Vocab Log - 9.1, 12/07

Vocab Log - 9.1, 12/07

VOCAB LOG 9.1, 12/07 COMPARATIVE ADVANTAGE: ability of a country to produce a good at a lower opportunity cost that another country DOMESTIC: relating to within your country TARIFF: taxes on imported goods to protect domestic industries QUOTA: limits on amount of imported goods to protect domestic industries FREE TRADE: removal of barriers to trade like quotas & tariffs EXCHANGE RATE: price of one nations currency in terms of another nations BALANCE OF TRADE: difference b/w value nations exports & imports TRADE SURPLUS: when value of a nations exports is greater than its imports TRADE DEFICIT: when value of a nations imports is greater than its exports INTERDEPENDENCE: idea that nations rely on one another for goods, services, & resources PROTECTIONISM: when nations try to protect their industries from foreign

competition, usually w/ tariffs & quotas CIVICS & ECONOMICS UNIT #9: FOUNDATIONS OF ECONOMICS (PART II) QUOTE OF THE DAY! Almost all wars are trade wars connected with some material interest. They are always disguised as sacred wars, made in the name of God, or civilization, or progress. But almost all of them, have been trade wars. Eduardo Galeano DIRECTIONS: ALL BOOKS OPEN TO PAGE 708 I WILL READ ALOUD AS YOU FOLLOW ALONG

WHEN I AM FINISHED, INDIVIDUALLY OR WITH A PARTNER BESIDE YOU RE-READ AND COMPLETE THE PORTION OF NOTES DESIGNATED BY MR. K. IF YOU HAVE TROUBLE WITH BLANKS AFTER RE-READING, PLEASE RAISE YOUR HAND & CONTINUE MOVING ON TO EFFECTIVELY MANAGE YOUR TIME WHEN TIME IS CALLED, YOU WILL EXACTLY TWO MINUTES TO CHECK YOUR WORK ON THE SLIDES PROVIDED. THESE SLIDES ARE NOT FOR YOU TO COPY BECAUSE OF INEFFECTIVE TIME MANAGEMENT. AFTER THE TWO MINUTES IS CALLED, WE WILL MOVE ON TO THE NEXT SECTION IF YOU MISS NOTES, PLEASE CHECK THE WEBSITE kcivecon.weebly.com OR ASK TO BORROW A SLIDE PACKET AT THE END OF NOTES OR BORROW NOTES FROM A FRIEND YOU CAN COMPLETE THESE SUCCESSFULLY BY REMAINING ON TASK

9.1 WHY NATIONS TRADE (p. 707) Nations trade with one another to obtain GOODS/SERVICES they themselves cannot produce EFFICIENTLY No country produces everything it needs to SURVIVE, & DEPENDS on other COUNTRIES Because of INTERNATIONAL TRADE, Americans eat FRUIT during the WINTER that is grown in CENTRAL AMERICA, & American-made COMPUTERS are sold in AFRICA & ASIA Trade involves: EXPORTS: goods/services that are SOLD to other countries IMPORTS: goods/services that are PURCHASED from other countries 9.1 WHY NATIONS TRADE (p. 707)

Obtaining scarce goods: Trade is one way that countries solve the problem of SCARCITY Nations trade b/c they could not otherwise HAVE THEM or have them as CHEAPLY U.S. IMPORTS industrial diamonds from other countries because we have almost no DEPOSITS Other countries cannot produce commercial AIRCRAFT because they lack the necessary FACTORIES or SKILLED WORKERS, so we EXPORT them to these countries 9.1 WHY NATIONS TRADE (p. 707-708) Comparative advantage: The main reason countries trade with one another is COMPARATIVE ADVANTAGE, or the ability for a country to produce a good at a RELATIVELY

LOWER COSTS than another country can Ex.: The U.S. could make TELEVISIONS, but other countries can make them at a LOWER COST; therefore, the U.S. IMPORTS televisions from abroad Specialization: one effect of comparative advantage is that nations SPECIALIZE, or focus their SCARCE resources to produce goods/services that they can produce BETTER than OTHER COUNTRIES Factors of production: comparative advantage can be based on NATURAL RESOURCES, LABOR, & HUMAN/PHYSICAL CAPITAL Ex.: SAUDI ARABIA has huge deposits of OIL that allows them to EXPORT to other countries Ex.: The U.S. has many HIGHLY SKILLED workers & ADVANCED TECHNOLOGY which gives it a comparative advantage in making EXPENSIVE products such as aircraft & WEAPONS

9.1 WHY NATIONS TRADE (p. 708) Creating jobs: supporters of expanded international trade argue that it creates JOBS Because countries have comparative advantages in certain areas, they can EXPORT these products to other countries, winning more ORDERS, requiring these businesses to HIRE MORE WORKERS Ex.: If American airplane makers only built planes for American airline companies, they would have a LIMITED MARKET; but if they EXPORT planes, they win more ORDERS, which leads to HIRE more workers 9.1 RESTRICTIONS & INTEGRATION (p. 708) Countries sometimes try to PROTECT their ECONOMIES by setting up TRADE BARRIERS

Many CONSUMERS like to buy FOREIGN-MADE, or IMPORTED, GOODS because they are CHEAPER than goods made in their own countries When this happens, companies in the CONSUMERS own country LOSE SALES, leading to LOWER PRODUCTION & LAY-OFFS of WORKERS When this happens, affected workers & industries often DEMAND that GOVERNMENT step in & PROTECT their INDUSTRIES 9.1 RESTRICTIONS & INTEGRATION (p. 708) Two ways that govts set up barriers to international trade are TARIFFS & QUOTAS TARIFFS: TAXES on IMPORTED GOODS (also called CUSTOMS DUTIES) Ex.: If he U.S. wants to protect American STEEL PRODUCERS, it can put a TARIFF on all important steel, thus ADDING to its price. The goal of most tariffs is to make the PRICE of IMPORTED goods

HIGHER than the price of the same goods produced DOMESTICALLY QUOTAS: LIMITS on the AMOUNT of FOREIGN GOODS that are IMPORTED Sometimes people want a foreign-made product so badly that HIGHER PRICES have LITTLE EFFECT, that they will PURCHASE them anyway Ex.: During 1970s, JAPANESE-made cars were so POPULAR in the U.S., that the JOBS of American car manufacturers were threatened; Pres. Reagan eventually placed a QUOTA on Japanese-made cars to protect American car manufacturers 9.1 RESTRICTIONS & INTEGRATION (p. 710) Free trade: Most policymakers in government agree that COSTS of trade barriers are HIGHER than their BENEFITS Therefore, most countries now try to REMOVE TRADE BARRIERS

FREE TRADE: REDUCING or eliminating BARRIERS to TRADE 9.1 RESTRICTIONS & INTEGRATION (p. 710) Trade agreements: EUROPEAN UNION (E.U.): organization of European countries where there are no trade barriers GOODS/SERVICES & WORKERS move FREELY among these member COUNTRIES In 2002, EU countries became even more closely linked when most member countries began to use a COMMON CURRENCY called the EURO North American Free Trade Agreement (NAFTA): signed by USA, CANADA, & MEXICO Pact to eventually ELIMINATE all TRADE BARRIERS among the three countries

OPPONENTS of NAFTA argue that American workers would LOSE their jobs because U.S. companies would move to MEXICO to take advantage of CHEAPER WAGES & less stringent laws protecting WORKERS rights & the ENVIRONMENT SUPPORTERS of NAFTA argue that increased trade would stimulate GROWTH & put more LOW-COST goods on the market 9.1 RESTRICTIONS & INTEGRATION (p. 710) World Trade Organization (W.T.O.): An international body that OVERSEES trade among nations Organizes NEGOTIATIONS about trade RULES, provides HELP to countries trying to DEVELOP their economies, & settles trade DISPUTES b/w countries Opponents argue that WTO policies favor large CORPORATIONS over

