ECONOMICS / UNIT III - · PDF fileECONOMICS / UNIT III “The business of America is business” –Calvin Coolidge Table of Contents LESSON 1:

ECONOMICS/UNITIII“ThebusinessofAmericaisbusiness”–CalvinCoolidge

TableofContents

LESSON1:TheBasicEconomicProblem:TheMismatchofUnlimitedWantsandNeedsandLimitedEconomicResources;anIntroductiontoSustainability

HANDOUTIII.1.A,“Illustration”

HANDOUTIII.1.B,“Scarcity”

HANDOUTIII.1.C,“TheImportanceofSustainability”

LESSON2:DifferentEconomicSystems

HANDOUTIII.2.A,“TheShipwreck”

HANDOUTIII.2.B,“EconomicSystems”

HANDOUTIII.2.C,“MixedEconomy”

LESSON3:TheFactorsofEconomicProduction

HANDOUTIII.3.A,“Chart”

HANDOUTIII.3.B,“GroupWork”

HANDOUTIII.3.C,“Application”

HANDOUTIII.3.D,“SustainabilityandtheFactorsofProduction”

LESSON4:PrinciplesoftheU.S.EconomicSystem

HANDOUTIII.4.A,“Drawing”

HANDOUTIII.4.B,“Principles”

HANDOUTIII.4.C,“BuildingBlocks”

HANDOUTIII.4.D,“Critics”

LESSON5:SupplyandDemand

HANDOUTIII.5.A,“Q&A”

HANDOUTIII.5.B,“Definitions”

HANDOUTIII.5.C,“LawofDemand”

HANDOUTIII.5.D,“LawofSupply”

HANDOUTIII.5.E,“ElasticityofDemandandSupply”

(continued)

ECONOMICS“ThebusinessofAmericaisbusiness”–CalvinCoolidge

TableofContents:pageii

LESSON6:MarketStructureandPrices

HANDOUTIII.6.A,“Competition”

HANDOUTIII.6.B,“DifferentMarketStructures”

HANDOUTIII.6.C,“Advantages&DisadvantagesofMonopolies”

HANDOUTIII.6.D,“Advantages&DisadvantagesofMonopolisticCompetition”

HANDOUTIII.6.E,“Advantages&DisadvantagesofOligopolies”

LESSON7:TheCircularFlowofEconomicActivities

HANDOUTIII.7.A,“Diagram”

HANDOUTIII.7.B,“GovernmentandthePublic”

HANDOUTIII.7.C,“FlowofEconomicActivity”

HANDOUTIII.7.D,“TheHouseholds”

HANDOUTIII.7.E,“Businesses”

HANDOUTIII.7.F,“Government”

LESSON8:MeasuringEconomicActivity

HANDOUTIII.8.A,“Doctor”

HANDOUTIII.8.B,“Beginner’sGuidetoEconomicIndicators”

HANDOUTIII.8.C,“ImportantIndicators”

HANDOUTIII.8.D,“Application”

HANDOUTIII.8.E,“Flaws”

LESSON9:BusinessCycle

HANDOUTIII.9.A,“Chart”

HANDOUTIII.9.B,“Interview”

HANDOUTIII.9.C,“Phases”

HANDOUTIII.9.D,“Causes”

LESSON10:TheEconomicRoleofGovernment

HANDOUTIII.10.A,“StudentPoll”

HANDOUTIII.10.B,“GovernmentPrograms”

HANDOUTIII.10.C,“Laissezfairevs.Progressivism”

HANDOUTIII.10.D,“Debate”

(continued)


TableofContents:pageiii

LESSON11:Taxation

HANDOUTIII.11.A,“Cartoon”

HANDOUTIII.11.B,“ReasonsforTaxes”

HANDOUTIII.11.C,“TooMuchinTaxes?”

HANDOUTIII.11.D,“Chart”

HANDOUTIII.11.E,“Q&A”

LESSON12:TheFederalReserveandtheBankingSystem

HANDOUTIII.12.A,“BookCover”

HANDOUTIII.12.B,“CentralBanks”

HANDOUTIII.12.C,“MajorRoles”

HANDOUTIII.12.D,“HowtheFedIsOrganized”

LESSON13:FiscalPolicy

HANDOUTIII.13.A,“Poll”

HANDOUTIII.13.B,“SlidePresentation”

HANDOUTIII.13.C,“AutomaticFiscalPolicies”

HANDOUTIII.13.D,“SupplySideEconomics”

HANDOUTIII.13.E,“Editorial”

LESSON14:BusinessintheGlobalEconomy

CULMINATINGACTIVITY:“EconomicsJeopardy”

HANDOUTIII.14.A,“Blog”

HANDOUTIII.14.B,“Chart”

HANDOUTIII.14.C,“SmallBusinesses”

HANDOUTIII.14.D,“Reading”

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UNITIII/LESSON1

TheBasicEconomicProblem:TheMismatchofUnlimitedWantsandNeedsandLimitedEconomicResources;anIntroductiontoSustainability

TimeFrame1day

StandardsNES:Economics–Describethenatureofeconomicsandeconomicactivity

ExplainhowsocietyusesscarceresourcestoproduceanddistributegoodsandservicesNES:Skills–FollowdirectionsApplyeffectivelisteningskills

MakeoralpresentationsPreparewrittenreports

GuidingQuestionHowiseconomicsrelatedtotheproblemofscarcity?

MaterialsHandoutsIII.1.A‐C

ObjectivesStudentswillbeableto:

Defineeconomicsandexplainhowitrelatestoneeds,wants,andscarcity.

Explainandgiveexamplestoprovewhyeveryone’swantsandneedscannotbesatisfied.

Discusstheimportanceofsustainabilityandhowitrelatestomeetingpeople’sneedsandwants.

TeacherBackgroundEconomicshasbeendefinedashowpeopleandsocietiesuselimitedresources(bothnaturalandhuman)tomeettheirunlimitedwantsandneeds.Theproblemofmeetingthesewantsandneedsisonewhichallpeopleface,nomatterhowwealthyorpoortheyare.Itisaproblemthatrequiresustomake

choicesastohowwewillusethefactorsofproduction(i.e.,land,labor,andmanagement).Toensurethatwewillalwaysbeabletomeetourmostvitalneedsandwants,humankindisstudyingsustainability,theefforttopreserveandrationnaturalandhumanresources.

Thelessonbeginswithadiscussionofhowhumankind’sneedsandwantsaresurpassingourlimitedresources.ThisconceptisaddressedinHandoutIII.1.A,inwhichstudentsareaskedtoexplaintheillustrationfocusingontheconceptofscarcity,thebasisforthestudyofeconomics.InHandoutIII.1.B,

studentswillreadanexplanationofscarcity,afterwhichtheywillbeaskedtoanswerquestionsabouthowscarcityhasaffectedtheirlives.Finally,HandoutIII.1.Cpresentsaneditorialaboutsustainability,whichtheclasswillbeaskedtoanalyze.


UNITIII/LESSON1:page2 TeachingStrategies/SupportingActivities Writethefollowingontheboard:

“NeedsandWants.”Askstudentstoexplaintheiranswerstothefollowingquestions:

– Whatdothesetermsmeantoyou?

– Howwouldyouidentifyyourmostimportantneedsandwants?

– Whydosomesaythatpeople’sneedsandwantsareunlimited?

– Explainsomeoftheproblemsthatarisewhenpeopletrytomeettheirunlimitedneedsandwants.

DistributeHandoutIII.1.A,“Illustration.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Whatdowelearnfromthishandout?

– Whydoes“A”outweigh“B”?

– Whydon’tthescalesbalance?

– Basedonthiscartoon,howwouldyoudescribetheproblemofscarcity?Canyougiveareal‐lifeexampletoshowthatwehaveonlylimitedresourcestomeetourunlimitedneedsandwants?

– Whyisthiscentralproblemsosignificant?

– Howdoesthefactthatallyourneedsandwantscannotbemetaffectyourlife?

DistributeHandoutIII.1.B,“Scarcity.”Havestudentscompletetheexerciseonthehandout,then

havethemexplaintheiranswerstothefollowingquestions:

– Whatdidyoulearnaboutscarcityfromthisreading?

– Whatdoesthereadingmeanwhenitsaysthatresourceslikeland,labor,andcapitalarescarce?

– Whichofthefollowingsuggestionsservesasthebestwayfordealingwiththeproblemofscarcity?

1)Thegovernmentshoulddeterminewhogetsthescareresources.

2)Scarceresourcesshouldbegiventothosepeoplewiththegreatestneeds.

3)Scarceresourcesshouldbegiventopeoplewhohavethemoneytopayforthem.

– Inoureconomy,peoplewhohavethemoneygetthescarceresources;isthisthebestwayto

dealwiththeproblemofscarcity?


UNITIII/LESSON1:page3 DistributeHandoutIII.1.C,“TheImportanceofSustainability.”Havestudentscompletetheexercise

onthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Whatdidyouidentifyasthemajoropinionstatedinthiseditorial?

– Whatargumentsdidyoufindtosupporttheopinionstatedinthiseditorial?

– Towhatextentdoyouagreewiththeeditorialwriterabouttheimportanceofsustainability?

– Hownecessarydoyouthinkitisthatwepreserveresourcestodayforfuturegenerations?

– Whataresomeoftheproblemswefaceintryingtosupporttheconceptofsustainabilityintoday’sresource‐thirstyworld?

Summary/AssessmentAskstudentstoexplaintheiranswerstothefollowingquestion:

Howshouldwedealwiththefactthatwecannothaveallthethingsweneedandwant?

FollowUpAskstudentstoresearchthetopicofsustainability.Havestudentsbringtoclassaneffectiveideabasedonthatresearchrelatedtosustainingourpreciousnaturalandhumanresources.Aspartoftheclass

discussion,askstudentstoexplaintheiranswerstothefollowingquestions:

Whatisoneeffectiveidearelatedtosustainability?

Whydoyouthinkthisideaissoeffective?

Arewedoingenoughtodaytopromotesustainability?

Whatadditionalthingscanwedotopromotesustainability?


UNITIII/LESSON1:page4

HandoutIII.1.A,“Illustration”Directions:Studytheillustrationbelow,includingthetitleandcaption,andanswerthequestionsintheexercise.

Scarcity: The Central Problem of Economics

“The scales do not balance.”

Exercise:

1. Whatisthetitleofthisillustration? ____________________________________________________

2. Whatdoesthecaptionundertheillustrationsay? ________________________________________

3. Whydoes“A”outweigh“B?” _________________________________________________________

4. Whydon’tthescalesbalance? ________________________________________________________

_________________________________________________________________________________

5. Basedontheillustration,explain“scarcity.”______________________________________________

_________________________________________________________________________________

_________________________________________________________________________________

_________________________________________________________________________________

_________________________________________________________________________________

A All the needs and wants of people around the world

B The resources available to meet

people’s needs and wants



HandoutIII.1.B,“Scarcity”

Directions:ReadtheQ&Abelowandcompletetheexerciseatthebottomofthepage.

Q. Whatdoeseconomicshavetodowithscarcity?

A. Economicsisallaboutscarcity,aproblemthathasexistedeversincethebeginningofhumankind,aproblemfacedbyrichandpoor,andaproblemconfrontingbothindividualsandsocieties.

Q. Whatisscarcity?

A. Scarcity,ingeneralterms,isbasicallyalackofsupplyorashortage.Accordingtoeconomics,scarcityreferstotheshortageofresourcesavailabletomeettheunlimitedneedsandwantsoftheentirepopulation.Inotherwords,scarcitycanbedefinedastheexcessofhumanwantsoverwhatcan

actuallybeproduced.

Q. Areallresourcesscarce?

A. Thescarceresourceswearetalkingaboutarethefactorsofproduction.Amongthemostimportantare:

Labor–theworkersavailabletoproducegoodsandservices.Land&RawMaterials–therawmaterials,etc.,usedtoproducegoodsandservices.Capital–theamountofmoneyavailableforinvesting.

Inspiteofalltheabove‐mentionedresources,therearesomeresourcesthatareconsideredtobeunlimitedandtheyareknownas“freegoods.”Airandwaterareconsideredtobe“freegoods.”Thisisbecausetheyarefreelyavailabletothepopulation.However,itshouldbesaidthateventhough

airandwaterareconsideredtobefreegoods,forsomenationsairandwaterareconsideredtobescarce.Thisisbecausetheairandwateraroundthemarepolluted,andinordertoproducepurifiedairandwatertheybasicallyhavetouseresources.Forthosecountries,airandwaterarenolonger

freegoodsbutinsteadconsideredtobeeconomicgoodsbecausetheyarescarce.

Q. Whyisscarcitycalledthecentralproblemofeconomics?

A. Ifalltheresourceswereunlimitedor,inotherwords,ifthereweresufficientamountofresourcesto

fulfillalloftheever‐changingdemandsofthepeople,thenofcoursethepeoplewouldhavefulfilledtheirneedsandwantswithoutanyproblem.Butinrealitythisisnotthecase.That'swhyscarcityhasbecomeaproblem,thuspavingwayforalloftheeconomicissuesfacedbytheworldtoday.

Adaptedfrom:http://www.articlesbase.com/management‐articles/economics‐understanding‐the‐problem‐of‐scarcity‐2181754.html

Exercise:Inthespacebelow,suggestaquestionaboutscarcitythatyouwouldliketoask.

Q: __________________________________________________________________________________



HandoutIII.1.C,“TheImportanceofSustainability”

Directions:Aneditorialisanessayexpressinganopinion.Readtheeditorialbelowandcompletetheexercisethatfollows.

In the past, the entire human population was small and civilizations had very few

needs. At that time, natural resources seemed limitless because the capacity of nature to regenerate was much higher than the rate at which human beings used up resources. Today, our needs are much greater—some would say our needs are unlimited—and we are painfully beginning to learn that environmental resources to meet those needs are limited and are quite sensitive to everything that we do. We are starting to experience the effects of the actions of generations that came before us.

To make sure that future generations will not experience a situation worse than ours, we need to be aware of the ideals and requirements of sustainability. Sustainability is the ability to maintain a certain status or process in existing systems. Sustainability is important because all the choices we pursue and all the actions that we make today will affect everything in the future.

For example, if we continue wasting water and polluting the dwindling supply of fresh water that we have today, we leave future generations with no other choice than to desalinate saltwater or treat contaminated water for their consumption and daily use. We can also be assured that, if that happens, all life that depends on clean fresh water will become extinct.

The same goes with the supply of soil that we currently have. Without proper care, our soils can easily lose quality enough that they will no longer be able to encourage growth and sustain life. If that happens, future civilizations will be void of crop and other natural sources of food. They will then have no other choice but to create man-made sources for nourishment and sustenance.

The two examples described above may seem frightening but, in fact, those are not the worst circumstances we can leave the future of mankind. If clean water and good soil become scarce enough, all life on Earth can become extinct. Keep in mind that this does not just apply to soil and water. The fact is that all resources, including human resources, are becoming scarce and being outweighed by our unlimited needs and wants.

As we become aware, we need to put what we learn into action, as that is the only way we can allow nature to catch up with the rate at which our requirements grow. This does not mean having to stifle human development. On the contrary, it means sustaining the supply of resources so that we can, in turn, sustain human development.

We need to make sound decisions at present in order to avoid limiting the choices of generations to come. Understanding and valuing sustainability will help us make those sound decisions.

Adaptedfrom:http://www.benefits‐of‐recycling.com/whyissustainabilityimportant.html



HandoutIII.1.C,“TheImportanceofSustainability”(continued)

Exercise:Inthespacebelow,identifyone,majoropinionstatedinthiseditorial.Then,listtwo

argumentsofferedintheeditorialtosupporttheopinionyouidentified.

Opinion stated in the editorial:

Argument #1 supporting the opinion stated in the editorial:

Argument #2 supporting the opinion stated in the editorial:

UNITIII/LESSON2

DifferentEconomicSystems

TimeFrame2days

StandardsNES:Economics–Explainthetypesofeconomicsystems(market,traditional,command,andmixedeconomies)

Describehowsocietyusesscarceresourcestoproduceanddistributegoodsandservices

NES:Skills–FollowdirectionsApplyeffectivelisteningskills

Makeoralpresentations

GuidingQuestionHowdothedifferenteconomicsystemsanswerthefundamentaleconomicquestions?

MaterialsHandoutsIII.2.A‐C


Defineandgiveexamplesofthedifferenteconomicsystems.

Identifythefundamentalquestionsconfrontingalleconomies.

DrawconclusionsastowhytheUnitedStatesisidentifiedashavinga“mixed”economy.

Drawconclusionsandgiveexamplestoprovewhydifferenteconomicsystemsanswerthefundamentaleconomicquestionsdifferently.

TeacherBackgroundEveryeconomicsystemdealswiththreefundamentalquestions:Whatshouldbeproduced,howshould

itbeproduced,andwhoshouldgetwhatisproduced?Thesequestionsareanswereddifferentlybythethreepredominanttypesofeconomicsystems:thetraditionaleconomy(inwhichdecisionsaremadebasedontradition),themarketeconomy(inwhichdecisionsaremadebybusinessesandconsumers

actingaccordingtoindividualneedsandwants),andthecommandeconomy(inwhichdecisionsarebasedupongovernmentdictates).

InHandoutIII.2.A,theclasswilllearnaboutthethreefundamentaldecisionsfacingsocieties.Handout

III.2.Bpresentsthethreedifferenteconomicsystemsandasksstudentstoexplainhoweachsystemanswersthethreefundamentalquestions.Finally,theclasswillexaminethecharacteristicsofamixedeconomysuchastheonethatexistsintheU.S.today.



TeachingStrategies/SupportingActivities DistributeHandoutIII.2.A,“TheShipwreck.”Havestudentscompletetheexerciseonthehandout,

thenhavethemexplaintheiranswerstothefollowingquestions:

– Howwouldyouhaveansweredthethreequestionsposedintheexerciseonthehandout?

– Whyarethreequestionsmentionedinthehandoutconsideredthefundamentaleconomic

questionsthatallsocietiesmustanswer?

– Whichofthesethreequestionsisthemostimportantforasocietytoanswer?Whichquestionwouldcausethegreatestdispute?

DistributeHandoutIII.2.B,“EconomicSystems.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Inyourownwords,howwouldyoudescribehowthefollowingeconomicsystemsdiffer:traditional,market,andcommandeconomies?

– Whatdoyouseeasthegreateststrengthofeachoftheeconomicsystems?

– Whatdoyouseeasthegreatestweaknessofeachoftheeconomicsystems?

– Whichoneofthethreeeconomicsystemshasmoreadvantagesthantheothertwo?

DistributeHandoutIII.2.C,“MixedEconomy.”Havestudentscompletetheexerciseonthehandout;


– Whataresomeofthecharacteristicsofamixedeconomythataredescribedonthishandout?

