used to producegoods and services.”
1. Land/natural resources2. Labor3. Capital4. Entrepreneurship
Types of Economies
Capitalism Command(Market) (Planned)
SocialismCommunism
Life in a Command Economy
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Table 1.3 Four DifferentTypes of Competition
Examples
Figure 1.6: Supply Curveand Demand Curve
Figure 1.4: Circular Flowin Mixed Economy
Government Actions
Monetary Policy- Federal Reserve determines size of money supply & interest rates
Controlled by the Federal Reserve (FED) Seven Member
Board Chairman
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Fiscal Policy- Influencesamount of savings and expenditures by altering tax structure and governmentspending
Controlled by Congress/Budget Process
Federal Deficit
“…a shortfall created when thefederal government spends morein a fiscal year than it receives.”
U.S. National Debt Clock
Socialism
Key industries owned/controlled by government
Land, buildings, and raw materials may be propertyof state
Private ownership permitted to varying degrees
People chose own occupations National goals determine what/how
produced Uses taxes, rents, and wages to control
distribution
Communism
Karl Marx- Father Advocated classless society Citizens own all economic resources Workers contribute based on ability & received
benefits based on need Examples- North Korea & China Centralized planning- sets prices &
wages Emphasis on gov’t needs not
consumers No job choice- professionals better off
than factory workers