WORKERS, the ENVIRONMENT, & POOR countries 9.1 FINANCING TRADE (p. 712) The USA uses the DOLLAR as its MEDIUM of EXCHANGE, while Mexico uses the PESO & Japan uses the YEN. EXCHANGE RATE: the PRICE of your nations currency in terms of another nations Exchange rates have an important effect on a nations BALANCE of TRADE because they are FLEXIBLE, or adjustable, and can change DAILY. 9.1 FINANCING TRADE (p. 713) Balance of trade: the DIFFERENCE b/w the VALUE of a nations EXPORTS & IMPORTS Balance of trade = (value of EXPORTS) (value of IMPORTS)

POSITIVE balance of trade: when the value of a nations EXPORTS exceeds the value of a nations IMPORTS EXPORTS > IMPORTS EXPORTS - IMPORTS > 0 Also known as a TRADE SURPLUS NEGATIVE balance of trade: when the value of IMPORTS coming into a country exceeds the value of EXPORTS going out of that country EXPORTS < IMPORTS EXPORTS - IMPORTS < 0 Also known as a TRADE DEFICIT Trade deficits cause the value of the DOLLAR to DECREASE in foreign EXCHANGE MARKETS, usually causing UNEMPLOYMENT in IMPORT industries & rising EMPLOYMENT in EXPORT industries

9.1 GLOBAL INTERDEPENDENCE (p. 735) Today, we live in an era of GLOBAL ECONOMIC INTERDEPENDENCE, in which countries depend on one another for goods, services, & natural resources Advantages: Business can make greater PROFITS because they have more MARKETS in which to sell Greater COMPETITION can result in lower PRICES & a wider CHOICE of products Disadvantages: May force weaker companies that cannot COMPETE out of BUSINESS, hurting the ECONOMIES of some countries & costing workers their JOBS Large corporations can out-maneuver smaller businesses by relocating to countries with less stringent laws protecting WORKERS & the ENVIRONMENT

PROTECTIONISM: protecting domestic INDUSTRIES from FOREIGN COMPETITION, usually through the use of TARIFFS or QUOTAS on imports VOCAB LOG 9.2, 12/08 DEMAND: desire, willingness, & ability to buy a product DEMAND SCHEDULE: table listing various quantities demanded of a good for any given price DEMAND CURVE: graph showing quantity demanded of a good at any given price LAW OF DEMAND: all things equal, as price of a good increases, quantity demanded of that good decreases UTILITY: usefulness or satisfaction we get from using a good MARGINAL UTILITY: additional satisfaction from consuming ONE MORE UNIT of a good

SUBSTITUTE: a good that is bought in place of another good COMPLEMENT: a good that is bought together w/ another good DEMAND ELASTICITY: extent to which change in price of a good results in change of the quantity demanded for that good CIVICS & ECONOMICS UNIT #9: FOUNDATIONS OF ECONOMICS (PART II) QUOTE OF THE DAY! Almost all wars are trade wars connected with some material interest. They are always disguised as sacred wars, made in the name of God, or civilization, or progress. But almost all of them, have been trade wars. Eduardo Galeano

9.2 INTRODUCTION TO DEMAND (p. 569) Demand is the DESIRE, WILLINGNESS, & ABILITY to buy a good/service Desire: consumer must WANT the good/service Willingness: consumer must be WILLING to buy the good/service Ability: consumer must have the RESOURCES to buy good/service 9.2 INTRODUCTION TO DEMAND (p. 569) Individual demand schedule & individual demand curve: Demand schedule: a TABLE that LISTS the various QUANTITIES of a good/service that someone is WILLING to BUY over a RANGE of PRICES Demand curve: a GRAPH that shows the AMOUNT of a good/service that would be BOUGHT at all possible PRICES in the MARKET PRICE is drawn on the VERTICAL AXIS(or y-axis) QUANTITY is drawn on the HORIZONTAL AXIS (or x-axis)

Each point on the curve shows the QUANTITY, or how many UNITS an individual will BUY at any particular PRICE Each POINT on the graph should match the corresponding PRICE & QUANTITY in the DEMAND SCHEDULE The demand curve slopes DOWNWARD, or has a negative slope The demand curve slopes downward b/c people are normally willing to buy LESS of a good/service if the PRICE is HIGH & buy MORE if the PRICE is LOW 9.2 INTRODUCTION TO DEMAND (p. 569) The law of demand: ALL ELSE BEING EQUAL, QUANTITY & PRICE move in OPPOSITE directions People will ordinarily buy MORE of a product at a LOW price than at a

HIGH price Ex.: Increased TRAFFIC & PURCHASES at the mall whenever there is a SALE 9.2 MARKET DEMAND (p. 570) Market demand is the TOTAL DEMAND of ALL CONSUMERS for a good/service Like individual consumers demand, market demand for a product can be shown as a demand schedule or a demand CURVE Marginal utility: (p. 570) Almost everything we buy provides UTILITY - or pleasure, usefulness, or satisfaction from using the product Utility for a good/service can VARY from person to person Ex.: You may get a great deal of enjoyment (high utility) from an iPad,

but your friend may get very LITTLE A good/service doesnt have to have utility for EVERYONE, only for SOME 9.2 MARKET DEMAND (p. 572) DIMINISHING marginal utility (p. 572) Marginal utility or marginal BENEFIT [HINT: THINK BACK TO UNIT #6] is the ADDITIONAL SATISFACTION we get from consuming ONE more UNIT of a good Marginal utility DECREASES as more units of a good/service are consumed Ex.: If you are really hungry before eating pizza, the FIRST slice will give you the most SATISFACTION (and you will be willing to pay a HIGHER price for it), each slice after that gives you LESS additional

SATISFACTION (and you will be willing to pay a LOWER price for each additional slice) 9.2 MARKET DEMAND (p. 572) Because our marginal utility diminishes with each additional unit consumed, it stands to reason that we are not willing to pay AS MUCH for the SECOND unit of an item as we were for the FIRST; likewise, we are willing to pay less for the third unit as we were for the second unit DOWNWARD slope of demand curve tells us that we are willing to pay the HIGHEST price for the FIRST unit we consume, a slightly LOWER price for the next unit, an even lower price for the third unit, and so on. 9.2 CHANGES IN DEMAND (p. 574)

Several FACTORS can cause MARKET DEMAND for a good/service to CHANGE These changes can be GRAPHED using a MARKET DEMAND CURVE If there is a DECREASE in demand, the curve will shift LEFT of the original demand curve; in other words, FOR ANY GIVEN PRICE, DEMAND OF A GOOD (QD) WILL BE LESS THAN WHAT IT WAS ORINGINALLY If there is an INCREASE in demand, the curve will shift RIGHT of the original demand curve; in other words, FOR ANY GIVEN PRICE, DEMAND OF A GOOD (QD) WILL BE MORE THAN WHAT IT WAS ORINGINALLY 9.2 CHANGES IN DEMAND (p. 574) Factors that determine demand: Changes in POPULATION:

Demand for a good in a particular market area is related to the NUMBER of consumers in the area More people in an area means HIGHER demand; the demand will INCREASE, so the demand curve shifts to the RIGHT (DEMAND INCREASES) Fewer people in an area means LOWER demand; the demand will DECREASE, so the demand curve shifts to the LEFT (DEMAND DECREASES) Populations can change b/c of IMMIGRATION, higher/lower BIRTH & DEATH rates 9.2 CHANGES IN DEMAND (p. 575) Changes in consumers INCOME:

If the economy is growing, consumers incomes will tend to INCREASE; if the economy is not growing, consumers incomes will tend to DECREASE If consumers incomes are increasing, they will have MORE money to SPEND & they are able to buy MORE of a product at a given PRICE; the demand curve will shift to the RIGHT (DEMAND INCREASES) If consumers incomes are decreasing, or they have lost their jobs, they will have LESS money to SPEND & they will be able to buy LESS of a product at a given PRICE; the demand curve will shift to the LEFT (DEMAND DECREASES) 9.2 CHANGES IN DEMAND (p. 575) Changes in consumers TASTES or preferences:

The POPULARITY of a product can affect demand When a product becomes POPULAR, more people are willing to buy it at any given price; the demand curve will shift to the RIGHT (DEMAND INCREASES) When a product FADES in popularity, fewer people are willing to buy it at any given price; the demand curve will shift to the LEFT (DEMAND DECREASES) Ex.: During holiday shopping season, new product may become a MUST-BUY of the year, so for any given PRICE, demand will be HIGHER than what it would ordinarily be Ex.: After Halloween, the demand for Halloween candy will DECREASE, because consumers are willing to buy LESS of it for any given price 9.2 CHANGES IN DEMAND (p. 575)