– WhichfeatureofamixedeconomylistedinthisreadingcanbefoundintheU.S.today?

– Whatdidyouidentifyasthegreateststrengthofthemixedeconomy?

– Whatdidyouidentifyasthegreatestweaknessofthemixedeconomy?

– WouldtheU.S.bebetteroffasamixedorpurelycapitalisteconomy?


Ifyouwerethepresidentofanewlyindependentnation,whatisoneelementoftraditionaleconomies,oneelementofcapitalisticeconomies,andoneelementofcommandeconomiesthatyouwouldliketobringtoyournation?



FollowUpOrganizeadebateamongadvocatesoftraditional,capitalist,andcommandeconomies,focusingonthefollowingresolution:“Resolved:Thetraditional/capitalist/commandeconomybestmeetstheneedsand

wantsofpeoplewholiveunderit.”Eachgroupofadvocateswillhavethreeteammembers.Thedebatewouldproceedaccordingtothefollowingagenda:

1. Openingstatements–2minutesforeachteam

2. Mainarguments:Traditionaleconomy–3minutes

3. Rebuttal:Commandeconomy–1minute

4. Rebuttal:Capitalisteconomy–1minute

5. Mainarguments:Commandeconomy–3minutes

6. Rebuttal:Capitalisteconomy–1minute

7. Rebuttal:Traditionaleconomy–1minute

8. Mainarguments:Capitalisteconomy–3minutes

9. Rebuttal:Traditionaleconomy–1minute

10. Rebuttal:Commandeconomy–1minute

11. Closingstatements–2minutesforeachteam



HandoutIII.2.A,“TheShipwreck”

Directions:Readthestorybelowandcompletetheexercisethatfollows.

Oneday20people,includingthepayingcustomersandcrew,setsailonafishingexpedition.Afterafewhoursofpeacefulsailing,theshipencounteredaterriblestorm.Asaresultofthestorm,thefishingboat

sank.Luckily,all20peoplesurvived,makingtheirwaytoasmalldesertedisland.Unfortunately,allthecommunicationequipmentwentdownwiththeshipsotherewasnowaytosignalforhelp.

Oncesettledontheisland,thecaptainofthefishingboatcalledthesurvivorstogetherandsaidthe

following.

HerearethefactsaboutoursituationasIseethem:

Forbetterorworse,the20ofuswillbespendingdays,weeks,ormaybeyears

together.

Weallhavedifferentneedsandwants.

Inordertosurvive,wehavetodependoneachother,eventhoughsomeofusare

smarter,somehavemoremoney,andsomearemoreskilledthantheothersinthegroup.

Finally,andmostimportant,therearethreefundamentalquestionswehaveto

answertodeterminehowwewillmeetthevariousneedsandwantseachofushas.Thethreequestionsare:

1. Whatgoodsandservicesshouldweproduce?

2. Howshouldtheybeproduced?

3. Whoshouldreceivethegoodsandservicesproduced?



HandoutIII.2.A,“TheShipwreck”(continued)

Exercise:Assumeyouareoneofthe20peopleonthisisland.Writehowyouwouldanswereachof

thesequestionsinthespaceprovidedonthechartbelow.Ifyoucannotansweranyofthequestions,indicatewhatadditionalinformationyouwouldneedtoanswerthatquestion.

Questions Answers Additional Information Needed

1. What goods and services should we produce and how will we decide what goods/services to make: by vote, by who has the most money, or by who is the strongest?

2. How should these goods and services be produced and who should make these goods, who will gather the resources to make them, and who will be the manager?

3. Who will receive the goods/services produced: the person who needs it most, the wealthiest person, the strongest person, or whoever gets a majority vote?



HandoutIII.2.B,“EconomicSystems”Directions:Economicsystemsaredividedupintothreebasictypes:Traditional,Market,andCommand.Thesedifferenteconomicsystemsaredescribedbelowbypeoplewholiveunderthosesystems.After

readingthedescriptions,completetheexercisethatfollows.

TraditionalEconomicSystem“Iliveincountrywhichhasatraditionaleconomy,inwhichpeople'seconomicrolesare

thesameasthoseoftheirparentsandgrandparents.Societiesthatproducegoodsandservices intraditionalwaysarefoundtoday insomepartsofSouthAmerica,Asia,andAfrica.Peoplelivinginanagriculturalvillage,suchasmine,stillplantandharvesttheir

ownfoodontheirownland.Andthewaysweproduceclothingandshelterarealmostexactlythesameasthoseusedinthepast.Traditiondecideswhatourpeopledoforalivingandhowourworkisperformed.”

MarketEconomicSystem“I live inacountrywhichhasamarketeconomy, inwhicheconomicdecisionsare theresultofindividualdecisionsbybuyersandsellersinthemarketplace.CountriesliketheU.Sandotherdevelopednationshavemanyelementsofamarketeconomicsystem.In

mycountry,when Igraduate fromschool, I cango toworkwhere I choose, ifa job isopen.IamalsofreetogointobusinessifIwantandhavethemoneytodoso.IfIdecide

to open a business, I must take a risk with the money that I invest in the business,recognizingIcouldloseitall.Thepricesthatbusinesseschargeforgoodsorservicesinamarket system will be influenced by the prices charged by competitors (other

businessessellingthesameitems).Thesuccessthatbusinesseshavewilldependonthedemandbyconsumersfortheirgoodsorservices. Insuchabusinessyoumaydowell.Butifpeopledonotwantwhatyouareselling,youwillgooutofbusiness.”

CommandEconomicSystem“Iliveinacommandeconomy,similartotheonethatexistedinRussiabeforethefallofcommunism. In a command economic system, the main decision maker is thegovernment. No person may independently decide to open and run any kind of

business.Thegovernmentdecideswhatgoodsandservicesaretobeproduced.Andthegovernment sells these goods and services. The government also decides how thetalentsandskillsofitsworkersaretobeused.”



HandoutIII.2.B,“EconomicSystems”(continued)

Exercise:Basedonthedescriptionsyouread,writeanexplanationofhowthethreefundamentaleconomic

questionsappearingonHandoutIII.2.A,areansweredintraditional,market,andcommandeconomies.

Questions Traditional Economy Market Economy Command Economy

1. What goods/ services should be produced?

2. How should goods/services be produced?

3. Who will receive the goods/services produced?



HandoutIII.2.C,“MixedEconomy”

Directions:Feweconomiesarepurelytraditional,command,ormarketsystems.Rathertheycouldbemostaccuratelydescribedasmixed,havingelementsofcapitalism,socialism,commandeconomies,etc.

Readaboutthefeaturesofamixedeconomybelowandcompletetheexercisethatfollows.

Amixedeconomyisaneconomicsysteminwhichboththestateandprivatesectordirecttheeconomy,

reflectingcharacteristicsofbothmarketeconomiesandsocialisteconomies.Mostmixedeconomiescanbedescribedasmarketeconomieswithstrongregulatoryoversight,inadditiontohavingavarietyofgovernment‐sponsoredaspects.

Thebasicplanofthemixedeconomyisthatthemeansofproductionaremainlyunderprivateownership,thatmarketsremainthedominantformofeconomiccoordination,andthatprofit‐seekingenterprisesandtheaccumulationofcapitalwouldremainthefundamentaldrivingforcebehind

economicactivity.However,thegovernmentwouldwieldconsiderableindirectinfluenceovertheeconomythroughfiscalandmonetarypoliciesdesignedtocounteracteconomicdownturnsandcapitalism'stendencytowardfinancialcrisesandunemployment,alongwithplayingarolein

interventionsthatpromotesocialwelfare.Subsequently,somemixedeconomieshaveexpandedinscopetoincludearoleforindicativeeconomicplanningand/orlargepublicenterprisesectors.

Thereisnotonesingledefinitionforamixedeconomy,butthedefinitionsalwaysinvolveadegreeof

privateeconomicfreedommixedwithadegreeofgovernmentregulationofmarkets.Therelativestrengthorweaknessofeachcomponentinthenationaleconomycanvarygreatlybetweencountries.EconomiesrangingfromtheUnitedStatestoCubahavebeentermedmixedeconomies.Thetermisalso

usedtodescribetheeconomiesofcountriesthatarereferredtoaswelfarestates,suchasNorwayandSweden.Governmentsinmixedeconomiesoftenprovideenvironmentalprotection,maintenanceofemploymentstandards,astandardizedwelfaresystem,andmaintenanceofcompetition.

Supportersviewmixedeconomiesasacompromisebetweenstatesocialismandlaissez‐fairecapitalism,superiorinneteffecttoapureversioneitherofthosetwo.

Exercise:Basedonthereadingabove,indicatethegreateststrengthandgreatestweaknessofamixed

economy.

http://www.answers.com/topic/mixed‐economy#ixzz1njlNz0pv

Greatest Strength of a Mixed Economy Greatest Weakness of a Mixed Economy

UNITIII/LESSON3

TheFactorsofEconomicProduction

TimeFrame2days

StandardsNES:Economics–Describehowsocietyusesscarceresources

toproduceanddistributegoodsandservicesNES:Skills–FollowdirectionsApplyeffectivelisteningskills


GuidingQuestionHowarethefactorsofeconomicproductionbroughttogethertoproducegoodsandservices?

MaterialsHandoutsIII.3.A‐D


Defineandgiveexamplesofthedifferentfactorsofproduction.

Drawconclusionsastohowtheproductionofgoodsandservicesdependsonbringingtogetherthevariousfactorsofproduction.

Determinetheroleofmanagementinbringingtogetherthefactorsofproduction.

Explainhowtheissueofsustainabilityimpactstheuseofthefactorsofproduction.

TeacherBackgroundAccordingtosomeeconomiststherearethreefactorsofproduction:labor(humanresources),land(bothnaturalandcultivated),andcapital(themeansofproduction).Somepeoplebelievethereisa

fourthfactorofproduction,entrepreneurship,ormanagement,thefactorthatbringstogetherthethreeotherfactorsofproduction.

HandoutIII.3.Aasksstudentstoselectaproductorserviceandidentifythefactorsofproductionthatgo

intocreatingit.HandoutIII.3.Bisacooperativelearningactivityinwhicheachgroupexplainsadifferentoneofthefourfactorsofproduction.InHandoutIII.3.C,theclassapplieswhattheylearnedaboutthe

factorsofproductioninanexerciseaskingthemtodecidehowtoallocatethefactorsofproductioninahotdogbusiness.HandoutIII.3.Dpresentsareadingdealingwiththerelationshipbetweensustainabilityandthefactorsofproduction,includinganexerciseinwhichstudentssuggestatitleforthereading.



TeachingStrategies/SupportingActivities

DistributeHandoutIII.3.A,“Chart.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Discusstheproduct/serviceyoulistedonyourchartandexplaintherolethatland,labor,andcapitalplayedinbringingtheproduct/serviceyoulistedtocustomers.

– Whydoyouthinkthatland,labor,andcapitalarecalledthefactorsofproduction?

– Somepeoplesayentrepreneurshipshouldbeconsideredthefourthfactorofproduction.Doyouagree?

Dividetheclassintoeightgroups,withapproximatelyfourstudentsineachgroup.Distribute

HandoutIII.3.B,“GroupWork.”Assigntwogroupseachtostudyadifferentoneofthefourfactorsofproductionappearingonthehandout.Explaintotheclassthedirectionsfortheexerciseasstated

onthehandout.Afterthegroupshavecompletedtheexercise,callonfourgroupseachtomakeapresentationaboutadifferentoneofthefourfactorsofproduction.Afterthelastgrouphascompleteditspresentation,aspartoftheclassdiscussion,havestudentsexplaintheiranswersto

thefollowingquestions:

– Whatdidyoulearnfromthepresentationaboutlandasafactorofproduction?

– Whatdidyoulearnfromthepresentationaboutlaborasafactorofproduction?

– Whatdidyoulearnfromthepresentationaboutcapitalasafactorofproduction?

– Whatdidyoulearnfromthepresentationaboutentrepreneurshipasafactorofproduction?

– Whichoftheseshouldbeconsideredthemostessentialfactorofproduction?

DistributeHandoutIII.3.C,“Application.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Howwouldyoudescribeinyourownwordsthebusinesssituationpresentedin“AnotherDayintheHotDogBusiness”?

– Basedonthesituationpresentedin“AnotherDayintheHotDogBusiness,”whatwerethemost

importantdecisionsyouhadtomaketoincreaseprofits?

– Inwhichfactor(s)ofproductiondidyoudecidetoinvestadditionalmoney?

– Inwhichfactor(s)ofproductiondidyoudecidenottoincreaseortocutinvestments?


Howdothefourfactorsofproductionworktogetherinthecreationofgoodsandservices?



FollowUpDistributeHandoutIII.3.D,“SustainabilityandtheFactorsofProduction.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

Whatisthisreadingabout?

Whatdowelearnaboutsustainabilityandthefactorsofproductionfromthisreading?

Ifyouwereinbusiness,howmuchimportancewouldyouplaceonsustainabilityinmakingyourproductordeliveringyourservice?



HandoutIII.3.A,“Chart”Directions:Usingthechartintheexercisesectionbelow,writethenameofaproductorserviceyouuseregularly(barofsoap,candybar,pen,haircutter,dentist,etc.).Underthewords“Land,”“Labor,”and“Capital,”writeanexplanationofthepartplayedbyeachofthesefactorsinmakingthe

product/service.Forexample,iftheproductyouchosewasapencil,yourchartmightlooklikethis:

PRODUCT: PENCIL

Land:

1. Trees are needed to obtain the wood used to manufacture pencils.

2. Lead comes from graphite found in rocks.

Labor:

1. Workers must locate and cut down trees to provide the wood for pencil.

2. Miners must extract graphite from rocks that is turned into lead for use in pencils.

Capital:

1. Money must be raised by the pencil producing company.

2. Equipment must be purchased to manufacture pencils.

3. Trucks, trains, and/or boats must be purchased/leased to transport the pencils once they are produced.

Exercise:

NAME A PRODUCT / SERVICE YOU USE REGULARLY:

Land – Not just real estate.

Land includes resources such as plants, other living things, and materials taken from mines.

Labor – Not just the work performed by humans. Labor includes the planning, research, and creative talents of the people involved.

Capital – More than the money invested. Capital includes the machinery, trucks, and other equipment involved in creating product and transporting it.



HandoutIII.3.B,“GroupWork”Directions:Inordertoproduceanygoodorservice,thefollowingthreefactorsofproductionmustbebroughttogetherbymanagement:land,laborandcapital.Somepeoplehavesuggestedthatentrepreneurshipisafourthfactorofproduction.

Theclasswillbedividedintogroups.Studythefactorofproduction,below,thathasbeenassignedtoyourgroup.Yourtaskwillbetomakea1‐2minutepresentationtotheclassinwhichyou:1)describe,inyourownwords,thefactorofproductionyoureadabout;2)giveanexampleofhowyourfactorof

productionisusedtocreateagoodorservice;3)describetherelationshipofyourfactortotheotherthreefactorsofproduction.

Land“Land,”asafactorofproduction,referstothephysicalgroundandnaturalresources,suchasminerals,usedintheproductionofgoods.Italsoreferstoanythingthatisnotman‐madeandcanbeusedto

producegoods.Naturalresources,suchasmineralsandfossilfuels,arethebackbonetomanygiantminingcompanies.Soilisalsoanaturalfactorthatsupportseconomicactivitiessuchasfarming.Landisascarceresourceandrequiresgoodmanagement.

Labor“Labor”referstotheworkandproductionactivitiesprovidedbyhumansformonetarycompensation.Thisconsistsofvariousabilitiesandskillsthathumanbeingsapplytoenhanceproductionofgoodsand

servicesandensuresthatbusinessisupandrunning.Companiesinvestinlaborbytrainingemployeestooperatedifferentmachinesfortheproductionofgoods(e.g.,operatingamachinetopackageproducts).Theabilitytoapplymentaltalentstoinnovativelyperformerrandsanddiscovernewproductsisalso

countedaslabor.Entrepreneurship,however,isnotcategorizedaslabor.

Capital“Capital”referstotheuseofwealthtocreatemorewealthbyenhancingtheproductionofgoods.Apartfrommoney,capitalalsoreferstotools,machinery,andinfrastructuremadetoproduceothergoods.Forexample,inproducingcropsorlivestock,afarmerwillneedtoincludefarmingequipmentandother

machineryascapital.Factories,machinery,andofficestructuresusedfortheproductionofgoodsarereferredtoasfixedcapital,whilesocialcapitalreferstogovernment'sinvestmentinlearninginstitutionsandinfrastructuretofacilitateproduction.Finishedandunfinishedproductsproducedforconsumption

orturnedintoconsumergoodsinthefuturearereferredtoas“workingcapital.”

Entrepreneurship“Entrepreneurship”referstoindividualswithaneconomicmotivationwhoattempttomakemoney

fromanidea.Entrepreneursareinnovatorsreadytotakeriskstopushtheirideastosetupbusinesses.Economistshavehaddebatesoverentrepreneurshipasafactorofproduction.Somecategorizeitunderlaborwhileothereconomistsviewitasanindependentfactor.Ittakesanentrepreneurtodevelop

businessconceptsandtakeriskstoensurethattheideaconceivessuccessfulbusinesses.

Takenfrom:http://www.ehow.com/print/info_8088771_economic‐factors‐production.html



HandoutIII.3.C,“Application”Directions:Readtheparagraphbelowandcompletetheexercisethatfollows.

Another Day in the Hot Dog Business

Youandyourfriendshavebeendoingagoodbusinessatthehotdogstandyouhavebeenoperatingon

weekendsinalocalparkinglot.Salesarebrisk!Youhavedecidedtoinvesttheprofitstoexpandyourbusinessand—youhope—bringinevenmoreprofit.Youhavebeenselling200hotdogseachweekendat$1.00each.Suppliescostyou$100,andrentforyourspaceintheparkinglostwas$25.Youanda

friendeachspentfivehoursworkingatthestand.Thatmeansyouhave$75lefttodividebetweenyourwages,andmoneytoinvestinexpandingyourbusiness.Themorewagesyoupayyourselfandyourhelper,thelessyouwillhavetoinvest.

