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Page 1: Chapter 19: Section 1

CHAPTER 19: SECTION 1

Measuring the ECONOMY

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The Business cyclePhase 2

Boom Period – economic activity

at peak

Phase 3Economy starting

to slow down

Phase 4Recession –

production at lowest point

Phase 1General prosperity – economy going

up

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Phase 1

General prosperity – economy going up People buying more goods and services Businesses producing more goods and

services and hiring more employees

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Phase 2

Boom period – economic activity at peak Businesses working and selling at full

capacity

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Phase 3

Economy starting to slow down People buying fewer goods and services Businesses cutting back production and

laying off workers; some forced out of business

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Phase 4

RECESSION Production at lowest point High unemployment Reduced spending on goods and

services “A recession is when your neighbor

loses your job. A depression is when YOU lose your job. A recovery is when Jimmy Carter loses his job.” – Ronald Reagan

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Phase 4.oh no (DEPRESSION)

1930s

FDR and the NEW DEAL

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Fiscal Policy

The way the government taxes citizens and spends money

EXAMPLE: Government may spend money to try to keep the economy and businesses going. Bail out plans under OBAMA Goal: get demand up so businesses hire

people EXAMPLE: Government may cut taxes

Bush tax cuts Goal: stimulates production by giving people

more money to SPEND on goods and services

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Monetary Policy

The way government regulates the amount of money in circulation

Controlled by the Federal Reserve System (the Fed) Acts as a bank for the banks Can raise and lower interest rates

http://www.frbsf.org/education/activities/chairman/

WARNING: printing too much money makes our money worth less and prices go up

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Gross Domestic Product (GDP)

Total value, in dollars, of all the final goods and services produced within the nation each year

Does not include goods or services produced by American citizens or American-owned companies outside the United States

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Inflation General rise in the prices of goods and services Prices go UP = Standard of Living goes DOWN We hope if this happens wages also go up. BUT

that is not always the case CONTROLLING INFLATION:

Higher interest rates makes it more expensive to borrow money and puts a damper on activity

Gov’t may reduce the money in circulation by raising taxes and cutting its own spending

Businesses can increase productivity (produce more goods an services) so that demand/prices goes down

Consumers can save more money and spend less PROBLEMS w/ CONTROLLING INFLATION

May increase unemployment Less people buy things


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