Changes in consumers EXPECTATIONS: Expectations refer to the way we think about the FUTURE If consumers are excited about a technological breakthrough in the near future, they may be willing to buy LESS current technology; demand curve will shift LEFT (DEMAND DECREASES) If consumers are WORRIED about the economy, they may be will to buy LESS consumer goods; the demand curve will shift to the LEFT (DEMAND DECREASES) If consumers expect a SHORTAGE of a good, such as GASOLINE, they tend to STOCK UP on it; the demand curve will shift to the RIGHT (DEMAND INCREASES) 9.2 CHANGES IN DEMAND (p. 575) PRODUCT-RELATED changes:

Factors that shift demand can be related to the PRODUCTS themselves Demand can be influenced by the PRICE or QUANTITY of RELATED PRODUCTS Ex.: Demand for older computers DECREASES when faster models come out Ex.: Demand for a brand of tire may INCREASE if another brand has SAFETY problems 9.2 CHANGES IN DEMAND (p. 575-576) Changes in the PRICE of RELATED GOODS: Two types of related goods: SUBSTITUTES & COMPLEMENTS Substitute goods: when consumers can use one good IN PLACE of another Ex.: BUTTER & MARGARINE; hot dogs & hamburgers

If price of one good increases, demand for the other good will INCREASE & the demand curve will shift to the RIGHT; if the price of one good decreases, demand for the other good will DECREASE & the demand curve will shift to the LEFT Complementary goods: when consumers buy goods that are USED TOGETHER Ex.: lightbulbs & LAMPS, peanut butter & JELLY If price of one good increases, demand for the other good will DECREASE & the demand curve will shift to the LEFT; if the price of one good decreases, demand for the other good will INCREASE & the demand curve will shift to the RIGHT 9.2 CHANGES IN DEMAND (p. 576) Change in quantity demand: DIFFERENT FROM INCREASING OR

DECREASING DEMAND Change in demand refers to a SHIFT of the ENTIRE demand curve Change in quantity demanded refers to MOVEMENT from one point on a demand curve to another Only factor that directly causes a change in quantity demanded is PRICE 9.2 ELASTICITY OF DEMAND (p. 577-578) Demand elasticity: the extent to which a change in PRICES causes a change in the QUANTITY DEMANDED of a good/service (HOW STRETCHY IS DEMAND WHEN PRICE CHANGES) Which items have elastic demand? (Small price changes can have a BIG effect on quantity demanded)

When there are ATTRACTIVE SUBSTITUTE goods that consumers could buy instead When consumers can DELAY purchasing an item because they think prices will go down For EXPENSIVE, or higher-priced items, like cars 9.2 ELASTICITY OF DEMAND (p. 577-578) Which items have inelastic demand? (Large price changes can have a SMALL effect on quantity demanded) SEASONAL items (items that people ordinarily consume at certain times of the year) Items with few SUBSTITUTES (medicines, electricity, etc.) NECESSITIES, or things needed for survival or health

AFTER NOTES, HAVE OUT THE GREEN EXIT TICKET VOCAB LOG 9.3, 12/09 SUPPLY: quantity of good/service producers/suppliers are willing to sell at all possible market prices SUPPLY CURVE: graph that shows the amount of good/service that would be supplied at all possible market prices SUPPLY SCHEDULE: table that shows amount of good/service that would be supplied at various market prices MARKET SUPPLY: combined supply schedule for all suppliers of good/service LAW OF SUPPLY: producers are willing to offer more for sale at higher prices & less at lower prices (prices & quantity supplied change in same direction) PROFIT MOTIVE: main incentive for producers is to earn more than what

they spend making a good/service (that revenues will exceed costs) PRODUCTIVITY: greater efficiency; more output (production) at lower cost SUBSIDY: govt payment to indv or business for certain actions SUPPLY ELASTICITY: measure of how quantity supplied of a good/service changes in response to price changes CIVICS & ECONOMICS UNIT #9: FOUNDATIONS OF ECONOMICS (PART II) QUOTE OF THE DAY! No one wants advice only corroboration [agreement]. John Steinbeck 9.3 INTRODUCTION TO SUPPLY (p. 581)

Supply refers to the various QUANTITIES of a good/service that PRODUCERS are willing to SELL at any given market PRICE We can consider supply as an OUTPUT of a single BUSINESS or PRODUCER OR ADD together the supply of the ENTIRE MARKET Supply is the OPPOSITE of demand BUYERS demand different QUANTITIES of a good depending on the PRICE sellers ask SELLERS offer different QUANTITIES of a good depending on the PRICE buyers are willing to pay 9.3 INTRODUCTION TO SUPPLY (p. 581) Law of supply: As the PRICE rises or increases for a good, the QUANTITY SUPPLIED (Q S) also INCREASES; price and quantity supplied change in the SAME

direction The HIGHER the price of a good, the greater the INCENTIVE is for a producer to produce MORE of that good Like demand, individual and market supply can be represented in a TABLE as a SUPPLY SCHEDULE and in a GRAPH with the SUPPLY CURVE While demand curve has a DOWNWARD (or negative) slope, the supply curve has an UPWARD (or positive slope), reflecting the fact that suppliers/producers are generally willing to offer MORE goods/services at a HIGHER price than at LOWER prices 9.3 GRAPHING THE SUPPLY CURVE (p. 583-584) Profit motive: Businesses invest TIME, MONEY, & other CAPITAL & RESOURCES to

make money Businesses try to set prices at levels that allow them to COVER COSTS; otherwise, they will LOSE MONEY (REVIEW: their COSTS will exceed their REVENUES, and they will incur a LOSS) Businesses try to earn a PROFIT that is OVER and ABOVE its COSTS Making a profit is the primary MOTIVE, or purpose, for a business Producers can then use these profits to: increase WAGES of employees, INVEST money in new business projects, acquire more SPACE, buy new EQUIPMENT (or PHYSICAL capital), or hire new WORKERS (or LABOR) 9.3 GRAPHING THE SUPPLY CURVE (p. 583-584) Market supply: the total combined SUPPLY SCHEDULE of all businesses that provide the SAME good/service

MARKET SUPPLY CURVE HAS AN UPWARD (OR POSITIVE) SLOPE [MARKET DEMAND CURVES HAVE A DOWNWARD (OR NEGATIVE) SLOPE] Like the demand curve, the supply curve or supply can be affected by various factors, causing it to shift to the LEFT or RIGHT 9.3 CHANGES IN SUPPLY (p. 584-585) The PROFIT INCENTIVE (or profit motive) is motivates producers to change supply levels at a given price Like changes in demand: An INCREASE in supply will cause the supply curve to shift to the RIGHT, b/c producers are willing to sell a HIGHER QUANTITY of goods at any given price compared to the original supply curve A DECREASE in supply will cause the supply curve to shift to the LEFT, b/

c producers are willing to sell a LOWER quantity of goods at any given price compared to the original supply curve 9.3 CHANGES IN SUPPLY (p. 584-585) Factors that affect the supply curve: COSTS of RESOURCES: costs of raw materials and other FACTORS of PRODUCTION When costs of resources to produce goods/services decrease, suppliers can make a larger PROFIT at the same price for each unit sold, so they are willing to sell MORE at any given market price (SUPPLY INCREASES SUPPLY CURVE SHIFTS RIGHT) When costs of resources to produce goods/services decrease, suppliers make a smaller PROFIT at the same price for each unit sold, so they are willing to sell LESS at any given market price

(SUPPLY DECREASES SUPPLY CURVE SHIFTS LEFT) 9.3 CHANGES IN SUPPLY (p. 585) PRODUCTIVITY: When workers are more productive, businesses costs DECREASE, allowing suppliers to make a larger PROFIT for each unit sold, so they are willing to sell MORE at any given market price (SUPPLY INCREASES SUPPLY CURVE SHIFTS RIGHT) When workers are less productive, businesses costs INCREASE, forcing suppliers to make a smaller PROFIT for each unit sold, so they are willing to sell LESS at any given market price (SUPPLY DECREASES SUPPLY CURVE SHIFTS LEFT) TECHNOLOGY: new METHODS & PROCESSES that can SPEED up ways of doing business & CUT COSTS