Exercise:Nowthatyouhavesomeunderstandingaboutthefourfactorsofproduction,writeupaplanforinvestingyourhot‐dogprofits.Inthisplan,trytoestimate,asbestyoucan:

1. Whatadditionalinvestments,ifany,youshouldmakeinlandandwhatshouldthatinvestmentbe.

2. Whatadditionalinvestments,ifany,youshouldmakeinlaborandwhatshouldthatinvestmentbe.

3. Whatadditionalinvestments,ifany,youshouldmakeincapitalandwhatshouldthatinvestmentbe.

4. Inaddition,estimatehowmanyadditionalhotdogseachoptionwillallowyoutosell,andhowmuchprofittheinvestmentwillbringin.

Takenfrom:http://www.landandfreedom.org/econ/econ2act.htm



HandoutIII.3.D,“SustainabilityandtheFactorsofProduction”

Directions:BelowisanadvertisementfromCompanyXthatappearedontheInternet.Theaddescribestherelationshipbetweensustainabilityandthefactorsofproduction.Suggestanattention‐grabbingheadlinefortheadvertisementandwriteitonthelinebelow.

_____________________________________________________________________________ (headline)

The factors of production are land (i.e., natural resources, including water and the proportion of the planet given over to agriculture-producing raw materials), labor (i.e., the human effort involved in production), capital (i.e., the money invested in business including equipment purchases), and enterprise (i.e., the process of bringing the above factors together to make a profit).

Any production process involves the use of all factors of production. The efficient and sustainable use of factors of production has long been tackled by Company X working with its agricultural suppliers. Company X helps suppliers in developing countries to increase their output. For example, in Pakistan, sales of milk per farmer have doubled in the last three years as a result of the support our company provided to more than 115,000 farmers.

Despite consuming only a tiny proportion of water, Company X still seeks to minimize water use. Seventy percent of water usage is by agriculture, and agricultural raw materials provide the basis of our company’s finished products. It is important that the environment in which raw materials are grown is safeguarded and protected in a sustainable manner. Company X does not own farms but encourages sustainable agricultural practices among its suppliers. The company invests over $60 million per year in environmental protection, amounting to three percent of total capital expenditure on top of regular capital-investment projects that incorporate environmental components and factory environmental operating costs. Also, in certain parts of the world, Company X has invested in water education programs and community initiatives to develop sustainable and safe water supplies.

Finally, our company uses water in manufacturing (e.g., to wash raw materials). It limits the use of water in its various operations and, where this is not possible, re-uses or re-cycles waste water.

Adaptedfrom:http://businesscasestudies.co.uk/nestle/sustainability‐and‐water/factors‐of‐production.html#ixzz1k28ljzRf

UNITIII/LESSON4

PrinciplesoftheU.S.EconomicSystem

TimeFrame2days

StandardsNES:Economics–Describehowsocietyusesscarceresources

toproduceanddistributegoodsandservicesNES:Skills–FollowdirectionsApplyeffectivelisteningskills


GuidingQuestionWhatarethebasicprinciplesonwhichtheU.S.economyoperates?



IdentifyandgiveexamplesoftheprinciplesoftheU.S.economicsystem.

DrawconclusionsastohowtheeconomicprinciplesoftheU.S.shapeeconomicdecisions.

Explainhowandwhyeconomicprinciplescancomeintoconflictwitheachother.

TeacherBackgroundFreeenterpriseisaneconomicsystemthatprovidesindividualswiththeopportunitytomaketheirown

economicdecisions,freeofgovernmentconstraints,andasprivateprofit‐potentialbusinesses.Thesystemallowsfortheprivilegeofindividualownershipofpropertyandthemeansofproduction.Thekeyingredientofthefreeenterprisesystemistherightofconsumerstomaketheirownchoicesinthe

purchaseofgoods,thesellingoftheirproductsandtheirlabor,andtheirparticipationinbusinessstructure.Fivebasicprinciplesareatthecoreofthefreeenterprisesystem:privateenterprise,privatepropertyrights,consumersovereignty,theprofitmotive,andcompetition.

InHandoutIII.4.A,studentsareaskedtointerpretanillustrationportrayingthefivebasicprinciplesoftheAmericanfreeenterprisesystem.HandoutIII.4.Bpresentsanin‐depthexplanationofthefivebasicprinciples,askingstudentstogiveexamplesofsituationswheretheprinciplescanconflictwitheach

other.ThebuildingblocksofthefreeenterpriseappearinHandoutIII.4.C.Finally,theclasswillconfrontandevaluatecriticismsofthefreeenterprisesysteminHandoutIII.4.D.



TeachingStrategies/SupportingActivities DistributeHandoutIII.4.A,“Drawing.”Havestudentscompletetheexerciseonthehandout,then


– Whatdoyouseeinthisdrawing?

– WhatisthisdrawingtellingusabouttheU.S.freeenterprisesystem?

– Towhatextentdoesthisdrawingpresentanaccuratepictureofthefreeenterprisesystem?

– CanyousuggestsomethingabouttheU.S.freeenterprisesystemthatshouldbeincludedinthisdrawingbutisnot?

DistributeHandoutIII.4.B,“Principles.”Havestudentscompletetheexerciseonthehandout,then


– Howwouldyousummarize,inyourownwords,eachofthefiveprinciplesoftheU.S.freeenterprisesystem?

– WhydoyouthinktheU.S.economyiscalleda“freeenterprisesystem”?Isthisanaccuratedescriptionofoureconomy?

– Whichofthesefiveisthemostimportantprinciple?

– Whatexamplesdidyoucreateinwhichtwoofthebasicprinciplesareinconflict?Inthesecases,whichprincipledoyouthinkshouldprevail?

DistributeHandoutIII.4.C,“BuildingBlocks.”Havestudentscompletetheexerciseonthehandout,


– Whyarethefouritemsmentionedonthishandoutreferredtoasthe“buildingblocksofthefreeenterprisesystem”?

– Wheredidyouplacethebuildingblocksintheillustrationfeaturedintheexerciseatthebottomofthehandout?

– Inthebuildingblockdealingwithbusinesses,whatdoestheauthormeanby“Profitfuelstheengineofbusiness”?

– Inbuildingblockdealingwithgovernment,whatdoestheauthormeanbysaying“Governmentprovidestheumbrellaunderwhichthefreeenterprisesystemoperates”?

– Whichofthesebuildingblocksismostcrucialtotheoperationofthefreemarketenterprisesystem?


UNITIII/LESSON4:page3 DistributeHandoutIII.4.D,“Critics.”Havestudentscompletetheexerciseonthehandout,thenhave

themexplaintheiranswerstothefollowingquestions:

– WhatistheOccupyWallStreetmovementallabout?

– Whataresomeofthemoreimportantdemandsmadebytheprotesters?

– Whichofthesedemandsismostjustified?

– Whichofthesedemandsisleastjustified?


TowhatextenthavethefiveprinciplesappearinginthedrawingdiscussedatthebeginningofthelessonmadetheU.S.amore/lessdesirableplacefortheaverageAmericantolive,work,andordo

business??

FollowUpAssumeyouwereaddressingagroupofOccupyWallStreetprotesters.Writeaspeechinwhichyou

discusstheircriticismsoftheU.S.freeenterprisesystemThespeechshouldspecificallytellthem:

Whichoftheirideasyouagreewithmost.

Whichoftheirideasyoudisagreewithmost.

Whatthebestcourseofactionswouldbefortheprotesterstotakethatwouldleadtoahigher

standardoflivingforthepeoplewhoaresufferingmostinthefreeenterprisesystem.



HandoutIII.4.A,“Drawing”Directions:StudythedrawingbelowofthefivebasiceconomicprinciplesonwhichtheU.S.operatesandcompletetheexercisethatfollows.

http://www.socialstudieshelp.com/Eco_Free_Enterprise.htm

Exercise:Intwoorthreesentences,explainthemessagethatthedrawingislookingtoconvey.

_______________________________________________________________________________

_______________________________________________________________________________

_______________________________________________________________________________

_______________________________________________________________________________



HandoutIII.4.B,“Principles”Directions:ThefivebasicprinciplesoftheU.S.economicsystemappearbelow.Foreachprinciple,underlineonesentencethatcontainsthemostimportantidearelatedtothatprinciple.Thencomplete

theexercisebelow.

1. FreedomtoChooseYourBusinesses(FreeEnterprise)

Inthiscountry,thedecisionaboutwhatkindofbusinesstogointoisbasicallyyoursalonetomake.Youwilldecidewhatfeestochargeandwhathourstowork.Certainlawsprohibityoufromcheatingorharmingyourcustomersorotherpeople.But,ingeneral,youwillbeleftalonetorunyourbusinessasyouseefit.

2. RighttoPrivatePropertyPrivatepropertyisapieceofland,ahome,oracarownedbyanindividual,afamily,oragroup.Itdiffersfromapublicbuilding,orpublicproperty,suchasthecityhall,apark,orahighway,allofwhichprovideagovernmentserviceforallcitizens.IntheU.S.economicsystem,people'srighttobuyandsellprivatepropertyisguaranteedbylaw.Peoplemustusethepropertyinsafeandreasonableways,ofcourse,andrespectingthepersonalrightsorpropertyofotherpeople.

3. ProfitMotiveThemainreasonwhyapersonorganizesabusinessistomakemoney.Youdothisbyearningmoremoneythanyouspend.Theamountofmoneyleftoveraftersubtractingyourbusinessexpensesfromyourbusinessincomeisknownasyourprofit.Inthefreeenterprisesystem,businessfirmstryhardtokeepcostsdownandincreasetheirincomefromsales.Thebettertheysucceedatthis,thehigheraretheirprofits.Economistsdescribetheeffortsbybusinessfirmstoearnthegreatestprofitsastheprofitmotive.

4. CompetitionJustasyouarefreetostartthebusinessofyourchoice,soiseveryoneelse.Therivalrybetweensellersinthesamefieldforconsumers'dollarsiscalledcompetition.Ifyourbusinessisprofitable,itislikelythatotherswillenterthesamebusinesshopingtobeassuccessfulasyouare.Theywillbecompetingwithyouforthesamecustomers.Towinashareofthecomputerbusiness,othersellersmaytrytooffermoreandbetterservices,orservicesatlowerprices.Becauseofthepressureofcompetition,businessfirmsmustconstantlytrytoprovidethebestservicesandcreatethebestproductsatthelowestpossibleprices.

5. ConsumerSovereigntyIntheend,itisthecustomers,orconsumers,whodeterminewhetheranybusinesssucceedsorfails.IntheU.S.freeenterpriseeconomy,consumersaresaidtohavesovereignty‐thepowerorfreedomtohavefinalsay.ConsumersarefreetospendtheirmoneyforProductXorforProductY.IftheypreferYoverX,thenthecompanymakingXmaylosemoney,gooutofbusiness,ordecidetomanufacturesomethingelse(perhapsProductZ).Thus,howconsumerschoosetospendtheirdollarscausesbusinessfirmsofallkindstoproducecertaingoodsandservicesandnotothers.

http://www.socialstudieshelp.com/Eco_Free_Enterprise.htm


UNITIII/LESSON4:page6 HandoutIII.4.B,“Principles”(continued)

Exercise:Describeasituationinwhichtwoofthebasiceconomicprinciplescomeintoconflictwitheach

other.(Forexample,whenaconsumer’srighttochooseaproductattherightprice—consumersovereignty—isdeniedduetoabusinessperson’sdesiretomakeagreaterprofit—profitmotive.)



HandoutIII.4.C,“BuildingBlocks”Directions:Readaboutthebuildingblocksoffreeenterprisesystembelowandcompletetheexercisethatfollows.

Households,businesses,markets,andgovernmentsmakeupthebuildingblocksofafreeenterprisesystem.Theyaredescribedbelow.

Households—theOwners.Inafreeenterprisesystem,households—notthegovernment—ownmostofthecountry’seconomicresourcesanddecidehowtousethem.Oneoftheresourcesthathouseholdspossessistheirlabor,whichtheyselltoexistingfirmsorusetoformnewbusinesses.Inadditiontosellingtheirresourceswheretheycangetthehighestpriceorlargestprofit,householdsalsoactasconsumers.Thewagesandsalariesofhouseholdspurchaseabouttwo‐thirdsofalltheproductionintheUnitedStates.Consumersvotewiththeirdollars,therebydirectingproductiontowardthegoodsandservicestheywantbusinessestoprovide.Thisiscalledconsumersovereignty.

Businesses—theOrganizers.Businessesorganizeeconomicresourcestoproduceagoodorservice.Thepeoplewhostartbusinessesaretheorganizersandinnovators,constantlydiscoveringnewandbetterwaystobringresourcestogetherinthehopesofmakingaprofit.Profitfuelstheengineofbusiness.Entrepreneurs,luredbythepotentialforprofits,createnewbusinessestosatisfyconsumers’needsanddesires.Theinabilitytomakeprofitssignalsbusinessestocloseortoreorganizetheirresourcesmoreefficiently.Efficiencymeansthatresourcesarebeingusedtoproducethegoodsandservicesthatsocietymostdesiresatthelowesteconomiccost.Inacompetitiveindustry,thepresenceorabsenceofprofitssendsanimportantsignalabouttheindustry’seconomicefficiency.

Markets—theBrokers.Howandwheredobuyingandsellingactivitiestakeplace?Theanswerisinmarkets.Althoughmarketsarenotnecessarilypeople,theyactasagents—somethinglikeastockbrokerorarealestateagent—tobringbuyersandsellerstogether.Overtime,marketshavebecomeincreasinglycomplex.Now,buyingandsellingcanoccur24hoursadayfromanywhereintheworldviatheInternet.Amarketisanyplaceoranywaythatbuyersandsellerscanexchangegoods,services,resourcesormoney.Therearethreecategoriesofmarketsinafreeenterprisesociety:resourcemarkets,productmarkets,andfinancialmarkets.Householdsgothroughresourcemarketstoselltheirlabortobusinesses.Businessesgothroughproductmarketstosellgoodsandservicestohouseholds.Andbothhouseholdsandbusinessesusefinancialmarketstoborrowandsavemoney.Typically,businessesborrowmoneythathouseholdssave,usingfinancialinstitutionsastheintermediary.

Governments—theProtectors.Thecornerstoneofatrulyfreeenterpriseeconomyistheabsenceofgovernmentinterferenceineconomicmatters.However,thegovernmentstillplaysanimportantroleinanyfreeenterprisesystem.Thisisbecauseunlimitedfreedomisimpossible:oneperson’sfreedommaysometimesconflictwithanother’s.Themainroleofgovernmentinafreesociety,then,istodefineandenforcetherulesofsociety.Governmenthasthecoercivepowertomaintainlawandorder,protectpeople’srighttoownpropertyandenforcevoluntarycontractspeopleenterinto.Inessence,governmentprovidestheumbrellaunderwhichthefreeenterprisesystemoperates.Governmentsalsoprovidegoods,suchasnationaldefense,thattheprivatemarketalonewouldhaveahardtimeproducing.

Takenfrom:http://dallasfed.org/educate/everyday/ev5.html#blocks


UNITIII/LESSON4:page8 HandoutIII.4.C,“BuildingBlocks”(continued)

Exercise:Drawinthefourbuildingblocksdescribedabovewheretheybestfitintheillustrationbelow.



HandoutIII.4.D,“Critics”Directions: In September 2011, a group of protesters called Occupy Wall Street, began a protestinvolvinganumberofcriticismsthatthegrouphasofcurrentgovernmentpolicies,laws,andpracticesaswellaswhat itseesasa lackofresponsibilityatmajor financial institutions. Identifythreeofthesecriticismsmentionedinthereadingbelowandunderlinethem.

What “Occupy Wall Street” Demands of Our Leaders OccupyWallStreetbeganinmid‐Septemberwithagroupof1,000protestorsmarchingthroughthestreetsofNewYorkCity.Ithasnowgrownintoaglobalmovementinsearchofsanityinoureconomicsystem.Manyin thegroup,unemployedanddisheartened,arequietlydemandinganewbreedof leaders inWashingtonandonWallStreet—leadersmeasurablycommittedtotheaverageindividualstrugglingtomakeendsmeet.TheoverarchingdemandofOccupyWallStreetisforgreaterequalityinourfreeenterprisesystem.

AndthatiswherebothWallStreetandWashingtonhavefailedmiserablyintheeyesoftheunemployedorunderemployedprotestors.Inthevariousdivisionsofthemovementsproutinguparoundtheworld,thecryisforhope,foreconomicopportunity,forsoulinourbusiness,andforpromisethattheAmericandreamwillnotbedeniedtotoday’syoungpeople.

OccupyWall Street is looking to our leaders inWashington to enact legislation that focusesmore on theneedsofthestrugglingmiddleclass.TotheparticipantsinOccupyWallStreet,businessandpoliticalleadershavelosttheirfooting.Theyhavedetouredthecountryawayfromthebasictenetsofourgovernment:life,liberty,equality,andthepursuitofhappiness.

WhileOccupyWall Street is a fledglingmovement, it should remind all of us thatwe have a say inwhathappensinoureconomy.Morethanthat,wehavearesponsibilitytoholdourleadersaccountable.

WhileOccupyWallStreetisnotadvocatingonesetofunifieddemandstypesofdemands.Herearesomeofthedemandsmostoftenissuedbytheprotesters:

Anendtotaxpayerbailoutsofbigcorporations,banks,andotherfinancecompanies.

AnendtocorporategovernancestructuresthatallowthepositionsofCEOandpresidentoftheboardtobeheldbythesameindividual.

AreductioninCEOpay.(Backin1965,CEOpaywas24timesgreaterthantheaverageemployee’spay;todayitis300timesgreater.)

StiffpenaltiesforoffshorejobscreationwhileunemploymentfestersintheUnitedStates.

Raisingtheminimumwage.

Amoratoriumonallhomeforeclosuresandlayoffsimmediately.

Anegativeincometax,andataxofupto90percentontheincomeoftheveryrich.

Protestorsmaynotyethaveaunifyinggoal,buttheyarenotconfusedaboutthefactthatlivingconditionsfortheaverageAmericanarerapidlydeteriorating.And,what’smore,nooneappearstobelistening.

Adaptedfrom:http://www.washingtonpost.com/national/on‐leadership/what‐occupy‐wall‐street‐demands‐of‐our‐leaders/2011/10/11/gIQAjHtZcL_print.html/

UNITIII/LESSON5

SupplyandDemand

TimeFrame2days

StandardsNES:Economics–ExplaintheprinciplesofsupplyanddemandExplainhowsupplyanddemandinteracttodetermineprices



GuidingQuestionHowdoessupplyanddemandexplainthepriceswepayforgoodsandservices?

MaterialsHandoutsIII.5.A‐E


Definesupply,demand,elasticity.

Explainandgiveexamplesofthelawsofsupplyanddemand.

Drawconclusionsastowhythereareshortagesofsomegoodsandservicesandsurplusesofothers.

Illustratetheprinciplesofelasticityofsupplyanddemand.

TeacherBackgroundThetwomostcrucialfactorsindeterminingpricesofgoodsandservicesaresupplyanddemand.Welearnfromthelawofdemandthat:1)peoplewillbuymoreofaproductatalowerpricethanatahigher

price;and2)atalowerprice,morepeoplecanaffordtobuymoregoodsthantheycanatahigherprice.Fromthelawofsupplywelearnthat1)athigherprices,producersarewillingtooffermoreproductsforsalethanatlowerprices;and2)thesupplyofgoodsandservicesincreasesaspricesincreaseand

decreasesaspricesdecrease.

HandoutIII.5.Aiswritingexerciseinwhichstudentsexplaintherolethatsupplyanddemandplayinsettingprices.InHandoutIII.5.B,theclasslearnsthedefinitionsandthelawsofsupplyanddemand.

HandoutsIII.5.CandIII.5.DexplainingreaterdepththeLawofSupplyandtheLawofDemand,providingsomeexamplesofeach.Finally,studentswillencounteranexplanationoftheelasticityofdemandandsupplyinHandoutIII.5.E.



TeachingStrategies/SupportingActivities DistributeHandoutIII.5.A,“Q&A.”Havestudentscompletetheexerciseonthehandout,thenhave


– Howwouldyousummarizeinyourownwordstheinformationpresentedinthe“Question”here?

– (Callonatleastfivevolunteershere.)Whatistheansweryouwrotetothis8thgrader?

DistributeHandoutIII.5.B,“Definitions.”Havestudentscompletetheexerciseonthehandout,then


– Howdidyouanswertheexerciseonthehandout?

– Inyourownwords,howwouldyouexplaintheconceptof“demand”tosomeonewhohadnever

heardtheterm“demand”before?

– Inyourownwords,howwouldyouexplaintheconceptof“supply”tosomeonewhohadneverheardtheterm“demand”before?

– HowdoesthelawofsupplyanddemandexplainwhythediamondwrittenaboutintheQ&Alettercostsomuchmorethanthet‐shirt?

DistributeHandoutIII.5.C,“LawofDemand.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– IfyouwereMary,whatisoneconclusionyouwoulddrawabouttheamountofdonutsyoucould

sellatthedifferentprices?

– Basedonthegraph,whatconclusionwouldyoudrawabouttherelationshipbetweentheprice

ofanitemandthedemandforthatitem?

– Whyisitimportantforabusinesspersontoknowaboutthelawofdemand?

– Whatotherfactorsbesidedemandplayaroleindeterminingthepriceofanitem?

– Howdoesthelawofdemandhelpexplainwhythereareshortagesofsomegoodsandsurplusesofothers?

DistributeHandoutIII.5.D,“LawofSupply.”Havestudentscompletetheexerciseonthehandout,


– Whatdidyoulearnaboutsupplyfromthishandout?

– Accordingtothedataonthechartandgraph,howwouldyouexplainthelawofsupplytosomeonewhoknewnothingaboutit?

– Asabusinessperson,howwouldyouusethelawofsupplytoyouradvantage?

– Howdoesthelawofsupplyhelpexplainwhythereareshortagesofsomegoodsandsurplusesofothers?




Howdosupplyanddemandplayaroleindeterminingthepriceswepayforgoodsandservices?

FollowUpDistributeHandoutIII.5.E,“ElasticityofDemandandSupply.”Havestudentscompletetheexerciseon

thehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

Howdidyoucompletetheexerciseonelasticityofdemand?Elasticityofsupply?

Whatdowelearnaboutelasticityofdemandandsupplyfromthishandout?

Towhatextentisitimportantforanentrepreneurtoknowsomethingabouttheelasticityofsupply

anddemandinrunningabusiness?



HandoutIII.5.A,“Q&A”Directions:Assumeyouwriteacolumninwhichyouanswerquestionsfromchildrenabouteconomics.Answerthequestionbelow,writingaone‐paragraphanswer.

Question:Iaminthe8thgrade.Recently,Iwentshoppingwithmyparentstoadepartmentstore.

Theyboughtmeat‐shirtforschoolthatcost$30.Inthestorewepassedthroughthejewelrydepartment.There,Inoticedadiamondinoneofthedisplaycases.Thediamondhadapricetagof$6,000.Iaskedmyparentswhythediamondcostsomuchmorethanmyt‐shirt.Theysaid

thatmostpricesareexplainedbysupplyanddemand.Canyoutellmehow“supplyanddemand”explainswhythediamondcostssomuchmorethanmyt‐shirt?Thanks.

Answer:Youparentsarecorrect.Thepricesofthediamondandt‐shirthavealottodowithsupplyanddemand.Hereistheexplanation.

_______________________________________________________________________________

_______________________________________________________________________________

_______________________________________________________________________________

_______________________________________________________________________________

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HandoutIII.5.B,“Definitions”

Directions:TounderstandhowpricesaresetinaneconomyliketheU.S.,itisimportanttoknowaboutconceptslikesupply,demand,andthelawofsupplyanddemand.Thedefinitionsoftheseconcepts

appearinColumnBbelow.However,thetermsthatgowiththedefinitionshavebeenomitted.Enterthecorrectterm(supply,demand,andlawofsupplyanddemand)inColumnAthatmatchesthe

definitionthatappearsinColumnB.

Column A – Term Column B – Definition As the price of a good or service increases, the demand

decreases and vice-versa. As the price of a good or service increases, the supply of goods or services offered by producers increases and vice-versa.

The willingness and ability of the people to purchase particular amounts of goods or services at a variety of alternative prices.

The total amount of a good or service available for purchase.

Adaptedfrom:http://www.thirteen.org/edonline/lessons/supply_and_demand/b.html



HandoutIII.5.C,“LawofDemand”Directions:ReadPartsOneandTwobelowandcompletetheexercisesthatfolloweachpart.

PartOne

Maryrecentlyopenedadonutshopintheschoolcafeteria.Tohelpherdeterminewhatpricetochargeforadonut,shetriedthefollowingexperiment:Duringfirstweekafteropening,shecharged$.20per

donut,andduringthesecondweekshecharged$.10perdonut.ThechartbelowshowstheresultsofMary’sexperiment.

DONUT PRICE EXPERIMENT

Price per donut

Number of donuts sold

Total Revenue

Week 1 20¢ 50 $10

Week 2 10¢ 500 $50

Exercise1

Whatisoneconclusionyouwoulddrawaboutthepriceperdonutandtheamountsoldfromlookingatthechartabove?

_____________________________________________________________________________ _____________________________________________________________________________



HandoutIII.5.C,“LawofDemand”(continued)

PartTwo

MarymentionedtheresultsofherexperimenttoMr.Jones,herBusinessEducationteacher.Mr.Jonessaidthatthefindingfromherexperimentdemonstratesoneofthemostimportantconceptsineconomics:theLawofDemand.Hesuggestedthatsheplottheresultsofherexperimentonagraph.

Mr.JonessaidsuchagraphmeasuringtheamountofdonutssoldatthetwodifferentpricesiscalledaDemandCurve.Here’swhatthegraphlookedlike.

Demand Curve Graph Adaptedfrom:http://www.thirteen.org/edonline/lessons/supply_and_demand/b.html Exercise2

Basedonthegraph,fillintheblanksbelowtodescribetherelationshipbetweenthepriceforanitem

andthedemandforthatitem.

Allelseequal,asthepriceofaproduct__________,thequantitydemandedwill____________.

60=600 50=500 40=400 30=300 20=200 10=100 5=50

60=600 50=500 40=400 30=300 20=200 10=100

5=50



HandoutIII.5.D,“LawofSupply”Directions:Readthepassagebelowandcompletetheexercisethatfollows.

Fredownedawholesalebakeryinwhichhesoldvariousbakedgoodstostoresinthecommunity.One

ofthegoodsFredsoldwascookies.Duringthefirstmonthinbusiness,hefoundthatthestoreswouldpayhim$.10acookie.Asaresult,hesold100cookies,fromwhichhemadeadecentprofit.Hiscookies

wereaninstanthit.Eachmonth,thestorestowhichhesoldcookiesofferedtopayhimpaymorethanthemonthbeforeforeachcookie:$.40acookieaftersixmonthsand$.70acookieafteroneyear.Asaresult,healsoincreasedthenumberofcookieshemade,realizinghecouldsellthematthehigherprice

point.ThechartandgraphbelowindicatehowmanycookiesFredmadeandsoldatpricesrangingfrom$.10percookieto$.70percookie

A.ChartSupply Schedule for Fred’s Cookies

The price Fred charges

per cookie The number of cookies

Fred has available for sale

After 1 year .70 cents 2,000 cookies

.60 1,800

.50 1,000

After 6 months .40 1,000

.30 1,100

.20 700

After 1 month .10 100

B.GraphSupply Curve



HandoutIII.5.D,“LawofSupply”(continued)

Exercise:Fillintheblankspacesbelowwiththecorrectword.

Thechartandgraphaboverevealaneconomicconceptknownasthe“lawofsupply,”whichstates:

“Asthepriceofagoodincreases,the________________alsoincreases.”

Anotherwaytosaythisis:“Asthepriceofagooddecreases,the________________alsodecreases.”



HandoutIII.5.E,“ElasticityofDemandandSupply”Directions:Thedegreetowhichthedemandorsupplyofagoodoraservicevarieswithitspriceisreferredtoaselasticity.PartOnebelowdiscusseselasticityofdemandandPartTwodiscussessupply.

InbothPartsOneandTwobelow,circletheunderlinedwords,after1and2,thatyouthinkbestbelongsinthedefinition.

PartOne

ElasticityofDemand

Elasticityofdemandreferstothedegreetowhichdemandforagoodorservicevarieswithitsprice.Normally,salesincreasewithadropinpricesanddecreasewithariseinprices.Asageneralrule,

appliances,cars,candy,haircuts,andothernon‐essentialgoodsandservicesshow:1.more/lesselasticityofdemandthanothertypesofgoodsorservices.Ontheotherhand,mostnecessities(food,medicine,basicclothing)show:2.more/lesselasticityofdemand.

http://www.businessdictionary.com/definition/elasticity‐of‐demand.html#ixzz1kh62Weza

Giveoneexampleofagoodorservicethatyoupurchaseorusethathas:

1. Greatelasticityofdemand_________________________________________________________

2. Littleelasticityofdemand__________________________________________________________

PartTwo

ElasticityofSupply

Elasticityofsupplyreferstotheresponsivenessofproducerstochangesinthepriceoftheirgoodsor

services.Asageneralrule,ifpricesrise,sodoesthesupply.Highelasticityindicatesthesupplyissensitivetochangesinprices,lowelasticityindicateslittlesensitivitytopricechanges,andnoelasticitymeansnorelationshipwithprice.Thesupplyofpaintingsbyaworldfamousartistwhodiedhundreds

ofyearsagowouldbeconsidered:1.elastic/inelastic,whereasthesupplyofcookiesofferedatvariouspriceswouldbeconsidered2.elastic/inelastic.

Readmore:http://www.businessdictionary.com/definition/elasticity‐of‐supply.html#ixzz1khDRabSS

Giveanexampleofanotherkindofgoodorservicethathas:

1. Elasticityofsupply_______________________________________________________________

2. Inelasticityofsupply______________________________________________________________

UNITIII/LESSON6

MarketStructureandPrices

TimeFrame2days

StandardsNES:Economics–Describetheconceptofpriceandhow

pricessendsignalsandprovideincentivestobuyersandsellersDescribethetypesofmarketstructures(perfectcompetition,

puremonopoly,monopolisticcompetition,oligopoly)NES:Skills–FollowdirectionsApplyeffectivelisteningskills


GuidingQuestionHowdoesthedegreeofcompetitionimpactthewaypricesaredetermined?



Explainsomeoftheadvantagesanddisadvantagesofcompetitioninbusinessforconsumersandbusinesses.

Defineandgiveexamplesofthevariousdegreesofcompetitionthatcanexistindifferentmarketstructures.

Drawconclusionsastohowpricesaredeterminedinapuremarketeconomy.

TeacherBackgroundWhileallmarketsaremadeupofbuyersandsellers,significantdifferencesexistbetweenmarketstructures.Thesedifferencesincludethenumbersofbuyersandsellersandthedegreetowhichthespecificmarketcancontrolprices.Thislessonfocusesofmarketstructures,rangingfrompurecompetition(withlotsofbuyersandsellers)toamonopoly(withoneproviderofaspecificgoodorservice.Othermarketsstructuresthatwillbediscussedinthislessonaremonopolisticcompetitionandoligopolies.

Thislessonbeginswithadiscussionoftheadvantagesanddisadvantagesofeconomiccompetition.HandoutIII.6.Aasksstudentstocompareandcontrastthefollowingmarketstructures:perfectcompetition,monopolisticcompetition,oligopolies,andmonopolies.InHandoutIII.6.B,theclasswritesaneditorial,givingtheiropiniononeconomiccompetition,thesubjectofhandout.Inthenextactivity,usingHandoutsIII.6.C,III.6.D,andIII.6.E,thestudentsaredividedintothreesections.Studentsineachsectionwillreadabouttheadvantagesanddisadvantagesofoneofthefollowing:monopolisticcompetition,monopolies,oroligopolies.



TeachingStrategies/SupportingActivities Writetheword“competition”ontheboard.Havestudentsexplaintheiranswerstothefollowing

questions:

– Whatdoestheword“competition”meantoyou?

– Whataresomeexamplesofcompetitionyouseeamongsellersofdifferentgoodsandservicesyoupurchase?

– Towhatextentiscompetitionamongsellersofgoodsandservicesagoodthing?

– Towhatextentiscompetitionamongsellersofgoodsandservicesabadthing?

DistributeHandoutIII.6.A,“Competition.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Whatisthishandoutabout?

– Basedonwhatyouread,whatisthegreatestadvantageofcompetition?

– Whatwasthegreatestdisadvantageofcompetitionmentionedinthehandout?

– Whatdidyouwriteinyoureditorialsaboutcompetition?

DistributeHandoutIII.6.B,“DifferentMarketStructures.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Whatdidyoulearnaboutthedifferentmarketstructuresfromthishandout?

– Inwhatwaysareperfectlycompetitivemarkets,monopolisticallycompetitivemarkets,oligopolies,andmonopoliesdifferentfromeachother?

– Howarethewayspricesdetermineddifferentineachtypeofmarketstructure?

– Whatarethegreateststrengthsandweaknessesofeachmarketstructureforconsumers?Forbusinesses?

Dividetheclassintothreesections.Distribute:HandoutIII.6.C,“AdvantagesandDisadvantagesofMonopolies”toSectionOneHandoutIII.6.C,“AdvantagesandDisadvantagesofMonopolisticCompetition,”toSectionTwo;andHandoutIII.6.E,“Oligopolies”toSectionThree.Askeachgrouptocompletetheexercisedescribedonthehandouttheyreceived.Then,aspartofthewholediscussion,havestudentsexplaintheiranswerstothefollowingquestions:

– Whataregreatestadvantagesanddisadvantagesofmonopoliestobusinessesandconsumers?

– Whatarethegreatestadvantagesanddisadvantagesofmonopolisticcompetitiontobusinessesandconsumers?

– Whatarethegreatestadvantagesanddisadvantagesofoligopoliestobusinessesandconsumers?



Summary/AssessmentAskstudentstoexplaintheiranswerstothefollowingquestions:

Asconsumersarewebetterofflivingunderamoreorlesscompetitivemarketstructure,ordoesitdependmoreontheproductwearebuying?

Aresmallbusinessesbetteroffoperatingunderamoreorlesscompetitivemarketstructureordoesitdependmoreontheproducttheyareselling?

FollowUpAskstudentstoselectoneofthefourmarketstructures(perfectcompetition,monopoly,monopolisticcompetitive,oligopoly)theylearnedaboutinthislessonandprepareafive‐minutepresentationtoexplainthatmarketstructuretotheclass.ThepresentationshouldbeaccompaniedbyatleastthreePowerPointslidesandincludeadescriptionofthemarketstructure,someexistingexamplesofthatmarketstructure,andthepositiveandnegativeattributesofthatmarketstructureforconsumersandbusinesses.



HandoutIII.6.A,“Competition”

Directions:Inmosteconomicmarkets,competitiondetermineshowindustriesoperate.Whilethereareobviousadvantagesthatcompetitionbringstoconsumersandproducers,significantdisadvantagesalsoresult.Theadvantagesanddisadvantagesofcompetitionareaddressedbelow.Afterreadingthehandoutcompletetheexercisethatfollows.

AdvantagesofCompetition

Competitionamongcompaniesiswhatgivesconsumerschoice,allowingthemtoselectproductsthatfittheirbudgetsandneeds.Inaddition,economiccompetitionforcescompaniesandcountriestoincreasetheirefficiencyandcontinuallyseekwaystoimprovetheirproductionprocessformaximumefficacy.Newbusinessproblemsandconsumerproblemsarecreatedeveryday,providingopportunitiesforcompaniestocreateinnovativeproductsthatsolvetheseproblems.Healthyeconomiccompetition,whenfreeofmonopolies,canalsoattractinvestmentsfromothercountries,therebyincreasinganation'sgrossdomesticproduct.Afinalkeyadvantageofeconomiccompetitionisthatitallowsanyonewithaspecializedskillsettocreatesomethingbetterthanwhatthemarketcurrentlyoffersandcleanup.Manyofthelargebrandswithwhichwearefamiliartodaywerestartedbyasmallteamdedicatedtosolvingacustomerproblem.

DisadvantagesofCompetition

Unfortunately,economiccompetitioncomeswithsignificantdisadvantages.Foremost,investmentwealthcanbedisproportionatelyallocatedintowhatearnsthehighestprofit,leavinglessmoneyforsocialservices,suchaspolicedepartments,publicschoolsandemergencyaid.Countriesthatoutsourcetheirproductiontocompaniesoverseasmaypartnerwithsupplierswhoprovidepoorworkingconditionsandlowwages,exploitingworkersandofferinginadequateincentives.Somepoliticallymindedeconomistswouldalsoarguethatakeydisadvantageofeconomiccompetitionisthatitreducestheamountofhumanlaborrequiredtoproducegoods,asmachineryreplacesassemblyjobsoncefilledbyhumanworkers.

http://www.ehow.com/print/info_8455003_advantages‐disadvantages‐economic‐competition.html

Exercise:Inyournotebook,writeatwo‐paragrapheditorialunderthetitle“EconomicCompetition:AGood/BadThing.”Intheeditorial,giveyouropinionaboutcompetition,makingsuretoaddresssomeoftheargumentsadvocatingtheopposingpointsviewthatappearabove.



HandoutIII.6.B,“DifferentMarketStructures”

Directions:Thedegreeofcompetitiondifferentiatesthefourtypesofmarketstructures.Afterreadingthedescriptionsofeach,completetheexercisethatfollows.