New technology that cuts costs allows suppliers to larger profit at the same price for each unit sold, so suppliers are willing to sell MORE at any given market price (SUPPLY INCREASES SUPPLY CURVE SHIFTS RIGHT) 9.3 CHANGES IN SUPPLY (p. 585) GOVERNMENT POLICIES & increasing TAXES: increased government REGULATIONS restrict, or LIMIT, supply b/c they cause they usually cause suppliers costs to INCREASE (ex.: rise in MINIMUM WAGE, or new SAFETY REGULATIONS) New government regulations or taxes can increase PRODUCTION COSTS to suppliers, so that suppliers make a smaller profit at the same price for each unit sold, so they are willing to sell LESS at any given market price (SUPPLY DECREASES SUPPLY CURVE SHIFTS LEFT)

9.3 CHANGES IN SUPPLY (p. 585) SUBSIDIES: government PAYMENTS to INDIVIDUALS, BUSINESSES, & other groups for certain actions Subsidies lower production costs to suppliers, so that suppliers make a larger profit at the same price for each unit sold, so they are willing to sell MORE at any given market price (SUPPLY INCREASES SUPPLY CURVE SHIFTS RIGHT) EXPECTATIONS: If producers expect CONSUMER DEMAND to decrease in the FUTURE, they will supply LESS (SUPPLY DECREASES SUPPLY CURVE SHIFTS LEFT) If producers expect consumer demand to increase in the future, they will supply MORE (SUPPLY INCREASES SUPPLY CURVE SHIFTS RIGHT) NUMBER of SUPPLIERS:

The larger the number of suppliers, the GREATER the market supply (SUPPLY INCREASES SUPPLY CURVE SHIFTS RIGHT) If suppliers leave the market, market supply goes down (SUPPLY DECREASES SUPPLY CURVE SHIFTS LEFT) 9.3 ELASTICITY OF SUPPLY (p. 585) Supply elasticity measures how the QUANTITY SUPPLIED of a good/service changes in RESPONSE to a change in PRICES If the quantity supplied changes a great deal when prices change, that good is said to be SUPPLY ELASTIC Usually, goods that can be made QUICKLY and do not require huge amounts of CAPITAL or SKILLED LABOR to produce that good are supply ELASTIC (such as CANDY or most other FOODS, especially during special HOLIDAY times throughout the year)

If the quantity supplied changes very little when prices change, that good is said to be SUPPLY INELASTIC Usually, goods that require suppliers/producers to INVEST large sums of money to produce that good are supply INELASTIC (such as OIL) AFTER NOTES, HAVE OUT THE GREEN EXIT TICKET VOCAB LOG 9.4, 12/12 SURPLUS: situation in which quantity supplied exceeds quantity demanded; signals that prices are too high SHORTAGE: situation in which quantity demanded exceeds quantity supplied; signals that prices are too low EQUILIBRIUM PRICE: price at which amount producers are willing to sell

equals amount consumers are willing to buy PRICE CEILING: maximum price that can be charged for a good/service, set by govt, usually below equilibrium price & often resulting in shortages PRICE FLOOR: minimum price that can be charged for a good/service, set by govt, usually above equilibrium price & often resulting in surpluses MINIMUM WAGE: lowest legal wage that can be paid to workers; price floor set for workers who supply their labor to employers CIVICS & ECONOMICS UNIT #9: FOUNDATIONS OF ECONOMICS (PART II) QUOTE OF THE DAY! There is no substitute for hard work. Thomas Edison DIRECTIONS:

ALL BOOKS OPEN TO PAGE 588-589 I WILL READ ALOUD AS YOU FOLLOW ALONG WHEN I AM FINISHED, INDIVIDUALLY OR WITH A PARTNER BESIDE YOU RE-READ AND COMPLETE THE PORTION OF NOTES DESIGNATED BY MR. K. IF YOU HAVE TROUBLE WITH BLANKS AFTER RE-READING, PLEASE RAISE YOUR HAND & CONTINUE MOVING ON TO EFFECTIVELY MANAGE YOUR TIME WHEN TIME IS CALLED, YOU WILL EXACTLY TWO MINUTES TO CHECK YOUR WORK ON THE SLIDES PROVIDED. THESE SLIDES ARE NOT FOR YOU TO COPY BECAUSE OF INEFFECTIVE TIME MANAGEMENT. AFTER THE TWO MINUTES IS CALLED, WE WILL MOVE ON TO THE NEXT SECTION IF YOU MISS NOTES, PLEASE CHECK THE WEBSITE kcivecon.weebly.com OR ASK TO BORROW A SLIDE PACKET AT THE END OF NOTES OR BORROW NOTES FROM A FRIEND

YOU CAN COMPLETE THESE SUCCESSFULLY BY REMAINING ON TASK 9.4 MARKETS & PRICES (p. 588-589) The opposing forces of SUPPLY & DEMAND work together in the market to establish PRICES In our economy PRICES form the basis of ECONOMIC DECISIONS 9.4 MARKETS & PRICES (p. 588-589) Price adjustment process: Markets consist of all BUYERS & SELLERS of a product We label the demand curve as D (REVIEW: DEMAND CURVE HAS A DOWNWARD SLOPE) We label the supply curve as S (REVIEW: SUPPLY CURVE HAS AN UPWARD SLOPE)

Where these curves INTERSECT determines the PRICE & QUANTITY of product sold Surplus: the amount by which the quantity SUPPLIED exceeds, or is higher, than the quantity DEMANDED The surplus is shown as the HORIZONTAL distance between SUPPLY & DEMAND curves at any price ABOVE where the curves INTERSECT Signals that prices are too HIGH, & that consumers are UNWILLING to pay the PRICE in large enough numbers to SATISFY producers output In a COMPETITIVE market, a surplus will not EXIST for long; suppliers will have to LOWER their PRICES if they want to SELL all of their product 9.4 MARKETS & PRICES (p. 589) Shortage: the amount by which the quantity DEMANDED exceeds, or is

higher, than the quantity SUPPLIED The shortage is shown as the HORIZONTAL distance between the SUPPLY & DEMAND curves at any price BELOW where the curves INTERSECT Signals that prices are too LOW, & that SUPPLIERS are UNWILLING to sell their goods/services in LARGE enough quantities to meet consumers DEMAND In a COMPETITIVE market, shortages will not EXIST for long; PRICES will have to RISE 9.4 MARKETS & PRICES (p. 589) Market forces: One of the BENEFITS of a competitive MARKET economy is that it

ELIMINATES SURPLUSES & SHORTAGES Over time, SURPLUSES, force prices downward Over time, SHORTAGES, force prices upward The process of price adjustment goes on until SUPPLY & DEMAND are BALANCED EQUILIBRIUM PRICE: the point where SUPPLY & DEMAND balance At this point, there is neither a SHORTAGE nor a SURPLUS On a graph, it is where the supply and demand curves INTERSECT 9.4 MARKETS & PRICES (p. 589) Price controls: Occasionally, the GOVERNMENT steps in & sets the PRICE of a PRODUCT because it believes the forces of supply & demand are UNFAIR

When this happens, the new price may favor either CONSUMERS or PRODUCERS Two forms of price controls are PRICE CEILINGS & PRICE FLOORS 9.4 MARKETS & PRICES (p. 589) Price ceiling: MAXIMUM PRICE set by the GOVT that can be charged for a good/service Ex.: city officials may set a price ceiling on what LANDLORDS may charge for RENT (also known as RENT CONTROL) Price ceilings usually are meant to benefit CONSUMERS, such as TENANTS (residents) in apartments with price ceilings in cities with rent control May result in SHORTAGE because the maximum price may be BELOW the EQUILIBRIUM PRICE

Price floor: MINIMUM PRICE set by the GOVT that can be charged for a good/service Prevent prices from dropping too LOW Price floors are meant to benefit PRODUCERS Ex.: MINIMUM WAGE, the lowest legal wage that workers can be paid May result in a SURPLUS because the minimum price may be ABOVE the EQUILIBRIUM PRICE 9.4 PRICES AS SIGNALS (p. 590-591) In our economy, prices are SIGNALS that help BUSINESSES (suppliers) & BUYERS (consumers) make economic DECISIONS Prices help answer the basic questions of economic decision-making without any one actor alone:

WHAT to produce HOW to produce FOR WHOM to produce 9.4 PRICES AS SIGNALS (p. 590-591) What prices tell us: Consumers PURCHASES tell help producers decide WHAT TO PRODUCE, in order to provide the goods/services that consumers are WILLING to BUY at PRICES that allow suppliers to make a PROFIT Prices alert businesses of HOW TO PRODUCE, including ways they can cut COSTS that will allow them to make a PROFIT Prices also help businesses decide FOR WHOM TO PRODUCE, including to whom they should AIM, or target, their goods/service (Do they

target fewer consumers who are willing to spend MORE, or do they target more consumers who want to spend LESS?) 9.4 PRICES AS SIGNALS (p. 591) Advantages of prices: Prices are NEUTRAL: They FAVOR neither the PRODUCER nor the CONSUMER Result of COMPETITION between BUYERS & SELLERS Represent COMPROMISE with which both sides can live The more COMPETITIVE the market, the more EFFICIENT the PRICE ADJUSTMENT process Prices are FLEXIBLE: UNFORSEEN EVENTS can affect supply & demand Ex.: WARS or NATURAL DISASTERS

BUYERS & SELLERS react to the new level of PRICES and ADJUST their CONSUMPTION & PRODUCTION accordingly Ability of price system to absorb UNEXPECTED SHOCKS is one of its strengths 9.4 PRICES AS SIGNALS (p. 592) Prices offer FREEDOM of CHOICE: Because a market economy typically has a VARIETY of products at a wide range of PRICES, consumers have many CHOICES If consumers think a product is priced too HIGH a LOWER-PRICED product can usually be found; if not, no one FORCES them to purchase that product Conversely, in COMMAND economies, BUREAUCRATS in the central governments plan QUANTITIES of goods produced, set PRICES, & limit

product VARIETY to keep production COSTS down; this often results in SHORTAGES (not enough) & lower satisfaction among CONSUMERS Prices are FAMILIAR: We have known about prices nearly for all of our LIVES, & they are easily UNDERSTOOD This allows us to make DECISIONS QUICKLY & EFFICIENTLY HAVE OUT YOUR GREEN EXIT TICKET FOR AFTER NOTES VOCAB LOG 9.5, 12/13 GROSS DOMESTIC PRODUCT (GDP): total value of all final goods/services produced in a year in a country BUSINESS CYCLE: alternating periods of growth & decline that economy goes through

RECESSION: 6 back-to-back months of economic contraction (or decrease in GDP) DEPRESSION: economic state w/ high unemployment, declining incomes, & business failures PEAK: highest point of a business cycle EXPANSION: when GDP increases & economy grows CONTRACTION: when GDP decreases & economy shrinks TROUGH: lowest point of a business cycle CIVILIAN LABOR FORCE: non-military persons 16 years old & above that are working or looking for a job UNEMPLOYMENT: percentage of civilian labor force that is looking for a job but does not have one INFLATION: general increase in prices CIVICS & ECONOMICS

UNIT #9: FOUNDATIONS OF ECONOMICS (PART II) QUOTE OF THE DAY! The roots of education are bitter, but the fruit is sweet Aristotle 9.5 MEASURING GROWTH (p. 638) The REAL GROSS DOMESTIC PRODUCT is the most ACCURATE MEASURE of an economys PERFORMANCE. Sometimes the economy GROWS, and sometimes it FALTERS (or contracts). Economic growth is usually BENEFITICAL to EVERYONE: It usually means that businesses are PRODUCING more goods/services, meaning they have to HIRE more WORKERS When these new workers are hired, they have more MONEY (income)

& BUY MORE, meaning increased consumer DEMAND & increased PRODUCTION among suppliers 9.5 MEASURING GROWTH (p. 638) GROSS DEOMESTIC PRODUCT (GDP) is a MEASURE of the economys OUTPUT; it is the DOLLAR VALUE of all final goods/services PRODUCED in a COUNTRY in a YEAR Real GDP: Even if a country produces the SAME AMOUNT of goods/services from one year to the NEXT, the GDP could go up simply because PRICE INCREASES That would make it SEEM that economy was GROWING, even though it really WAS NOT To avoid being misled, economists use REAL GDP instead

Real GDP shows an economys PRODUCTION after the DISTORTION of PRICE INCREASES have been REMOVED [Real GDP = GDP / (1 + Inflation rate in decimal form)] Real GDP ELIMINATES the FALSE IMPRESSION that OUTPUT has gone UP when only PRICES have gone UP (INFLATION) 9.5 MEASURING GROWTH (p. 638) Business cycle: The economy tends to GROW OVER TIME, but not at a CONSTANT RATE Instead, it goes through ALTERNATING INTERVALS (or periods) of GROWTH & DECLINE These alternating intervals of growth & decline are referred to as the BUSINESS CYCLE: EXPANSIONS leading to an economic PEAK:

New BUSINESSES OPEN Factories are PRODUCING at FULL CAPACITY Most ppl can find WORK (FULL EMPLOYMENT), so unemployment is (low/high) Real GDP is (increasing / decreasing) Workers incomes are (increasing / decreasing) Consumer demand is (increasing / decreasing) 9.5 MEASURING GROWTH (p. 638) Eventually, economy will begin a CONTRACTION, leading to low point called a TROUGH: Businesses may FAIL or scale back operations Factories are not PRODUCING at FULL CAPACITY Workers are LAID OFF or their HOURS at work are cut back, so

unemployment (decreases / increases) Real GDP is (increasing / decreasing) Workers incomes are (increasing / decreasing) Consumer demand (increases/decreases), so businesses (increase/decrease) production 9.5 BUSINESS FLUCTUATIONS (p. 639) The economy goes through ALTERNATING PERIODS of GROWTH & DECLINE In reality, BUSINESS CYCLES are not as REGULAR as the model shows An entire business cycle is measured from PEAK to PEAK Expansions: Economic expansions take place when REAL GDP (increases / decreases) At some point real GDP reaches is peak, or HIGHEST POINT in an

expansion, then it starts to DECLINE Expansions are usually LONGER than RECESSIONS 9.5 BUSINESS FLUCTUATIONS (p. 639) Recession: Recessions take place when real GDP goes DOWN for SIX consecutive (back-to-back) MONTHS, although most recessions last LONGER than that (most last for about ONE year) During recessions many people lose their JOBS If a recession becomes SEVERE, it may turn into a DEPRESSION - a state of the economy with large numbers of people out of WORKERS, acute SHORTAGES of products (because businesses DECREASES production levels), prices DECREASE, & excess capacity in MANUFACTURING PLANTS

9.5 BUSINESS FLUCTUATIONS (p. 640) Unemployment: (P. 640) One way to measure the economy is to look at EMPLOYMENT Economist start by looking at the CIVILIAN LABOR FORCE, which includes all CIVILIANS (non-MILITARY) 16 years or OVER who are either WORKING or are LOOKING for WORK About HALF of all people belong to the civilian labor force in the USA UNEMPLOYMENT RATE is the PERCENTAGE of people in the civilian labor force who are NOT WORKING but are LOOKING for JOBS Usually, a 1% drop in the unemployment rate results in a 2% rise in TOTAL INCOME When people are unemployed, they lose INCOME & cut back on LUXURIES (DISCRETIONARY spending) & even BASIC NEEDS, & some families go into

deeper DEBT by buying goods on CREDIT (which they cannot PAY BACK) Unemployment also creates STRESS for many people High unemployment becomes a PROBLEM that can REQUIRE some GOVT action 9.5 BUSINESS FLUCTUATIONS (p. 641) Fiscal policy: CHANGE in GOVT SPENDING or TAX POLICIES (P. 641) The government might CUT TAXES This puts MORE MONEY in peoples POCKETS in the hopes that they will BUY MORE goods/services. Increased consumer DEMAND may CONVINCE businesses to HIRE MORE WORKERS, REDUCING UNEMPLOYMENT Government may also INCREASE SPENDING By BUYING more goods/services itself, the govt tries to CONVINCE