PERFECTCOMPETITIONPerfectcompetitionisamodelthatdoesnotactuallyexistintherealworld.Economistsdevelopedittoexplainhowmarketsaresupposedtoworkinacapitalisteconomy.Themodelhelpsusunderstandthefreemarketaswellasothermarketstructuresthatdoexist.Perfectcompetitiondescribesamarketinwhich:1)theproductsoldbyanyonesellerisidenticaltotheproductsoldbyanyotherseller;2)therearemany buyers and sellers, so that no one buyer or seller can affect themarket price—instead, allbuyersandsellersmustacceptthemarketprice;and3)resourcesmovetothemostprofitableindustry.Withperfectcompetition,consumersreceivefairtreatmentbecausethepricetheypayforanygoodorserviceisequaltothecostpaidtoproducethegoodordelivertheservice.

MONOPOLISTICCOMPETITIONThe market structure that comes closest to perfect competition is monopolistic competition. It is amarket characterized by many sellers. Unlike perfect competition, the sellers under monopolisticcompetitiondifferentiatecompetitiveproducts.Productdifferentiationisaccomplishedbychangingthephysicalcomposition,usingspecialpackaging,orsimplyclaimingtohaveasuperiorproductsbasedonbrand imagesand/oradvertising. Inaddition to theexistenceofa largenumberof firmsandproductdifferentiation,relativeeaseofentryintotheindustryisconsideredanotherimportantrequirementofamonopolistically competitive market. With the large number of firms that monopolistic competitionrequires,collusion(e.g.,pricefixing) isgenerallydifficult.Aswithperfectcompetition,afirmproducesthe quantity of product that maximizes its profit. But unlike perfect competition, a firm undermonopolistic competition has some control over the price it charges, as the firm differentiates itsproductsfromthoseofothers.However,theprice‐makingpowerofamonopolisticallycompetitivefirmis rather small, since there are a large number of other firms in the industrywith somewhat similarproducts.Animportantconsequenceoftheprice‐makingpowerofamonopolisticallycompetitivefirmisthatwhensuchafirmreducesitsprice,itcanattractcustomersbuyingother"brands"oftheproduct.The opposite is also true when the firm increases the price it charges for its product. Apparel retailstores(withmanystoresanddifferentiatedproducts)provideexamplesofmonopolisticcompetition.

OLIGOPOLYAn oligopoly is a market controlled by a small number of sellers. An important characteristic of anoligopolistic market structure is the interdependence of firms in the industry. The interdependence,actualorperceived,arisesfromthesmallnumberoffirmsintheindustry.However,unlikemonopolisticcompetition,ifanoligopolisticfirmchangesitspriceoroutput,ithasasignificanteffectonthesalesandprofitsofitscompetitors.Thus,anoligopolisticfirmalwaysconsidersthereactionsofitsrivalsinsettingitspricesormakingoutputdecisions.Therearehuge,thoughnotinsurmountable,barrierstoenteringan oligopolistic market. These barriers can involve large financial requirements, availability of rawmaterials, access to the relevant technology, or simply patent rights of the firms currently in theindustry.It ishardtomakeconcretestatementsregardingpricechargedandquantityproducedunderoligopoly. However, from the point of view of the society, one can say that an oligopolistic marketstructureprovidesa fairdegreeofcompetition inthemarketplace if theoligopolies inthemarketdonotcollude.Collusionoccursiffirmsintheindustryagreetosetpriceand/orquantity.IntheU.S.,boththesteelandautoindustriesareexamplesofoligopolies.

continued



HandoutIII.6.B,“DifferentMarketStructures”(continued)

MONOPOLY

Monopoly istheoppositeofperfectcompetition. It isamarketforminwhichthere isonlyoneseller.Therearemanyfactorsthatgiverisetoamonopoly.Forexample,amonopolycanexistinanindustrybecause an inventor obtained a patent for his product, or a company owns the entire supply of anecessarymaterialneededtoproduceaproduct,or itcanbe legallycreatedbyagovernmentagencywhen it sells amarket franchiseaparticularproductor service. Finally, amonopolymayarisedue todecliningcostsofproductionforaparticularproduct.Insuchacasetheaveragecostofproductionfallsand reaches aminimum at an output level that is sufficient to satisfy the entiremarket. In such anindustry, rival firms will be eliminated until only the strongest firm is left in the market. Generallyspeaking, price and output decisions of a monopolist are similar to those of a monopolisticallycompetitivefirm,withthemajordistinctionofalargenumberoffirmsundermonopolisticcompetitionandonlyone firmundermonopoly.Thus,onemay technically say that there isnocompetitionundermonopoly.Likemonopolisticcompetition,amonopolisticfirmalsomaximizesitsprofitsbyproducinguptothepointwheremarginalrevenueequalsmarginalcost.Asthemonopolistisapricemakerandcanincreasetheamountofsalesby loweringtheprice,amonopolistdoesnot lureconsumersawayfromrivals, rather he or she induces them to buy more. An example of a monopoly is the local electriccompanyinyourcommunity.

Adaptedfrom:http://www.referenceforbusiness.com/encyclopedia/Clo‐Con/Competition.html

continued



HandoutIII.6.B,“DifferentMarketStructures”(continued)

Exercise:Completethechartbelowbydescribinghowcharacteristics(a),(b),(c),and(d)aredifferentformarketstructures2‐4.(Thesectiononperfectcompetitionhasbeenfilledintogiveyouanexampleofwhattowriteineachcolumn.)

Characteristics of the Market Structure

Market Structure

(a) number of firms in the

market

(b) control over the

price of the relevant product

(c) type of the

product sold in the market

(d) factors stopping new firms from

entering the market

1. Perfect competition

Many firms participate in the market

No one buyer or seller can control prices because so many buyers and sellers exist.

The type of product sold by every seller is identical to the product sold by other sellers.

Other than costs involved, there are no factors stopping new firms from entering the market

2. Monopolistic competition

3. Oligopoly

4. Monopoly



HandoutIII.6.C,“Advantages&DisadvantagesofMonopolies”

Directions:Circlethemostsignificantadvantageanddisadvantageofthemonopolymarketstructure.

Amonopolyisamarketstructurehavingonlyoneproducerorsellerofaproductorservice.Someofthenegativeaspectsofamonopolyincludethesinglebusinessbeingabletocontrolpricingandchargerelativelyhighprices,exceptionalpoweroverthemarket,andalackofnewproductsbeingintroducedintothemarket.

Advantages

1. ResearchandDevelopmentInamonopolymarket,productsorservicesthatrequirelargescalecapitalbenefitwhenonlyonefirmproducesthesegoodsorservices.Amonopolistwillhavemoreresourcestoinvestinresearch

anddevelopmentoftheproduct.Monopoliesintheirownwayencourageeconomiesofscale,meaningincreasedoutputanddecreasedunitcostforthosegoodsproducedbyamonopoly.Monopolyofaparticularproductorserviceencouragesresearchanddevelopmentforthe

productionofbetterproductsbecausetheresourcesareavailable.

2. DomesticMonopolybutInternationalCompetition

Whenacompanywieldsconsiderabledomesticmonopolypower,itisinaverystrongpositiontochargepricesasitseesfittoincreaseprofitsofthefirm.However,whenthesamecompanyfaces

intensiveinternationalcompetition,marketpowerisreduced;thiscompetitionhelpstokeepthepricesdownforcustomers.Forexample,U.S.SteelCorporationcontrolsoverhalfthesteel

productioninthecountry,butfacesintensivecompetitionininternationalmarketsfromtheU.K.,Japan,China,andIndia.

Disadvantages

3. PoorQualityofProductsMonopolymarketsmayproduceapoorqualityofproductbecauseoflowerlevelsofoutputthanwouldnormallyexistiftherewerecompetitivecompaniesproducingthesameproducts.The

companywiththemonopolyisfreetobuycheapmaterialstoreducethecostofproducingtheproducts.Becauseofthelackofsubstituteproducts,consumersareforcedtobuytheproductsofferedbythemonopolycompany,givingitthefreedomtosellsub‐standardproducts.

4. UnfairTreatmentTowardsEmployees

Inamonopoly,employeesoftensufferunfairtreatmentatthehandsofthecompanymanagement.Becausethecompanyhasamonopolyinacertainindustryarea,employeesmaybeforcedtoacceptlowwages,lackofproperbenefits,andzeromotivationintheirjobs.Themanagementcandictate

thetermsofthesalarypackage,leavinglittleroomfornegotiationfortheemployees.Thisisdonebecausethecompanyknowsthattheemployeeshavenochoicebuttoacceptitsterms.

http://www.ehow.com/print/info_8433706_advantages‐disadvantages‐monopolies.html



HandoutIII.6.D,“Advantages&DisadvantagesofMonopolisticCompetition”

Circlethemostsignificantadvantageanddisadvantageofthemonopolisticcompetitionmarketstructure.

Advantages

1. CompetitionMonopolisticcompetitionischaracterizedbyfewbarrierstomarketentry;itiseasyfornewfirmsto

enterandleavesuchmarketswithoutfacingthemanybarriersinpuremonopolymarkets;thisallowscreativityandanactivebusinessenvironmentwithamplecompetitors.Thelessrestrictivemarketstructureensuresthatnoonefirmplaysasamonopolyandconsumersgetavarietyof

productsorservicesfromwhichtochoose.Businessesrunninginthismarketstructuremakebusinessdecisionsbasedonvariouseconomicfactorssuchascostofproduction,themarket,andthetypeofproductstheyareoffering.

2. InformedConsumers

Monopolisticcompetitionrequiresconsumerstobecomemoreinformedabouttheproductsandservicesavailableinthemarket.Businessesenteringamonopolisticcompetitionmarketoftenengageinadvertisingtomaketheirpresenceknownanddifferentiatethemselvesfromotherlocal

businessesofferingthesameproducts.Duetocompetition,firmsunderthismarketstructurehavetoenhancetheirvisibilityinthemarketthroughaggressiveadvertisingandmarketing.Inreturn,consumersarefedinformationconcerninguniqueaspectsofproductssuchaspricing,packaging,

andotherspecialservicesthroughadvertisingchannelslikeradioandlocalnewspapers.Consumersinmonopolisticcompetitionenvironmentscanthereforebecomewellinformedaboutproductsandservicesintheirmarketandcanmakeinformedchoicesbasedontheirknowledge.

3. DifferentiatedProducts

Companiesfunctioninginmonopolisticcompetitionmarkethavetodifferentiatetheirproductsfromthoseoftheircompetitors.Differentiatedproductsensurethatconsumerscanchooseaproductfromacompany,forexample,foritsuniquequalitiessuchasthecolorofthepackaging,

size,orprice.Duetothecompetitivenatureofthemarket,companiesstrivetofindadistinctivefeaturetodifferentiateitsproductsfromthoseofitscompetitorsofferingthesametypeofproduct.Forexample,acompanysellingdetergentoftendifferentiatesitsproductthrougheasily

recognizablepackaging.

continued



HandoutIII.6.D,“Advantages&DisadvantagesofMonopolisticCompetition”(continued)

Disadvantages

4. HighCostsMostlocalcompaniesundermonopolisticcompetitivemarketenjoysomelevelofliberty.Though

themarketisfreeandopentoothercompanies,alocalcompanycanoftenadjustpricesupwardwithoutattractingcompetition.Inaddition,alocalfirmenjoysrepeatbusinessfromlocalcustomers

whoremainloyalirrespectiveofpricechangesorthequalityofservicesoffered.

5. HighExpensesMonopolisticallycompetitivefirmsincurhighexpensesinmarketingandadvertising;advertisingis

expensive,andmonopolisticallycompetitivecompanieshavetospendtomaketheirpresenceinthemarketknown.Inmonopolisticcompetition,firmsmakeanextraefforttodifferentiatetheirproductsintheviewofstiffcompetitionusingmethodssuchasproductpackaging,unique

marketinganddistributionchannelstodifferentiatetheirproducts.Thisbecomesanadditionalcost,whichmakesoperatingcostshigh.

http://www.ehow.com/info_8572321_advantages‐disadvantages‐monopolistic‐compettition.html



HandoutIII.6.E,“Advantages&DisadvantagesofOligopolies”Direction:Circlethemostsignificantadvantageanddisadvantageofoligopolies.

Advantages

1. BigBusinessesGainMassiveProfitsOneofthegreatestadvantagesforoligopoliesisthedegreetowhichtheyareincontroloftheirbusinesses.ThinkaboutsomeofthemajorcompaniesintheUnitedStates.Youcouldprobablypointoutfivebusinessesthatownthemajorityofotherbusinesses.Sometimes,evenproductsthatappeartocomefromcompetingcompaniesareactuallyresultsofthesamelargerestablishment.Therefore,themaincompanyisabletodriveitsowncompetition,yetitalwayswinsthatcompetition,sinceithasproductsonbothsides.Additionally,thebusinessisabletomakemassiveamountsofmoneysincethatonecompanyisinchargeofsomanydifferentcomponents.

2. AbilitytoDeterminePricesInsteadofhavingtokeepupwiththemarket,oligopoliesessentiallycontrolthemarket.Ofcourse,intimesofeconomichardship,manydifferenttypesofvenuesaregoingtobeaffected‐andthesesuccessfulbusinessescanbehurtaswell.However,onceagain,thinkaboutthemajorbusinessesintheUnitedStatesandhowtheyhavemanagedtostayopenduringthecurrentrecession.

Sinceoligopolieshavesomuchpower,theyareabletosetpricesforbothgoodsthatpeoplewantandgoods that people need, thereby sustaining themselves. However, the practice of "setting" prices isillegal.Therefore,whileitisapositiveforthecompany,itisanegativeforconsumersinsomanyotherways.

3. Long‐TermProfitsThesecompaniesnotonlymakemassiveprofits,buttheyareabletoretainthemforthelonghaul.Thewaythatthemarketissetupdoesnotallowjustanyoldbusinesstocomeintoashareofthepoweroftheoligopoly.

Disadvantages

1. PowerintheHandsofaWealthyFewWhenthewealthisconcentratedinthehandsofafewpeopleandnotmorespreadout,smallerbusinessesarenotnecessarilyabletogettheirnamesoutthereandselltheirproductsandservices,unlesstheyareabsorbedbyalargerbusinessthatispartoftheoligopoly.

2. CreativityWhenthewealthisconcentrated,itisdifficultfornewideastocomeintoplay.Theyeitherneedtobeabsorbedbyoneofthecontrollingbusinessesintheoligopoly,ortheyareneverabletoreachfruition.Fortheindividual,stiflingcreativityissuffocating.Agreatideamightbeallreadytocomeintoexistence,butitisunabletobeintroducedbecauseoftheoligopoly'spowerinthemarketplace.

3. SettingPricesThesebigbusinesseshavethepowertosetprices,whichisnegativeforthesocietyandforothertypesofbusinesses,inadditiontobeingillegal.Thewholeideaofcompetitivepricingisthrownoutthewindowwhenthesebusinessesgoabouttheirpricingpractices.

Asyoucanprobablysee,oligopoliesappeartobebeneficialforthesuccessfulbusinessesinthem,butnotsogreatfortheotherpeopleinthesociety.

http://answers.yourdictionary.com/answers/business/what‐are‐advantages‐disadvantages‐oligopoly.html

UNITIII/LESSON7

TheCircularFlowofEconomicActivities

TimeFrame2days

StandardsNES:Economics–Describethenatureofeconomicsandeconomicactivities

Explainthecircularflowmovementofinputsandoutputsamonghouseholds,businesses,andgovernments

AssesstheimpactofgovernmentactionsonbusinessventuresNES:Skills–FollowdirectionsApplyeffectivelisteningskills


GuidingQuestionHowdohouseholds,government,andbusinessactivitiesworktogethertomakeoureconomyrun?

MaterialsHandoutsIII.7.A‐F


DrawconclusionsastohowgoodsandservicesaredistributedintheUnitedStates.

DescribeandillustratewhatismeantbythecircularflowofeconomicactivityintheUnitedStates.

Explainhowthegovernmenthasthepowertoalterthecircularflowandunderwhatcircumstances

thegovernmentwilltakeactionstocontroloraltertheflowoftheeconomy.

TeacherBackgroundTheflowofpaymentsinaneconomyisacircularflowinvolvinghouseholds/consumers,businesses,and

thedifferentlevelsofgovernment.Thiscircularflowworksasfollows:Consumersworkforbusinesses,renttheirproperty(ortheircapital)tobusinesses,and/ormanageandownthebusinesses.Theseactivitiesgenerateincomes—whichcanbelookedatasflowsofpaymentsfrombusinessesto

households.Householdsthenspendtheirincomes‐‐onconsumptiongoods,whichgotobusinesses,orpaytaxestogovernments.Foritspart,governmentsthenspendthemoneytheyhavereceivedongoodsandservices,whichgobacktohouseholdsandbusinesses.

HandoutsIII.7.A,III.7.B,andIII.7.Caskstudentstointerpretdiagramsillustratingtherolehouseholds,businesses,andgovernmentplayinrunningthenation’seconomy.InHandoutsIII.7.D,III.7.E,andIII.7.F,theclasswillreadmoredetailedinformationabouttheinterrelatedroleplayedbythethreesectorsin

theeconomy.Foreachofthesehandouts,studentswillbechargedwithaskingaquestionabouttheinformationcontainedinthehandouts.




Writethewords“consumers,”“businesses,”and“government”ontheboard.Askstudentstowrite

onesentenceforeach,toexplaintherolethatthatsectorplaysinmakingoureconomyrun.Thenhavestudentsexplaintheiranswerstothefollowingquestions:

– Whatroledidyousayconsumersplay?

– Whatroledidyousaybusinessesplay?

– Whatroledidyousaygovernmentsplay?

– Whichofthesethreesectorsplaysthemostimportantroleinmakingtheeconomyrun?

DistributeHandoutIII.7.A,“Diagram.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Whatdidyouseeinthisdiagram?

– WhatideasabouttheCircularFlowofMoney,Goods,andServiceswereexpressedinthediagram?Howdoyouexplaintheuseoftheterm“circularflow”todescribetheeconomicrelationshipbetweenhouseholdsandfirms?

– Whatdidyoulearnfromthediagramabouttherolehouseholdsplayinthecircularflowof

money,goods,andservices?Whatdidyoulearnabouttherolebusinessesplayinthecircularflowofmoney,goods,andservices?

– WhatisthemostimportantthingaboutCircularFlowofMoney,Goods,andServicesthatyou

learnedfromthisdiagram?

DistributeHandoutIII.7.B,“GovernmentandPublic.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Whatdoyoulearnfromthishandoutabouttheinterrelationshipsbetweenthegovernmentand

publicintheeconomy?

– Towhatextentwouldyousaythathouseholdsaredependentongovernment?

– Towhatextentwouldsaythegovernmentisdependentonhouseholds?