BUSINESSES to HIRE MORE WORKERS to boost PRODUCTION levels Fiscally policy is an important tool because of its ability to affect the TOTAL amount of OUTPUT produced, or the GROSS DOMESTIC PRODUCT Sometimes it is difficult to IMPLEMENT, or carry out, effective fiscal policies because political leaders may have DIFFERENT IDEAS Some leaders prefer to CUT TAXES, some prefer to INCREASE SPENDING, & some say BOTH are necessary 9.5 BUSINESS FLUCTUATIONS (p. 641-642) Price stability: (P. 641-642) Another important economic indicator is INFLATION, or a SUSTAINED INCREASE in the general LEVEL of PRICES A large level of inflation HURTS the economy because it REDUCES the PURCHASING POWER of MONEY and may AFFECT DECISIONS people

make about PRODUCTION & CONSUMPTION One way to keep track of inflation is the CONSUMER PRICE INDEX (CPI), a popular measure of the PRICE LEVELS calculated by sampling prices of about 400 PRODUCTS COMMONLY USED by CONSUMERS 9.5 BUSINESS FLUCTUATIONS (p. 641-642) Inflation REDUCES the VALUE of money, which has several effects: It reduces PURCHASING POWER, which is especially hard on people with low of FIXED INCOMES It reduces the value of money in SAVINGS ACCOUNTS Because prices serve as SIGNALS to producers/suppliers (BUSINESSES) & consumers (BUYERS), it effects quantities SUPPLIED & quantities DEMANDED Sometimes leads high-income people to SPECULATION, or buy things

such as LAND or works of ART that they think will go up in VALUE If speculation replaces business INVESTMENT in CAPITAL goods, economy can SUFFER The govt uses MONETARY POLICY to control the SUPPLY of MONEY with the FEDERAL RESERVE SYSTEM 9.5 BUSINESS FLUCTUATIONS (p. 643-644) Stocks & Stock Markets (P. 643-644) Stock markets are usually good INDICATORS of the HEALTH of the economy Stock prices change because of changes in SALES or PROFITS, rumors of TAKEOVERS, or NEWS of technological breakthroughs Stock market indexes are STATISTICAL MEASURES that TRACK STOCK PRICES over time & give us an idea about the WELL-BEING of the stock

market, including the DOW JONES INDUSTRIAL AVERAGE (DIJA), and STANDARD & POORS (S&P) 9.5 BUSINESS FLUCTUATIONS (p. 643-644) Stock exchanges are specific LOCATIONS where stocks are BOUGHT & SOLD, but investors dont actually need to travel to a stock exchange (they can call a STOCKBROKER who buys/sells the stocks for you) The stock market reveals INVESTORS EXPECTATIONS about the FUTURE of the economy If investors expect economic GROWTH to be RAPID, PROFITS high, & UNEMPLOYMENT low, stock prices tend to RISE (a BULL market) If investors expect economic decline, stock prices may FALL (a BEAR market)

VOCAB LOG 9.6, 12/14 CURRENCY: paper money & coins COMMERICAL BANKS: financial institutions offering full banking services to businesses & indvs CREDIT UNIONS: financial institutions operating on a not-for-profit basis that are only open to members who are part of groups that sponsor them FEDERAL RESERVE (the Fed): central bank of USA; bank from which other financial institutions borrow funds MONETARY POLICY: controlling the supply of money & cost of borrowing DISCOUNT RATE: rate at which Fed loans money to member financial institutions RESERVE REQUIREMENT: percentage of financial institutions money required to be held in Fed banks as a back-up against their deposits

OPEN-MARKET OPERATIONS: purchase/sale of govt bonds & Treasury bills CIVICS & ECONOMICS UNIT #9: FOUNDATIONS OF ECONOMICS (PART II) QUOTE OF THE DAY! The roots of education are bitter, but the fruit is sweet Aristotle 9.6 MONEY (p. 657) People are WILLING to ACCEPT money in EXCHANGE for goods/services. Money has three FUNCTIONS: MEDIUM of EXCHANGE: we can TRADE money for goods/services Without it, we would have to BARTER, or exchange goods for other goods

That would be less CONVENIENT because we would have to find people who are WILLING & interested in BARTERING for the goods/services we have & who also have goods/services that we want STORE of VALUE: we can hold our WEALTH in the form of MONEY until we are READY to USE it (spend it NOW or spend it LATER) MEASURE of VALUE: money is like a MEASURING STICK that can be used to ASSIGN VALUE to a good/service Types of money: COINS: METALLIC forms of money such as pennies & nickels CURRENCY: includes both COINS & PAPER money 9.6 MONEY (p. 657) What gives money value: We VALUE & ACCEPT money because we are ABSOLUTELY SURE that

someone else will ACCEPT its value as well Without this CONFIDENCE, we would not accept it from someone else in the first place Money by itself generally has NO OTHER VALUE Paper currency & coins only cost a few CENTS to make or a SMALL AMOUNT of PRECIOUS METAL Check & savings accounts also work the same way: in actuality, they are just NUMBERS inside COMPUTERS that can be changed UP or DOWN 9.6 THE FINANCIAL SYSTEM (p. 658-659) FINANCIAL INSTITUTIONS give people SAFE places to DEPOSIT their money or take out LOANS Banks & other financial institutions do not simply put the money in a

SAFE & LEAVE it there; they put it to work by LENDING it to PEOPLE & BUSINESSES that need funds (thats why they pay us INTEREST) They make profits & cover costs from INTEREST on money they LOAN & FEES 9.6 THE FINANCIAL SYSTEM (p. 658-659) Types of financial institutions: COMMERCIAL BANKS: financial institutions that offer full BANKING SERVICES to individuals/businesses; they are where most people have CHECKING & SAVINGS ACCOUNTS (EX: Bank of America, Wachovia, Wells Fargo, BB&T) SAVINGS & LOANS (S&L): financial institutions that traditionally loan to people who are BUYING HOMES; most S&Ls now operate & provide same services as COMMERICAL banks

CREDIT UNIONS: NOT-for-PROFITS institutions that are only OPEN to MEMBERS of the GROUP that SPONSORS them usually BUSINESSES, LABOR UNIONS, & GOVERNMENT INSTITUTIONS (EX: NC State Employees Credit Union, Navy Federal Credit Union) 9.6 THE FINANCIAL SYSTEM (p. 658-659) Safeguarding our financial system: FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) INSURES CONSUMERS DEPOSITS It was formed after many banks COLLAPSED during the GREAT DEPRESSION after many people lost their ENTIRE SAVINGS The FDIC insures these deposits to give CONSUMERS CONFIDENCE in our financial system

9.6 THE FEDERAL RESERVE SYSTEM (p. 660-661) The CENTRAL BANK of the USA is the FEDERAL RESERVE SYSTEM (the Fed) When BUSINESSES & INDIVIDUALS need money, they borrow from BANKS When banks need money, they borrow from the FED; it serves as the BANKERS BANK Member BANKS buy STOCK in the Fed & earn DIVIDENDS from the investment The Federal Reserve is led by a CHAIRMAN/CHAIRWOMAN (the current leader is JANET YELLEN), & has a BOARD of GOVERNORS that CONTROLS & COORDINATES the Feds actions The Fed is divided into 12 DISTRICT banks across the country (we are part of the RICHMOND, VA district) 9.6 FUNCTIONS OF THE FEDERAL RESERVE (p. 663)

The Fed CONTROLS the MONEY SUPPLY, serves as the GOVERNMENTS BANK, & WATCHES OVER the BANKING INDUSTRY The Fed as regulator: If two national banks wish to MERGE, the Fed will DECIDE whether the action threatens COMPETITION; if so, the Fed could BLOCK the merger It also regulates CONNECTIONS between AMERICAN & FOREIGN banking, and OVERSEES the INTERNATIONAL BUSINESS of banks that operate in this country The Fed also ENFORCES many laws that deal with COMMERCIAL BANKING, such as laws that LENDERS must SPELL OUT the DETAILS of a LOAN before the consumer BORROWS money (such as interest rates & fees associated with the loan) 9.6 FUNCTIONS OF THE FEDERAL RESERVE (p. 663)

Acting as the governments bank: First, it HOLDS the GOVERNMENTS MONEY Second, it SELLS U.S. government BONDS & TREASURY BILLS, which is how the govt BORROWS money Third, the Fed MANAGES the nations CURRENCY, including PAPER money & COINS Currency is actually PRODUCED by GOVERNMENT AGENCIES But, the Fed CONTROLS its CIRCULATION When currency becomes DAMAGED, banks send it to the Fed for REPLACEMENT 9.6 MONETARY POLICY (p. 664) Conducts monetary policy Monetary policy is the CONTROLLING of the SUPPLY of MONEY & the

COST of BORROWING MONEY (CREDIT) The Fed makes decisions about monetary policy based on the NEEDS of the ECONOMY The Fed INCREASE or DECREASE the supply of money Changing the supply of money: The point where SUPPLY & DEMAND of money MEET sets the INTEREST RATE, or the RATE that people/businesses must PAY to BORROW money The Fed can CHANGE the interest rate by CHANGING the money SUPPLY If the Fed wants a LOWER interest rate, it must EXPAND the money supply by moving the SUPPLY to the RIGHT If the Fed wants to RAISE the interest rate, it has to CONTRACT, or reduce, the money supply by shifting the SUPPLY curve to the LEFT 9.6 MONETARY POLICY (p. 664)

Monetary policy tools: The Fed has several tools to help them MANIPULATE (adjust) the money supply: The Fed can RAISE or LOWER the DISCOUNT RATE, or the rate that the Fed charges member BANKS for LOANS If the Fed wants to STIMULATE (or grow) the economy, it LOWERS the discount rate to ENCOURAGE member banks to BORROW MONEY that they can make LOANS to businesses/individuals If the Fed wants to SLOW DOWN the economys rate of growth, it RAISES the discount rate to DISCOURAGE member banks from BORROWING This CONTRACTS the money supply & RAISES the interest rates High discount rates mean banks will BORROW less money from the Fed & make fewer LOANS to their customers

9.6 MONETARY POLICY (p. 665) The Fed can RAISE or LOWER the RESERVE REQUIREMENT for member banks The reserve require a certain PERCENTAGE of banks money to be kept in FEDERAL RESERVE BANK as a RESERVE (back-up) against their DEPOSITS If Fed RAISES the reserve requirement, BANKS must leave MORE money with the Fed, leaving them with LESS money to LEND to customers If Fed LOWERS reserve requirements, member banks have MORE money to LEND to customers 9.6 MONETARY POLICY (p. 665) The Fed can change the money supply through OPEN MARKET OPERATIONS, where the Fed can PURCHASE or SELL U.S. government

BONDS & TREASURY BILLS BUYING bonds from investors puts MORE CASH in INVESTORS HANDS, INCREASING the money supply Shifts the money supply curve to the RIGHT, which LOWERS interest rates Consumers/businesses then BORROW more money, which increases CONSUMER DEMAND & business PRODUCTION (supply) As a result, the economy GROWS If the Fed decides that interest rates are too LOW, it can SELL bonds When investors BUYS those BONDS, money COMES OUT of the economy Decreases money supply, shifting supply curve LEFT, which RAISES interest rates)

VOCAB LOG 9.7, 12/14 BALANCED BUDGET: govt revenues = govt expenditures APPROPRIATIONS BILL: law to approve spending for a specific activity; starts in the House of Representatives PAYROLL TAX: deducted from paycheck for Social Security & Medicare benefits EXCISE TAX: taxes on specific goods, such as gasoline ESTATE TAX: taxes on wealth inherited by a deceased persons heirs PROGRESSIVE TAXATION: higher tax rates from higher income levels REGRESSIVE TAXATION: higher tax rates from lower income levels PROPORTIONAL TAXATION: same tax rate for all income levels MANDATORY SPENDING: spending by federal govt that doesnt need to be approved annually DISCRETIONARY SPENDING: spending by federal govt that needs to be approved annually

AUTOMATIC STABILIZERS: programs that begin to stimulate the economy as soon as they are needed CIVICS & ECONOMICS UNIT #9: FOUNDATIONS OF ECONOMICS (PART II) QUOTE OF THE DAY! People do not like to think. If one thinks, one must reach conclusions. Conclusions are not always pleasant. Hellen Keller 9.7 FISCAL POLICY Fiscal policy is a TOOL that GOVERNMENT uses to CONTROL the ECONOMY RECALL: Monetary policy is a tool that the FEDERAL RESERVE (the FED)

uses to control the ECONOMY that involves decisions about the SUPPLY of MONEY For fiscal policy, the CONGRESS (legislative branch) & the PRESIDENT (executive branch) are primarily responsible for fiscal policy Fiscal policy involves decisions about TAXES & SPENDING The govt uses fiscal policy to MANAGE the PACE of ECONOMIC GROWTH During a RECESSION (or CONTRACTION), the govt can STIMULATE economic GROWTH by (increasing / decreasing) spending & (increasing / decreasing) taxes During times of economic growth (EXPANSIONS), less STIMULUS is needed, so govts may decide to (increase/decrease) spending & 9.7 FISCAL POLICY

Fiscal policy in practice: Some lawmakers OPPOSE increased spending or increased taxes on IDEOLOGICAL grounds, or sets of beliefs held Even if lawmakers agree that stimulus spending or tax cuts are needed, they often argue on HOW and WHERE to target them Sometimes govt actions do not have the DESIRED EFFECT; it may take such a long time for political leaders to AGREE on a PLAN to stimulate the economy, that the ECONOMIC SITUATION might have changed 9.7 FISCAL POLICY Automatic stabilizers: PROGRAMS that begin to STIMULATE the ECONOMY as soon as it is NEEDED Ex.: UNEMPLOYMENT BENEFITS: giving people who lose their jobs often during RECESSION small payments to help them until they can

find a new job or their employer is able to hire them back Ex.: PROGRESSIVE income tax: because income taxes are based on ability to PAY People with more TAXABLE INCOME pay higher tax RATES; people with lower taxable incomes pay lower tax rates When economy is in contraction/recession, many indvs incomes (increase/decrease) which will put them in a (higher / lower) TAX BRACKET The lower tax bill is one way of helping individuals who suffer the most during RECESSIONS by effectively putting EXTRA MONEY in their pockets 9.7 FISCAL POLICY Generally, automatic stabilizers can go into EFFECT more quickly than

DISCRETIONARY FISCAL policies, which governments must CHOOSE to implement BOTH TAX CUTS & SPENDING ON GOVT PROGRAMS PUTS MONEY INTO PEOPLES POCKETS WHICH THEY CAN, IN TURN, USE TO MAKE PURCHASES, THUS STABILIZING CONSUMER DEMAND 9.7 FISCAL POLICY Federal Budget: Prepared ANNUALLY by the PRESIDENT (often details are PROPOSED in the STATE of the UNION address given to CONGRESS) Then APPROVED by CONGRESS Budget year: OCTOBER 1ST to SEPTEMBER 30TH Before money can actually be SPENT by the federal government, CONGRESS must pass an APPROPRIATIONS bill, or law that APPROVES

SPENDING for a particular ACTIVITY Begins in the HOUSE OF REPRESENTATIVES 9.7 FISCAL POLICY Types of spending: MANDATORY spending: spending for federal programs that does not need ANNUAL (yearly) APPROVAL Ex.: SOCIAL SECURITY benefits & INTEREST PAYMENTS on govt debt MUST be PAID every year DISCRETIONARY spending: spending for federal programs that needs ANNUAL APPROVAL Ex.: Money for the COAST GUARD, HIGHWAY CONSTRUCTION, & STIMULUS programs Makes up about ONE-THIRD of all federal government spending