Distribute:HandoutIII.7.C,“FlowofEconomicActivity.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Whatinformationdoyougetfromstudyingthischart?

– Basedonthischart,howwouldyouexplaintherolehouseholdsplayinthenation’seconomicactivities?

– Basedonthischart,howwouldyouexplaintherolebusinessesplayinthenation’seconomic

activities?

– Basedonthischarthowwouldyouexplaintherolegovernmentsplayinthenation’seconomicactivities?

– Whichsectorplaysthemostindispensablerole?



Distribute:HandoutIII.7.D,“Households.”Havestudentscompletetheexerciseonthehandout,


– Whatdidyoulearnfromthisreadingabouttherolehouseholdsplaythatyoudidnotgetfrom

lookingatthediagramonHandoutIII.7.C?

– Whatquestionabouthouseholdswouldyouhaveaskedofthepersonwhowrotethenoteonthehandout?

Distribute:HandoutIII.7.E,“Businesses.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– WhatdidyoulearnfromthisreadingabouttherolebusinessesplaythatyoudidnotgetfromlookingatthediagramonHandoutIII.7.C?

– Whatquestionaboutbusinesseswouldyouhaveaskedofthepersonwhowrotethenoteonthe

handout?

Distribute:HandoutIII.7.F,“Governments.”Havestudentscompletetheexerciseonthehandout,


– WhatdidyoulearnfromthisreadingabouttherolegovernmentsplaythatyoudidnotgetfromlookingatthediagramonHandoutIII.7.C?

– Whatquestionaboutgovernmentswouldyouhaveaskedofthepersonwhowrotethenoteonthehandout?


Basedonwhatyoulearnedinthislesson,howdohouseholds,government,andbusinessactivitiesworktogethertomakeoureconomyrun?

FollowUpAskstudentstocreatethreePowerPointslidesconsistingofanimageandnomorethanthreelinesoftext,picturingtherolesthathouseholds,businesses,andgovernmentsplayinconductingthenation’seconomicactivities.



HandoutIII.7.A,“Diagram”Directions:Diagramshelpsustounderstandanideabypresentingapictureofthatidea.Studythe

diagrambelowandcompletetheexercisethatfollows.

Circular Flow of Money, Goods, and Services

Takenfromhttp://ingrimayne.com/econ/TheFirm/CircularFlow.htmlhttp://www.enotes.com/circular‐flow‐reference/circular‐flow

Exercise:Writeaparagraphof3‐4sentencesexplainingthemostimportantideascontinuedinthediagram.

_____________________________________________________________________________

_____________________________________________________________________________

_____________________________________________________________________________

_____________________________________________________________________________

_____________________________________________________________________________

_____________________________________________________________________________



HandoutIII.7.B,“GovernmentandthePublic”Directions:Government’sroleintheflowofeconomicactivitiesisanimportantone,particularlyits

relationshipwithhouseholds.Studythediagrambelowandcompletetheexercisethatfollows.

Exercise:Inthechartbelow,givetwoexamplesoftaxespaidbyhouseholdstogovernmentandtwoexamplesofservicesperformedbygovernmentforhouseholds.

Examples of taxes paid by households to government

Examples of services performed by government for households

1.

1.

2.

2.



HandoutIII.7.C,“FlowofEconomicActivity”Directions:Studythediagrambelow,whichgivesacompletedescriptionoftheinterrelatedroleplayed

byhouseholds,businesses,andgovernmentintheeconomicactivitiesoftheU.S.Thencompletetheexercisethatfollows.

Adaptedfrom,Economics:PracticesandPrinciples,GersonAntell,Amsco:1997,p33

Exercise:Basedontheinformationprovidedinthediagramabove,explain,inoneortwosentencesforeach,therolethatthehousehold,business,andgovernmentsectorsplayintheeconomicactivitiesoftheU.S.

1. Households

2. Businesses

3. Government

Households



HandoutIII.7.D,“TheHouseholds”Directions:Assumeyoucouldwritetoarepresentativeofthehouseholdsector,askingthatpersonto

explain more about the role of the household sector plays in the economy than was pictured inHandoutIII.7.C.Theletterbelowcontainsapossibleresponsetoyourquestion.Completetheexercisethatfollows.

Dear Sir/Madam:

As the household sector, our spending drives the economy, accounting for about 70 percent of all economic activity in the U.S. Here’s how it works. We get the money to spend from a variety of sources, including businesses and government—some of it is earned (e.g., wages and salaries, interest, rent and dividends). Individuals may also receive income––called transfer payments such as veterans' benefits, welfare payments, and retirement or pension benefits.

Household income, along with borrowings from financial markets, goes to another sector of the economy, businesses, in the form of spending on goods, such as automobiles and food, and services, such as education and entertainment. While the bulk of our income is spent, households, like the other sectors, often borrow to purchase goods and services the cost of which may be beyond the reach of our current incomes. Examples of items for which we typically borrow to pay for are automobiles, homes and education. Of course, consumers may, as a matter of convenience, borrow when they use credit or charge cards to purchase relatively less expensive times such as food in restaurants or clothing.

Finally, individuals pay taxes on the basis of their income, on the things they purchase, or on the property they own. The taxes collected represent the principal source of income to the government sector. The portion of household income that is neither spent nor taxed is saved.

Adaptedfrom:http://ecedweb.unomaha.edu/ve/library/cirf.pdf

Exercise: Write one question you would ask the person who wrote this letter about the household

sector’sroleintheeconomicactivityofthenation.

____________________________________________________________________ ____________________________________________________________________?



HandoutIII.7.E,“Businesses”Directions: Assume you couldwrite to a representative of the business sector, asking that person to

explainmore about the role that the business sector plays in the economy thanwas pictured in thediagramonHandoutIII.7.C.Theletterbelowcontainsapossibleresponsetoyourquestion.Completetheexercisethatfollows.

Dear Sir/Madam:

The principal economic activity of the business sector is to produce consumer and capital goods and services, mostly for households (consumers) but for the government as well. Consumer goods and services include anything—for example, television sets, clothing, health care—that is bought for immediate use. Capital goods are goods—such as trucks, tools, and equipment—which, while not directly consumed, are used to produce either additional consumer goods and services or other goods. By producing we mean not only goods you can see, like steel, but also services, which are also part of the production activities of business firms. For example, the shipment of an automobile from an assembly plant to a dealer's showroom involves the use of transportation services.

As businesses, we compete with each other for resources around the world, as well as human talent, such as designers, workers, and managers. We get this human talent primarily from the household sector. The cost of acquiring resources such as labor is a source of income (namely, wages) for households, who are the labor resource suppliers.

A firm's net income or profit is the difference between its revenue from selling output and the costs or expenses associated with producing it. These profits are an important internal source of funds firms use to finance their expenditures for new capital resources or to place in financial institutions (e.g., banks) for use by the public. In addition to undistributed profits, the funds we borrow are also used to finance business expenditures.

Business investment spending is affected by a variety of factors including the current and expected state of the economy, interest rates, and taxes. An economic slowdown that is expected to continue for some time may result in business firms trimming their capital spending plans. A sluggish economy, high business taxes and rising interest rates normally weaken the rate of business investment spending and, in turn, the economy's capacity to grow and produce goods and services. In contrast, an expanding economy, along with a favorable tax and interest rate environment, will cause the circular flows of economic and financial activity to expand, as well.


Exercise:Writeonequestionyouwouldaskthepersonwhowrotethisletteraboutthebusinesssector’s

roleintheeconomicactivityofthenation.

____________________________________________________________________ ____________________________________________________________________?



HandoutIII.7.F,“Government”Directions:Assumeyoucouldwritetoarepresentativeofthegovernmentsector,askingthatpersontoexplainmoreabouttherolethatthegovernmentsectorplaysintheeconomythanwaspicturedinthediagramonHandoutIII.7.C.Theletterbelowcontainsapossibleresponsetoyourquestion.Completetheexercisethatfollows.

Dear Sir/Madam:

Lumped together in our sector are more than 80,000 separate units, made up of all levels of government––federal, state, municipal, and local. Generally, we spend your tax dollars on goods and services, produced by private sector business firms. For example, the federal government provides national defense using aircraft carriers made by and purchased from the private sector. In addition to spending to purchase them, we sometimes produce goods and services ourselves. As a rule, the government sector provides the private sector with goods and services that businesses generally does not or cannot provide. For example, private business firms generally will not provide goods and services to customers who do not pay, yet benefit from their availability. If such goods and services are provided at all, it is generally done by the public sector. They are called public or collective goods and services because individuals “collectively” benefit from their availability whether or not they pay. Some examples are public schools, national defense goods like tanks and missiles, and interstate highways.

The principal source of income for the federal government comes from taxes levied on the earnings of households and businesses. State and local governments, however, rely to a large extent on sales and real estate taxes. A tax on the flow of income affects the amount households and business firms devote to saving as well as to spending on services and consumer and business capital investment goods. For example, an increase in the personal income tax rate would tend to lower after-tax or disposable income and, in turn, the amount of income households allocate to spending and saving. With higher taxes discouraging consumer spending, business firms will generally cut back on production rather than being stuck with unsold inventories of output. A slowing in production will decrease business demand for productive resources and, in turn, will increase resource unemployment and lower resource income, further reducing the general demand for goods and services, which was initially triggered by the income tax increase.

A change in the level of government spending affects the economy's flows. If the government sector were to increase spending on goods and services produced by businesses, the tempo of economic activity would rise and the following is also likely to increase: a) the levels of employment; b) household and business income, spending and saving; and c) tax receipts, as households and businesses pay more taxes on higher incomes. Similarly, a slowing or reduction in government spending (or an increase in taxes) would tend to slow the economy's flows, as well.


Exercise:Writeonequestionyouwouldaskthepersonwhowrotethisletteraboutthegovernment’sroleintheeconomicactivityofthenation.

____________________________________________________________________ ____________________________________________________________________?

UNITIII/LESSON8

MeasuringEconomicActivity

TimeFrame2days

StandardsNES:Economics–Macroeconomicconcepts

ExplainmeasuresusedtoanalyzeeconomicconditionsExplaintheconceptofGrossDomesticProductExplaintheconceptofConsumerPriceIndex



GuidingQuestionHowdoeconomistsmeasurethehealthofaneconomy?



Describetheirconceptofhealthyeconomy.

Discusssomeofindicatorseconomistsusetoevaluatetheeconomy(e.g.,GDP,CPI,Employmentdata)andtheflawsinthesemeasures.

Makejudgmentsastowhicheconomicindicatorsgiveustheclearestpictureofthehealthoftheeconomy.

TeacherBackground

Economicindicatorsappearregularlyinthenewsreports.Theseindicatorsprovideimportantinformationtoeconomists,governmentofficials,andbusinessleadersbecausetheyallowanalysisofeconomicperformanceandpredictionsoffutureperformance.Attimes,thevariousindicatorspainta

clearpictureofaneconomygoinginonedirection.Atothertimes,thevariousindicatorsseemtobegoingindifferentdirections.Someindicatorsarecalledleading(e.g.,stockmarketprices)becausetheychangebeforetheeconomyasawholechanges.Othersindicatorsarecalledcoincident(e.g.,personal

income),becausetheychangeatapproximatelythesametimeasthewholeeconomy.Andstillothersarecalledlaggingindicators(e.g.,theunemploymentrate),becausetheychangeaftertheeconomyasawholedoes.Thislessonexaminessomeofthemoreprominentindicators,examiningwhatinformation

theyprovideandhowreliabletheyare.


UNITIII/LESSON8:page2 HandoutIII.8.Aasksstudentstosuggestmeasuresthatanon‐economistwouldlookattodetermine

whetherornotaneconomyishealthy.Studentswillreadabeginner’sguidetoeconomicindicatorsinHandoutIII.8.Btolearnsomebasicinformationonthesubjectandidentifythreeimportantideastheygainedfromthereading.Theclassisexposedtosomeofthemoreimportanteconomicindicatorsin

HandoutIII.8.C.Intherelatedexercisetheyareexpectedtopointtothoseindicatorsthatpresentthemostvitalinformationabouttheeconomichealthofthenation.HandoutIII.8.Dcallsuponstudentstoapplywhattheylearnaboutindicatorstoachartandstoryaboutoneofthemostimportantindicators,

GrossDomesticProduct.


DistributeHandoutIII.8.A,“Doctor.”Askstudentstofollowthedirectionsonthehandout,thenhave


– Whenyougotothedoctor,whatkindsofthingsdoesheorshelookattodetermineyourhealth?

– Whatdothingslikeaperson’stemperature,bloodpressure,andbloodteststellusabouta

person’shealth?”

– Whatkindsofthingswouldyou,asanon‐economist,lookattodeterminehowhealthyour

economyis?

– IfyouhadtomakeadeterminationaboutthehealthoftheU.S.economytoday,wouldyousayitis:a)veryhealthy,b)somewhathealthy,c)moreunhealthythanhealthy,ord)unhealthy?

DistributeHandoutIII.8.B,“GuidetoIndicators.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Inwhatwaysareeconomicindicatorsimportantto:1)economists,2)businesspeople,and3)governmentofficials?

– Whatarethemajordifferencesbetweenlagging,leading,andcoincidentindicators?Whymight

anentrepreneurbeinterestedinlookingataleading,alagging,andacoincidentindicator?

– Whatisthemostimportantinformationyoulearnedaboutindicatorsfromthishandout?

Distribute:HandoutIII.8.C,“ImportantIndicators.”Havestudentscompletetheexerciseonthe

handout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Whatinformationdidyougetfromthishandoutabouteconomicindicators?

– Whataresomeoftheimportantdifferencesintheindicatorsinthesethreecategories?

I) TotalOutput,Income,Prices,andSpending

II) Employment,Unemployment,andWages

III)ProductionandBusinessActivity



– SomepeoplebelievethemostimportantstatisticsabouttheeconomycomefromtheCategoryII

Employment,Unemployment,andWages.Howcanyouexplainthatbelief?

– Inyouropinion,whichofthethreecategoriesofinformationismostcrucialtounderstandingthecurrenthealthoftheeconomy?

Distribute:HandoutIII.8.D,“Application.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Howdidyoufillinthesixblanksonthehandout?

– WhatinformationdidyoulearnaboutGDPfromthishandout?

– Basedonthisreport,towhatextentisGDPagoodmeasureofthenation’soveralleconomic

activity?TowhatextentshouldGDPbedescribedasanincompletemeasureofthenation’seconomichealth?

DistributeHandoutIII.8.E,“Flaws.”Havestudentscompletetheexerciseonthehandout,thenhave


– Whatdidyoulearnaboutsomeoftheflawsineachofthemajoreconomicindicatorsfromthis

reading?

– Whatarethemostseriousflawsineachofthefollowing:GDP,CPI,andtheunemploymentrate?

– Basedonwhatyoulearnedabouttheseflaws,towhatextentshouldwerelyontheGDP,CPI,

andunemploymentratewhenattemptingtodeterminethehealthoftheeconomy?


WhatdidyoulearninthislessonabouttheindicatorsusedtomeasurethehealthoftheU.S.economy?

FollowUpAskstudentstostudentstowriteathree‐pagepaperentitled“ProblemswithEconomicIndicators.”Thepapershouldaddresssomeoftheshortcomingsrelatedtoeconomicindicatorsthatareusedto

measuretheeconomichealthofthenation.Studentsshouldaddressthisquestionintheirconclusions:“Towhatextentcanwerelyoneconomicindicatorstodeterminethenation’seconomichealth?”



HandoutIII.8.A,“Doctor”Directions:Onthechart,listthreethingsyouwouldlookattodeterminethehealthofanation’s

economy.

Adaptedfrom:http://thumbs.dreamstime.com/thumblarge_258/1208139620O5siLv.jpg

Measures of a Healthy Economy

1. 2. 3.

Hi— I’m an economist who measures the economic health of a nation.



HandoutIII.8.B,“Beginner’sGuidetoEconomicIndicators”Directions:Underlinethreeimportantpiecesofinformationfromthisbeginner’sguidetoeconomicindicators.

Q: I'mconstantlyhearingabouteconomicindicatorsinthenews,butI'mneversurewhatthey'retalkingabout.Whatareeconomicindicatorsandwhyaretheyimportant?

A: Aneconomicindicatorissimplyanyeconomicstatistic,suchastheunemploymentrate,GrossDomesticProduct,ortheinflationrate,whichinformusabouthowwelltheeconomyisdoingnowandwhichdirectionisitgoinginthefuture.Tounderstandeconomicindicators,wemustunderstandthewaysinwhicheconomicindicatorsdiffer.Therearethreemajorattributeseacheconomicindicatorhas:

ThreeAttributesofEconomicIndicators1. RelationtotheBusinessCycle/Economy

EconomicIndicatorsarerelatedtothebusinesscycleinoneofthesetwoways:

a. Apro‐cyclicaleconomicindicatorisonethatmovesinthesamedirectionastheeconomy.Soiftheeconomyisdoingwell,thisnumberisusuallyincreasing,whereasiftheeconomyisdoingpoorly,thisindicatorisdecreasing.TheGrossDomesticProduct(GDP)isanexampleofaprocyclicaleconomicindicator.

b. Acountercyclicaleconomicindicatorisonethatmovesintheoppositedirectionastheeconomy.Theunemploymentrategetslargerastheeconomygetsworse,soitisacounter‐cyclicaleconomicindicator.Astheeconomygetsbetter,theunemploymentrategoesdown.

2. FrequencyoftheDataSomeindicatorsarereleasedeverythreemonths(e.g.,GrossDomesticProduct),somemonthly(e.g.,unemploymentrate),andstillothersareavailableimmediatelyandchangeminute‐by‐minute(e.g.,theDowJonesIndex).

3. TimingEconomicIndicatorscanbeleading,lagging,orcoincident,whichindicatesthetimingoftheirchangesrelativetohowtheeconomyasawholechanges.

ThreeTimingTypesofEconomicIndicators:

a. Leading:Leadingeconomicindicatorsareindicatorsthatchangebeforetheeconomychanges.Stockmarketreturnsarealeadingindicator,asthestockmarketusuallybeginstodeclinebeforetheeconomydeclinesandtheyimprovebeforetheeconomybeginstopulloutofarecession.Leadingeconomicindicatorsarethemostimportanttypeforinvestors,astheyhelppredictwhattheeconomywillbelikeinthefuture.

b. Lagging:Alaggingeconomicindicatorisonethatdoesnotchangedirectionuntilafewquartersaftertheeconomydoes.Theunemploymentrateisalaggingeconomicindicator,asunemploymentstilltendstoincreasefor2or3quartersaftertheeconomystartstoimprove.

c. Coincident:Acoincidenteconomicindicatorisonethatsimplymovesatthesametimetheeconomydoes.TheGrossDomesticProductisacoincidentindicator.

http://economics.about.com/cs/businesscycles/a/economic_ind.htm?p=1



HandoutIII.8.C,“ImportantIndicators”Directions: This handout lists three categories of important economic indicators and how frequentlythey are released to the public (this information appears in brackets). Circle the one category of thethreethatyouthinkcontainsthemostimportantindicators.