9.7 FISCAL POLICY Types of taxation: PROPORTIONAL taxation: takes a larger percentage from those with higher incomes (based on ABILITY to PAY principle) Ex.: Person who makes $1million & pays 40% rate vs. person who makes $30,000 & pays 10% rate REGRESSION taxation: takes a larger percentage from those with lower incomes (based on BENEFITS RECEIVED principle) Ex.: Person who makes $1million & pays 20% rate vs. person who makes $30,000 & pays 40% rate PROPORTIONAL taxation: takes the SAME percentage from ALL income levels (also known as FLAT tax) Ex.: Person who makes $1million pays 20% rate vs. person who

makes $30,000 pays 20% rate 9.7 FISCAL POLICY Government budget concepts: REVENUES: funds collected by govt through TAXES, FINES, & FEES EXPENDITURES: funds spent by govt on various programs & social services BALANCED BUDGET: when revenues equal expenditures Budget SURPLUS: when revenues are GREATER than expenditures Budget DEFICIT: when expenditures are GREATER than revenues NATIONAL DEBT: the sum of FUNDS the federal govt has BORROWED over the years & has not yet PAID BACK

9.7 FISCAL POLICY Sources of Federal Government Revenue: INCOME tax: taxes on individual & corporate earnings (largest source) PROGRESSIVE tax that is GRADUATED, or divided, into BRACKETS Higher income levels pay a higher RATES for each INCOME LEVEL (the highest level being taxed at the MARGINAL RATE) Income taxes for corporations are based on their PROFITS PAYROLL tax: taxes deducted from a workers paycheck that fund SOCIAL SECURITY (RETIREMENT benefits) & MEDICARE (HEALTH INSURANCE for seniors) (second-largest source of revenue) 9.7 FISCAL POLICY EXCISE tax: tax on specific goods Also known as the SIN tax because it is often placed on items for

which excessive consumption is discouraged Ex.: Tobacco, alcohol, gasoline ESTATE tax: tax on WEALTH passed on to HEIRS after a person dies GIFTS tax: taxes on gifts FEES: such as those charged to visitors at NATIONAL PARKS FINES: paid by offenders of the law or for late payment of taxes 9.7 FISCAL POLICY State governments: Sources of revenues: INTERGOVERNMENTAL revenue: money paid from federal govt to state govt SALES tax: taxes paid by retail stores to state govt (passed on to CUSTOMERS)

INCOME tax: taxes on individual & corporate earnings EXCISE tax: taxes on items such as gasoline, alcohol, & tobacco FEES & FINES Major Expenditures: Education, intergovernmental expenditures to local govts 9.7 FISCAL POLICY Local governments: Sources of revenues: INTERGOVERNMENTAL revenue: money paid from state govts to local govts PROPERTY taxes: paid on land, houses, cars, etc. SALES tax: taxes paid by retail stores to state govt (passed on to CUSTOMERS)

FEES & FINES Major Expenditures: Education, utilities Unit #9 Study Guide (1) (a) decrease; (b) increase; (c) increase; (d) increase (2) (a) opponent; (b) supporter; (c) opponent; (d) supporter (3) (a) complementary; (b) substitute; (c) substitute; (d) complementary Unit #9 Study Guide #4: MONETARTY POLICY

Interest Rates Money Supply Increase discount rate at which banks borrow Decrease discount rate at which banks borrow Increases OR Decreases Increases OR Decreases

Increases OR Decreases Increases OR Decreases Intended Effect on Economic Growth Slow Down OR Stimulate Slow Down OR Stimulate Increase reserve requirement

banks must keep with Fed Increases OR Decreases Increases OR Decreases Slow Down OR Stimulate Decrease reserve requirement banks must keep with Fed

Increases OR Decreases Increases OR Decreases Slow Down OR Stimulate Fed buys bonds from investors Increases OR Decreases

Increases OR Decreases Slow Down OR Stimulate Fed sells bonds to investors Increases OR Decreases Increases OR Decreases

Slow Down OR Stimulate Unit #9 Study Guide (5) Fiscal or Monetary Policy (a)Fiscal (b)Monetary (c) Fiscal (d)Monetary (6) Fiscal policy (a) progressive taxation (b) regressive taxation (c) proportional taxation

(d) estate tax (e) income tax (f) excise tax (g) Discretionary (h) Mandatory (i) Intergovernmental revenue (j) Expenditures (k) Revenues (l) Budget deficit (m) Budget surplus (n) Balanced budget (o) Stimulus Unit #9 Study Guide

(7) Trade (10) Economic indicators & the business cycle (a)Positive / Favorable (trade surplus) (b)Negative / Unfavorable (trade deficit) (a) Gross domestic product (c) Tariffs (b) Unemployment (d)Quotas (c) Recession (d) Peak (e)Protectionism (f) Free trade (e) Trough

(8) Make price of domestic goods (11) Fiscal or Monetary Policy (f) Low; increase competitive with foreign imports, so that consumers buy more domestic goods. (g)High; decrease (9) Increase; shortage (h)Above; surpluses (i) Below; shortages (j) Surplus (k)Shortage Unit #9 Study Guide (12) All things equal, producers are

willing to supply greater quantities of a good at higher prices. (13) All things equal, consumers will demand greater quantities of a good at lower prices. (14) Shifting the demand curve (a)Increase; right (b)Decrease; left (c) Decrease; left (d)Increase; right (e)Increase; right (15) Shifting the supply curve (a)decrease; left

(b)increase; right (c) decrease; right (16) Q(s), Q(d), E(p) (d)Quantity demanded [Q(d)] (e)Quantity supplied [Q(s)] (f) Equilibrium price (17) Surplus (18) Shortage (19) price; demand; downward (20) profit; supply; upward (21) Elastic (22) Inelastic (23) Inelastic (24) Elastic

Unit #9 Study Guide (25) Draw a graph and label: (8.5) S = Supply curve D = Demand curve E = Equilibrium Price + = Region where surpluses occur = Region where shortages occur LABEL YOUR AXES!!! Unit #8 Study Guide (26) Shifting the supply & demand curves simultaneously: Supply Demand

Equilibrium Price INCREASE INCREASE INCREASE / DECREASE / INDETERMINABLE INCREASE DECREASE INCREASE / DECREASE / INDETERMINABLE DECREASE INCREASE INCREASE / DECREASE / INDETERMINABLE DECREASE DECREASE INCREASE / DECREASE / INDETERMINABLE

(27) (a) increase; (b) decrease; (c) decrease (28) (a) increase; (b) increase; (c) indeterminable (29) (a) increase; (b) decrease; (c) indeterminable (30) (a) decrease; (b) increase; (c) increase

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    Department of Health (2008) Valuing people now: from progress to transformation. London:DoH Hodapp, R. M. and R. C. Urbano (2007) Adult siblings of individuals with Down syndrome versus with autism: findings from a large-scale US survey. Journal of Intellectual Disability...
  • Europe Influences the World - Mrs. Rubin&#x27;s 6th Grade Social ...

    Europe Influences the World - Mrs. Rubin's 6th Grade Social ...

    According to legend, beyond this point in an area known as the "Green Sea of Darkness," the sun was so close to the Earth that a person's skin would burn black, the sea boiled, ships caught on fire, and monsters...
  • &#x27;Why reinvent the wheel, when there&#x27;s great stuff out there?&#x27;

    'Why reinvent the wheel, when there's great stuff out there?'

    It would also help to have everything in one place - email, GSS, WebLearn, OUCS registration things, even viewing your battels. There could be the Weblearn (or whatever) homepage with at least links to the the other sites at the...
  • P1.1 Climate Model Diagnoses from a Weather Modelers

    P1.1 Climate Model Diagnoses from a Weather Modelers

    The most prominent weather event in the tropical Pacific is the trains of easterly waves which have been extensively studied since the 1970s (Reed and Recker, 1971, etc) Even in the early work of Riehl (1945), these easterly waves have...
  • American Nuclear Society Accelerator Applications Division Presentation to

    American Nuclear Society Accelerator Applications Division Presentation to

    * Mission Officers Chair Philip L. Cole Vice Chair James F. Stubbins Secretary Charles T. Kelsey Treasurer Erich A. Schneider (Succession plan from Treasurer to Chair) Ex Officio Hans D. Gougar Bradley J. Micklich (Past Chair) * AAD Executive Committee...
  • Dual System Encryption: Concept, History and Recent works

    Dual System Encryption: Concept, History and Recent works

    Assume there exists an adversary who distinguishes two games. We can break mathematical hard problem using the adversary. Show that distinguishing two games equals to mathematical hard problem. + The simulator can distinguish the kth key by generating valid semi-functional...