Eachoftheseindicatorshelpscreateapictureoftheperformanceoftheeconomyandhowtheeconomyislikelytodointhefuture.

I. TotalOutput,Income,PricesandSpendingThesetendtobethebroadestmeasuresofeconomicperformanceandincludesuchstatisticsas:

– GrossDomesticProduct(GDP)[quarterly] – ConsumerPriceIndex(CPI)[monthly]– RealGDP[quarterly] – NationalIncome[quarterly]

– PersonalConsumption(PCE)Expenditure – ConsumptionExpenditure[quarterly] Deflator[quarterly] – CorporateProfits[quarterly]– BusinessOutput[quarterly] – RealGrossPrivateDomesticInvestment[quarterly]

Comment:TheGrossDomesticProductmeasuresthetotaldollarvalueofgoodsandservices

producedbyanation’seconomyoveracertainperiodoftime.Itisacoincidenteconomicindicator.TheConsumerPriceIndexisameasureofthegenerallevelofpricesandthereforeprovidesimportantinformationaboutperiodsofinflationordeflation.Ittendstobealaggingindicator,asitreflectsaneconomicchange(e.g.,ariseininflation)afterithasalreadyoccurred.

II. Employment,Unemployment,andWagesThesestatisticscoverhowstrongthelabormarketisandtheyincludethefollowing:

– UnemploymentRate[monthly]– LevelofCivilianEmployment[monthly]– AverageWeeklyHours,HourlyEarnings,andWeeklyEarnings[monthly]– LaborProductivity[quarterly]

Comment:Theunemploymentratemeasuresthenumberofpeoplelookingforjobswhocannotfindthem.Itisalaggingindicator.Thelevelofcivilianemploymentmeasureshowmanypeopleareworkingandisacoincidenteconomicindicator.

III. ProductionandBusinessActivityThesestatisticsmeasureproductionbybusinessesandthelevelofnewconstructionintheeconomy:

– IndustrialProductionandCapacityUtilization[monthly]– NewConstruction[monthly]– NewPrivateHousingandVacancyRates[monthly]– BusinessSalesandInventories[monthly]– Manufacturers'Shipments,Inventories,andOrders[monthly]Comment:Changesinbusinessinventoriesisanimportantleadingeconomicindicatorasitindicateschangesinconsumerdemand.Newconstructionincludingnewhomeconstructionisanotherleadingindicatorwatchedcloselybyinvestors.Aslowdowninthehousingmarketduringaboomoftenindicatesthatarecessioniscoming,whereasariseinthenewhousingmarketduringarecessionusuallymeansthattherearebettertimesahead.

http://economics.about.com/cs/businesscycles/a/economic_ind_2.htm?p=1



HandoutIII.8.D,“Application”Directions:BelowisanewsstoryaboutareportontheGrossDomesticProduct(GDP),oneofthemostimportantindicatorsstudiedbyeconomists.Basedonwhatyoulearnedaboutindicators,andlookingatthechartbelow,fillintheunderlinedsixspaceswithwordsthatyouthinkfitbest.

U.S. economy is 1) , but still struggling @CNNMoney January 27, 2012: 10:11 AM ET

NEW YORK (CNNMoney) – The United States economy 2) __________________ at the end of 2011 as businesses substantially built up their inventories and consumers increased their spending.

Gross domestic product, announced every 3) _________ month(s) is a measure of 4) ________________ _____________ . In Q4 20011, it grew at an annual rate of 5) _____% in the last three months of the year, the Commerce Department said. GDP is considered a 6) __________________________ indicator, because it moves at the same time the economy does.

While that's a major improvement from 1.8% in the prior quarter, and the fastest since the second quarter of 2010, it still fell short of economists' expectations of 3.2% and sent stock futures falling.

SignsofweaknessWhile the number appeared to come in strong, there were still signs of overall weakness, and economists remain cautious about the outlook for the economy.

One reason is that the bulk of the growth came from just one area: businesses building up their stock of goods. Private businesses increased inventories $56 billion in the fourth quarter, following a decrease of $2 billion in the third quarter.

An increase on that front can be seen as a double-edged sword. On the one hand, it can be a sign of confidence in the economy. When firms predict greater purchases in the future, they build up their inventories.

Adaptedfrom:http://money.cnn.com/2012/01/27/news/economy/gdp_growth/index.htm



HandoutIII.8.E,“Flaws”Directions: Economistsandothermarketwatchers look tomajormarket indicators suchas theGrossDomesticProduct(GDP),theConsumerPriceIndex(CPI),andtheunemploymentrateforguidanceonthe stateof theeconomy. However, therearemanypotential flaws in the story these indicatorsaretelling. Someoftheflaws inthesethreemajor indicatorsaredescribedbelow. Foreachofthethreeindicatorsmentioned,underlinethemostseriousflaw.

1. GrossDomesticProductGrossdomesticproduct(GDP),definedasthemonetaryvalueofallthefinishedgoodsandservicesproducedwithinacountry'sborders,iscommonlyusedasanindicatorofacountry'seconomichealth,aswellasagaugeofthecountry'sstandardofliving.CriticsofthisindicatorcorrectlypointoutthattheGDPdoesnottakeintoaccounttheso‐calledundergroundeconomy,includingthosepeoplewhoproducegoodsandservicesbutdonotreporttheseactivitiestoavoidpayingtaxes.Alltransactionsthat,forwhateverreason,arenotreportedtothegovernmentaresimplyleftoutoftheGDPcalculation.Forexample,householdproduction(thevalueofahousewife)countsfornothingwhiletheservicesofamaidaddtothegrossdomesticproduct.Otherexamplesofundergroundproductionincludethetimeyouspendworkinginyourgardenorfixingyourcar.

2. ConsumerPriceIndexTheConsumerPriceIndex(CPI)isaseriesofmeasuresthatreflecttheweightedaverageofpricesofabasketofconsumer’sgoodsandservices.Thegoodsareweightedintheindexaccordingtotheirshareoftotalconsumerexpenditures.ChangesintheCPIareusedtomeasureinflation.Whiletrackinginflationisimportantinthatitcanhelpconsumersunderstandchangesassociatedwiththecostofliving,understandingCPIisnotasimplematter.TheCoreCPI,animportantpartoftheCPI,doesnotmeasurefoodandenergybecausethosepricesgoupanddownsofrequently.Ofcourse,foodandenergycostshaveasignificantimpactonone'sspendingbudgetandgenerallyhaveahard‐to‐avoidimpactonconsumers.Anymeasurethatdoesnotcapturethemisunlikelytoreflecttheexperiencesofthemajorityofthepopulation.TheCPImeasuresarefilledwithcriticism.Forone,thebasketofgoodschangesinfrequentlyand,therefore,maynotalwaysreflectitemsthatprovideanaccurateaccountingoftheconsumerexperience.Foranother,somecriticsarguethatCPIoverestimatesinflation,whileothersarguethereverse.

3. UnemploymentRateTheU.S.government'sBureauofLaborStatistics(BLS)headlineunemploymentnumber,frequentlycitedbythepressintheheadlines,isthenarrowest,mostsugarcoatedmeasureofU.S.joblessnessforthesereasons:

– Itexcludesworkersseekingfull‐timejobs,failingtofindthem,andthenacceptingpart‐timeworkthatalmostinvariablypaysfarless.

– Itexcludesdiscouragedworkerswhohavegivenuplookingforjobsbecausetheycan'tfindany.

– And,asifthatwasn'tenough,theBLShasbeenconsistentlyandgrosslyunderstatingthecurrentunemploymentnumbers,notrevisingthemuntilmonthslater,whenfewerpeoplearepayingattention.

Adaptedfrom:http://www.investopedia.com/articles/economics/11/flaws‐in‐market‐indicators.asp?partner=thebull#axzz1lfIl4iMCandhttp://www.marketoracle.co.uk/Article9960.html

UNITIII/LESSON9

BusinessCycle

TimeFrame:2days

StandardsNES:Economics–Macroeconomicconcepts

DescribetheimpactofbusinesscyclesonbusinessactivitiesExplainmeasuresusedtoanalyzeeconomicconditions



GuidingQuestionHowdoesthebusinesscyclehelpusunderstandwhat’sgoingonintheeconomy?



Discusstheconceptofthebusinesscycle.

Describethedifferentphasesofthebusinesscycle.

Explainthecausesofthebusinesscycle.

TeacherBackground

Thebusinesscycleisdefinedasthetendencyofaneconomytoexperienceperiodicupturnsandslowdownsinproduction.Duringtheseperiods,peoplegainorlosejobs,thedemandforgoodsincreasesordeclines,

andbusinessesexpandorclose.Sometimescalledthe"boom/bust"cycle,thebusinesscyclehasbeenarecurringphenomenonsincethemid‐nineteenthcentury.Thisphenomenonischaracterizedbyfourphasesofeconomicactivity:thepeak(thehighestpointofeconomyactivity,priortothedownturn),the

contractionorrecession(aneconomicdownturncharacterizedbynegativegrowth),thetrough(thelowestpointofeconomicactivity,leadingtoatransitionupward),andtheexpansion(aperiodduringwhichtheeconomyimproves,leadingtothepeak).

StudentswillinterpretachartofthebusinesscycleinHandoutIII.9.A.Theywillnextrole‐playaninterviewaboutthebusinesscyclewithaneconomistinHandoutIII.9.B.HandoutIII.9.Cexplainsingreaterdepththefourphasesofthebusinesscycle.Intheexerciseforthishandout,theclasswillplotthebusinesscycle,in

termsofGDPgrowth,forthe2008‐2009period.HandoutIII.9.Daskstheclasstoposeaquestionaboutthecausesofthebusinesscyclebasedonaletterthatstudentsread.


UNITIII/LESSON9:page2 TeachingStrategies/SupportingActivities

DistributeHandoutIII.9.A,“Chart.”Askstudentstofollowthedirectionsonthehandout,thenhave


– Whatdidyoulearnaboutthebusinesscyclefromthischart?

– Whydoyouthinkthechartistitled“TheBusinessCycle”?

– Afterstudyingthischart,whatisonequestionaboutthebusinesscyclethatyouwouldwantanswered?

DistributeHandoutIII.9.B,“Interview.”Assignsixstudentstothefollowingroles:Interviewer#1(I‐1);Interviewer#2(I‐2);Interviewer#3(I‐3);Interviewer#4(I‐4);Interviewer#5(I‐5);andEconomist(E).

Havethesixstudentsactouttheinterview,accordingtothescriptonthehandout.Havetheremainderoftheclasscompletetheexerciseattheendofthehandout;thenhavethemexplaintheiranswerstothefollowingquestions:

– Whatwasthisinterviewabout?

– Whataresomeoftheimportantthingsyoulearnedaboutthebusinesscyclefromtheinterview?

– Whatquestionwouldyouhaveaskedoftheeconomistaboutthebusinesscycleafterwatchingthe

performanceoftheinterview?

DistributeHandoutIII.9.C,“Phases.”Askstudentstofollowthedirectionsonthehandout,thenhave


– Whatdidyoulearnaboutthephasesofthebusinesscyclefromthishandout?

– Whatarethemajordifferencesamongthepeak,trough,expansion,andcontractionphases?

– Basedonthegraphyoucreatedfortheexerciseonthishandout,whatphase(s)ofthebusinesscyclewasoureconomyinbetweenthefirstquarterof2008andfourthquarterof2009?

– Towhatextentisitnecessaryforanentrepreneurtohaveanunderstandingaboutthedifferent

phasesofthebusinesscycleinrunninghisorherbusiness?

DistributeHandoutIII.9.D,“Causes.”Havestudentscompletetheexerciseonthehandout,thenhave


– Accordingtothisletter,whatarethecausesofthebusinesscycle?

– Howcananeconomythat’sgrowingtoofastleadtoaneconomicdownturn?

– Basedonwhatyoulearnedaboutthebusinesscyclefromthisreading,whydoesthegovernmenthavesomuchtroubleintakingtheproperactiontopreventeconomicdownturns?

– Whatquestionwouldyouhaveposedaboutthecausesofthebusinesscycletotheeconomistwhowrotethisletter?




Whatshouldanentrepreneuropeninghisorherfirstbusinessknowaboutthebusinesscycle?

FollowUpForhomework,askstudentstowriteaone‐pagepaperonthebusinesscycleandwhatitmeansto

entrepreneurs.Thepapershouldincludethefollowing:

1. Thestudent’sassessmentofa)whatphaseofthebusinesscycleareweinnow(expansion,trough,contraction,orpeak)andb)whatpartofthatphasewearein(beginning,middle,orend).

2. Threepiecesofevidencetosupportthestudent’sassessmentstatedin“1.”

3. Aninterviewwithonebusinesspersonwhoworksinthecommunitywherethestudentlives.Inthe

interview,thestudentsshouldask:a)Basedonhowwellyourbusinessisdoing,inwhatphaseofthebusinesscycledoyouthinkweareinnow?b)Howwouldyouoperateyourbusinessdifferentlyifwewereinoneofthesephases:peak,trough,expansion,orcontraction?(c)Whatactions,ifany,should

thegovernmentbetakingatthepresenttimewithregardtothephaseofthebusinesscyclewearenowin?



HandoutIII.9.A,“Chart”Directions:Thischartbelowportraysaneconomicconceptknownasthebusinesscycle.Afterstudyingthechart,completetheexercisethatfollows.

http://monevator.com/2009/05/21/investment‐clocks/

Exercise:Inthespaceprovided,writeonethingyoulearnedaboutthebusinesscyclefromthischart.

_____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________



HandoutIII.9.B,“Interview”Directions:Aftertheplaybelowisperformed,writeaquestionthatyouwouldhaveaskedtheeconomistaboutthebusinesscycle.

I‐1: Thanksforcomingtoourclasstoday.Wearelookingtolearnsomethingaboutthebusinesscycle,atopicwearestudyinginourentrepreneurshipclass.

E: Thanksforhavingme.Thebusinesscycleisaveryimportantconcept,bothtoentrepreneursandeconomists.

I‐2: Canyoutellus,inthesimplestterms,whatthebusinesscycleis?E: ParkinandBade’stextbookEconomicsgivesthefollowingdefinitionofthebusinesscycle:“Theperiodic

butirregularup‐and‐downmovementsineconomicactivity,measuredbyfluctuationsinrealGDPandothermacroeconomicvariables.”

I‐3: WesawadiagramofthebusinesscycleonHandoutIII.9.Aofthislesson.Isthereanythingimportantaboutthebusinesscyclethatdoesnotappearinthediagram?

E: Thereisoneimportantfeatureaboutthebusinesscyclethatthediagramdoesnotshow.

I‐4: Whatisthat?E: Abusinesscycleisnotaregular,predictable,orrepeatingeventliketheswingofthependulumofaclock.

I‐5: IguessHandoutIII.9.Amakestheswingsinthebusinesscycle,betweenpeakandtrough,seemliketheyoccuratregulartimeintervals.

E: That’s just not the case. The timing of the business cycle is random and, to a large degree,unpredictable.

I‐1: IalsorememberthatthebusinesscycleonHandoutIII.9.Ahadtermslike“peak”and“trough”onit.What’sthatabout?

E: Peaksandtroughsaretwoofthefoursequencedphasesofthebusinesscycle.

I‐2: Whatarethosephases?E: Let’s beginwith the two phases you asked about—peaks and troughs. A peak in the business cycle

representsthehighest levelofeconomicactivityofthatcycle.Thepeak istheupperturningpointofthatcycle,meaningafterthepeakeconomicactivitystartsslowingdown.

I‐3: Okay,sowhat’sthetrough?E: Thetroughisjusttheoppositeofthepeak—itisthelowerturnpointofbusinesscycle—thebeginning

ofthetimewhentheeconomystartstogetbetter.

I‐4: Sowhathappensinbetweenthepeaksandtrough?E: Afterthetrough,economicactivityincreasesandconditionsimproveaswemoveintothenextphase

ofthebusinesscycle,called“expansion,”wheneconomicactivityspeedsupandtheeconomytakesoff.Finally,let’stalkaboutthe“contraction”phaseofthebusinesscycle,whichfollowsthepeak.Duringacontraction, economic activity slowsdown to thepointwhere theeconomy stops growing.HandoutIII.9.Aidentifiesthephaseintheeconomywhenaslowdowntakesplace,arecession.

I‐5: Ineverrealizedthattherewassomuchtolearnaboutthebusinesscycle.E: There’sagooddealmoreyoushouldknowaboutthebusinesscycle.However,IthinkI’llstopnow.

YourQuestion:____________________________________________________________________________ Adaptedfrom:http://economics.about.com/cs/studentresources/f/business_cycle.htm?p=1



HandoutIII.9.C,“Phases”

Directions:Readthe“Entrepreneur’sBrief:TheBusinessCycle”belowandcompletetheexercisethatfollows.

entrepreneur’s brief phases of the business cycle

(entrepreneur’s brief is the place business people go to learn about the economy) The Stages of the Business Cycle There are four stages that make up the business cycle. At any point in time, the business cycle is in one of these stages:

1. Contraction – When the economy starts slowing down. 2. Trough – When the economy hits bottom, usually in a recession. 3. Expansion – When the economy starts growing again. 4. Peak – When the economy hits it highest point, in terms of growth, before heading lower.

Who Determines the Business Cycle Stages? The National Bureau of Economic Research (NBER), a private, nonprofit, nonpartisan research organization dedicated to promoting a greater understanding of how the economy works, analyzes economic indicators to determine the phases of the business cycle. The Business Cycle Dating Committee uses quarterly GDP growth rates as the primary indicator of economic activity. In its analysis of economic conditions, the NBER also uses monthly statistics, such as employment reports, real personal income, industrial production, and retail sales.

What GDP Can You Expect in Each Business Cycle Phase? 1. Contraction Phase In the contraction phase, GDP growth rates, as

measured as annual rate usually slow to the 1%-2% level before actually turning negative. The 2008 recession was so nasty because the economy immediately shrank 1.8% in the first quarter 2008, grew just 1.3% in the second quarter, before falling another 3.9% in the third quarter, and then plummeting a whopping 8.9% in the fourth quarter. The economy received another wallop in the first quarter of 2009, when the economy contracted a brutal 6.9%.

2. Trough Phase In the trough phase, GDP growth may still be

negative, but it's not as bad as during a contraction. It's clear that the economy has turned a corner. According to the NBER, this occurred in the second quarter 2009, when GDP contracted a mere .7%.

continued

As the trough turns into the Expansion phase, GDP growth turns positive again. In the 2008 recession, this wasn't until the third quarter of 2009, when the GDP grew 2.2%. In the fourth quarter of 2009, GDP rose an unexpected 5.7% from the third quarter.

3. Expansion Phase As the expansion phase of the business cycle

continued in 2010, GDP fluctuated between a 3.9% growth rate in Quarter 1 and a 2.3% growth rate in Quarter 4. It is hoped the GDP growth rate for the life of the expansion phase will be in the healthy 2-3% growth range. If the economy is managed well, it can stay in the expansion phase for years.

4. Peak Phase The peak phase is when the economy's expansion

slows. It is usually the last healthy growth quarter before the recession starts. You usually don't know you are in the peak phase until it is too late. However, if the GDP growth rate is 4% or higher for two or more quarters in a row, you can bet the peak is not far off. In the 2008 recession, the peak occurred in the fourth quarter 2007, when the GDP growth rate was 1.9%.

continued

http://useconomy.about.com/od/glossary/g/business_cycle.htm?p=1http://www.treasury.gov/resource‐center/data‐chart‐center/Documents/20120502_EconomicGrowth.pdf


UNITIII/LESSON9:page7 HandoutIII.9.C,“Phases”(continued)Exercise:Basedontheinformationprovidedaboveinthesectiontitled“WhatGDPCanYouExpectinEach

BusinessCyclePhase?”makeagraphofthebusinesscyclefor2008‐2009byplottingtheratesofdeclineandgrowthofGDPforasmanyquartersasthereisinformation.Tohelpyougetstartedwiththisexercise,GDPforboththe1stQuarterof2008and4thQuarterof2009havebeenplottedforyou.(Seethetwo●on

thegraphbelow.)

+10%

+8%

+6%

●

+4%

+2%

0

●

-2%

-4%

-6%

-8%

-10%

2008 1st

Quarter

2008 2nd

Quarter

2008 3rd

Quarter

2008 4th

Quarter

2009 1st

Quarter

2009 2nd

Quarter

2009 3rd

Quarter

2009 4th

Quarter

Year and Quarter

Rat

e of

Gro

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or D

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ms

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DP



HandoutIII.9.D,“Causes”Directions:Ifyouwrotealettertoaneconomistaskingthequestion“Whatcausesthebusinesscycle?”

heorshemightwritearesponseliketheonebelow.

Dear Student:

You wrote to ask me “What Causes the Business Cycle?” I’ll try to answer as briefly as possible. The business cycle is affected by the forces of supply and demand. When consumers are confident, they buy now, knowing there will be income in the future from better jobs, higher home values, and increasing stock prices. Even a little healthy inflation can trigger demand by spurring shoppers to buy now before prices go up. As demand increases, businesses hire new workers, which further stimulates more demand. This is the Expansion phase.

If demand outstrips supply, then the economy can overheat, leading to inflation—an economic occurrence when the general level of prices rise and our money to loses it value. Overheating created the housing asset bubble in 2005. Even with inflation, we may still be in the expansion phase, but if demand isn't cooled down with higher taxes (fiscal policy) or higher interest rates (monetary policy), then the Peak is not far off.

In the Contraction phase, confidence is replaced by fear or even panic. Consumers sell their homes, and stop buying. Businesses lay off workers and hoard cash. Confidence must be restored to before the Trough can be hit, and the economy re-enters a new Expansion phase.

In addition to demand, the business cycle is also heavily dependent on the availability of capital. This is known as liquidity, which is dependent upon interest rates. Too much capital will turn a healthy expansion into a Peak, at which point greed will bid up the price of assets, often causing inflation. At this point, a stock market correction may indicate that assets are overvalued, creating fear and a Contraction. The Federal Reserve lowers interest rates to spur the economy into Expansion during a Trough. It raises interest rates during an expansion to avoid too much of a Peak.

A Trough usually is accompanied by a recession and a bear market, while an expansion is usually signaled by a bull market and inflation.

Adaptedfrom:http://useconomy.about.com/od/glossary/g/business_cycle.htm?p=1(UpdatedOctober28,2011)

Exercise:Afterreadingthisletter,suggestaquestionyouwouldliketoasktheeconomistbasedonwhathe/shewroteabout“WhatCausestheBusinessCycle?”

QUESTIONTOTHEECONOMIST:

UNITIII/LESSON10

TheEconomicRoleofGovernment

TimeFrame2days

StandardsNES:Economics–Describetherelationshipbetweengovernmentandbusiness

AssesstheimpactofgovernmentactionsonbusinessventuresNES:Skills–FollowdirectionsApplyeffectivelisteningskills


GuidingQuestionAretheAmericanpeoplebetteroffwithmoreorlessgovernmentinvolvementintheeconomy?



Drawconclusionsastowhatismeantbytheterm“laissez‐faire”andhowitrelatestotheU.S.economy.

Assesstheargumentsfavoringmoregovernmentinvolvementintheeconomy.

Assesstheargumentsfavoringlessgovernmentinvolvementintheeconomy.

TeacherBackground “Laissez‐faire,”meaningtoleavebusinessalone,isaphraseoftenassociatedwithfree‐market

capitalism.However,noeconomycanfunctionproperlywithoutsomegovernmentinvolvementintheeconomy.SincethefoundingoftheU.S.,theissueofhowmuchgovernmentinvolvementisappropriatehasvexedournationalleaders.Todayitisattheheartofthedebatebetweenthetwopoliticalparties.

InHandoutIII.10.A,studentswillrespondtopollquestionsabouttheappropriateroleofgovernmentintheeconomytoday.Theclasswillhavetheopportunitytoexaminethefourmajorrolesplayedbygovernmenttoday.HandoutIII.10.B,presentssomebasicideasdifferentiatinglaissez‐faireand

progressivism.Herestudentsareaskedtoidentifykeydifferencesinthetwoschoolsofthought.Finally,theclassispresentedwithastudyofthedifferentviewsthatAmericanshavetodayabouttheappropriateroleforgovernment.Studentsaregiventhetaskofpresentingevidenceprovidedby

individualswhoholdopposingviewsontheissue.



TeachingStrategies/SupportingActivities DistributeHandoutIII.10.A,“StudentPoll.”Askstudentstofollowthedirectionsonthehandout,


– Whatkindsofthingsdidyousaythatthefederalgovernmentisdoingthatitshouldnotbedoing?

– Whatkindsofthingsdidyousaythatthefederalgovernmentisnotdoingthatitshouldbedoing?

– Towhatextentdoyoubelievethatweareallbetteroffifthegovernmentisinvolvedinamajorwayintheeconomy?

– Towhatextentdoyoubelievethatweareallbetteroffifthegovernmentisnotinvolvedor

minimallyinvolvedintheeconomy?

DistributeHandoutIII.10.B,“GovernmentPrograms.”Havestudentscompletetheexerciseatthe

endofthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Howwouldyoudescribethefourareasofgovernmentinvolvementidentifiedonthishandout?

– Inwhatwaysareeachoftheseareasimportanttothewell‐beingofallAmericans?

– Whichoftheseareasrepresentsthemostnecessaryroleofgovernment?Whichoftheseareasistheleastnecessaryroleofgovernment?

Distribute:HandoutIII.10.C,“Laissez‐fairevs.Progressivism.”Havestudentscompletetheexercise

attheendofthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Whatdidyoulearnabouttheconceptoflaissez‐fairefromthishandout?

– Whatdidyoulearnabouttheconceptofprogressivismfromthishandout?

– Howwouldyoudescribethemostsignificantdifferencesbetweenthetwoideas?

– WoulditbeinthebestinterestsoftheU.S.todaytofollowlaissez‐faireorprogressivepolicies?

DistributeHandoutIII.10.D,“Debate.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Inyourownwords,howwouldyousummarizethemostimportantideasappearinginthisstory?

– WhatarethreepiecesofevidencefromthehandoutthatsupporttheviewthatAmericanswantthegovernmentmoreinvolvedintheeconomy?

– WhatarethreepiecesofevidencefromthehandoutthatsupporttheviewthatAmericanswantthegovernmentlessinvolvedintheeconomy?

– Withwhichofthefollowingargumentsdidyoufindyourselfinmostagreement:thesizeof

governmentistoosmall,toobig,orjustaboutright?

– Topayforthethingsthatgovernmentneedstodo,whichyouwouldprefer:raisingtaxes,cuttingspending,ornotsure?


UNITIII/LESSON10:page3 Summary/AssessmentAskstudentstoexplaintheiranswerstothefollowingquestion:

AretheAmericanpeopleasawholebetteroffwithmoreorlessgovernmentinvolvementinthe

economy?

FollowUpAssignstudentstobringtoclasstwonewsarticlesdealingwiththeissueofhowmucharolethe

governmentshouldplayintheeconomy.Duringtheclassdiscussion,callonstudentswhohavearticlesfavoringeachpointofview.Afterthestudentsdiscusstheirarticles,holdaclassdebateontheissueoftheappropriateroleofgovernmentintheU.S.today.



HandoutIII.10.A,“StudentPoll”

Directions:Recordyourresponsestothetwopollquestionsbelowbyplacingachecknexttothoseanswersyouagreewith.Youcanplaceasmanychecksasyouwouldlikeasresponsestothetwo

questions.

1) WhatissomethingthefederalgovernmentisdoingatthepresenttimethatitshouldNOTbedoing?

____Passinghealthcarelegislationforthosewhocannotaffordit

____Spendingtoomuchmoneyontoomanythings

____Raisingtaxes

____Bailingoutlargecorporations

2) What'ssomethingthefederalgovernmentisNOTdoingatthepresenttimethatitshouldbedoing?

___Creatingjobsandreducingunemployment

___Improvingtheeconomy

___Balancingthebudget/limitingitsownspending

___Stoppingforeclosuresonpeople’shomes



HandoutIII.10.B,“GovernmentPrograms”Directions:ThegovernmentexercisesitsinfluenceovertheU.S.economythroughfourtypesofprograms.Theseprogramsaredescribedbelow.Infrontofeachofthetypesofprogramslisted,place

oneofthefollowingletterstoindicatehownecessaryyouthinktheyare:AN=absolutelynecessary,N=somewhatnecessary,andU=unnecessary.

___1.StabilizationandGrowth.Thefederalgovernmentguidestheoverallpaceofeconomicactivity,attemptingtomaintainsteadygrowth,highlevelsofemployment,andpricestability.Byadjustingspendingandtaxrates(fiscalpolicy)ormanagingthemoneysupplyandcontrollingtheuseofcredit(monetarypolicy),itcanslowdownorspeeduptheeconomy'srateofgrowthand,intheprocess,affectthelevelofpricesandemployment.

___2.RegulationandControl.Regulationoftheprivatesectorfallsintotwogeneralcategories:economicregulationandsocialgoals.Economicregulationseeks,eitherdirectlyorindirectly,tocontrolprices.Traditionally,thegovernmenthassoughttopreventmonopoliessuchaselectricutilitiesandotherbusinessesfromraisingpricesbeyondthelevelthatwouldensurethemreasonableprofits.Anotherformofeconomicregulation,antitrustlaw,hasbeenusedtoprohibitpracticesormergersthatwouldundulylimitcompetition.Governmentalsoexercisescontroloverprivatecompaniestoachievesocialgoals,suchasprotectingthepublic'shealthandsafetyormaintainingacleanandhealthyenvironment.TheU.S.FoodandDrugAdministrationbansharmfuldrugs,forexample;theOccupationalSafetyandHealthAdministrationprotectsworkersfromhazardstheymayencounterintheirjobs;andtheEnvironmentalProtectionAgencyseekstocontrolwaterandairpollution.

___3a.DirectServices.Eachlevelofgovernmentprovidesmanydirectservices.Thefederalgovernment,forexample,isresponsiblefornationaldefense,backsresearchthatoftenleadstothedevelopmentofnewproducts,conductsspaceexploration,andrunsnumerousprogramsdesignedtohelpworkersdevelopworkplaceskillsandfindjobs.Governmentspendinghasasignificanteffectonlocalandregionaleconomies‐‐andevenontheoverallpaceofeconomicactivity.Stategovernments,meanwhile,areresponsiblefortheconstructionandmaintenanceofmosthighways.State,county,orcitygovernmentsplaytheleadingroleinfinancingandoperatingpublicschools.Localgovernmentsareprimarilyresponsibleforpoliceandfireprotection.Overall,federal,state,andlocalspendingaccountsforasignificantpartoftheannualGDP.

___3b.DirectAssistance.Governmentalsoprovidesmanykindsofhelptobusinessesandindividuals.Itofferslow‐interestloansandtechnicalassistancetosmallbusinessesanditprovidesloanstohelpstudentsattendcollege.Governmentactionsencouragehomelending.Governmentalsoactivelypromotesexportsandseekstopreventforeigncountriesfrommaintainingtradebarriersthatrestrictimports.Governmentsupportsindividualswhocannotadequatelycareforthemselves.SocialSecurity,whichisfinancedbyataxonemployersandemployees,accountsforthelargestportionofAmericans'retirementincome.TheMedicareprogrampaysformanyofthemedicalcostsoftheelderly.TheMedicaidprogramfinancesmedicalcareforlow‐incomefamilies.Inmanystates,governmentmaintainsinstitutionsforthementallyillorpeoplewithseveredisabilities.


UNITIII/LESSON10:page6 HandoutIII.10.B,“GovernmentPrograms”(continued)

___4.Anti‐PovertyPrograms.AmongtheprogramsinthisgroupareFoodStampstohelppoorfamiliesobtainfood,healthandwellnessinitiatives,andpublichousingefforts.However,advocatesforthepoorpointoutthattheseprogramsrarelycoverallofafamily'sfoodorhealthcareneedsandthatthereisashortageofpublichousing.Besidestheabove,federalandstategovernmentsjointlyprovidewelfaregrantstosupportlow‐incomeparentswithchildren.

Adaptedfrom:http://economics.about.com/od/howtheuseconomyworks/a/government.htm?p=1



HandoutIII.10.C,“Laissezfairevs.Progressivism”Directions:Laissez‐faireandprogressivismrepresenttwocompetingideasabouthowmuchgovernment

involvementservesthebestinterestsoftheAmericanpeople.Someoftheimportantdifferencesbetweenthetwoideasappearonthishandout.Readthehandoutbelowandcompletetheexercisethatfollows.

1. HistoryofLaissez‐faireWhilethephrase“laissez‐faire”isoftenassociatedwiththeScottisheconomistAdamSmith,ideasaboutindividualismandlimitedgovernmentwerepresentinGreek,Roman,andRenaissancetimes.

Earlylaissez‐faireideasrevolvedaroundtheaccumulationandprotectionofpropertyrightsasameanstofulfillmentinsociety.JohnStuartMill,JohnLocke,andThomasJeffersonallthoughtandwroteabouttheroleoflimitedgovernment.AccordingtoSmith,agovernmentthatleavespeople

alonetolivetheirlivesaccordingtotheirownjudgmentservesthebestinterestsofrichandpooralike.

2. HistoryoftheProgressiveMovementTheProgressivemovementtracesitsrootsfromcollectivismintheScottishEnlightenment,but

AmericanProgressivismreallyemergedinthe19thandearly20thcenturytochampionaninvolvedgovernmenttakingallnecessaryactionstocreateamoreegalitariansociety,includingwealthredistribution(e.g.,welfare)tovaryingdegreesandsocialprograms(e.g.,MedicareandSocial

Security).AmericanpresidentsidentifiedwiththeProgressivemovementincludeTheodoreRoosevelt,WoodrowWilson,FranklinDelanoRoosevelt,andLyndonB.Johnson.

3. FeaturesofLaissez‐faireLaissez‐faireplacesemphasisupontherightsoftheindividualinsocietyandaverylimitedrolefor

government.Economically,theserightsincludetherighttopropertyandtofreeenterprise.Laissez‐fairethinkingjudgespeopleupontheiraccomplishments,andholdsthatallareabletosucceed,thoughnottothesamelevel,accordingtotheirmeritsandwork.

4. FeaturesofProgressivism

TheProgressivemovementtendstofavorgovernmentpoliciesthatenforceegalitarianism.Progressivethoughttendstoemphasizeequalityaboveindividualachievement.ThinkersintheProgressivetraditionrecognizethatculturalandnaturalbarrierspreventsomepeoplefrom

achievingaccordingtotheirworkormerits,andthususesgovernment’sauthoritytoequalizethefoundationforthewholeofsociety.

5. Liberty

PerhapsthestarkestcontrastbetweentheideasoftheProgressiveandLaissez‐fairemovementsdealswithissuesofequalityandindividualliberty.Laissez‐fairesupportertendtoemphasizefreedomfromgovernmentcontrols.Incontrast,Progressivesemphasizetheimportanceofequality

forallthroughgovernmentcontrols.


UNITIII/LESSON10:page8 HandoutIII.10.C,“Laissezfairevs.Progressivism”(continued)

Exercise:Completethechartbelowbyindicatingthreemajordifferencesbetweenlaissez‐faireand

progressivism.

Laissez-faire Progressivism

1.

2.

3.



HandoutIII.10.D,“Debate”Directions:InmanywaysAmericansarestronglydividedonthequestionof“howbigshouldthegovernmentbe?Readthearticlebelowandunderlinetheopiniononthisquestionthatyouagreewithmost.Thencompletetheexercisethatfollows. Six in 10 Americans say the government has too much power, and nearly half agree with this alarming statement: “The federal government poses an immediate threat to the rights and freedom of ordinary citizens.” So what size and scope of government do Americans want? That issue has fueled the Tea Party movement and defined recent national and local elections. USA TODAY and Gallup are trying to understand the underlying attitudes driving this debate with a national survey and an analysis that charts four groups of public opinion. They range from the 22% of Americans at one end who want government out of their lives—among them many Tea Party supporters—to the 20% at the other end who endorse an expansive government that protects its citizens from life's problems and challenges. No political issue is more fundamental, and no other question divides the electorate more sharply. Rhonda Bryner, 44, of Newark, Ohio, is a small-business owner whose views put her in the midpoint of the USA TODAY analysis. “They've overstepped their authority,” she says of the government. “For sure they've forgotten about the Constitution and what our forefathers set up.” Like Bryner, 58% of those surveyed say the government is doing too many things that should be left to individuals and businesses. That's the highest percentage who say the government is doing too much in more than a decade.

Thirty-six percent say the government should do more to solve the country's problems. The analysis reveals a complicated landscape of beliefs: Most Americans endorse government activism on a range of issues—not only national defense but also the environment, civil rights, and consumer protection—but doubt the competence of government to deliver results effectively and efficiently. Brian Pyle, 45, a truck driver and Teamsters Union member from Battle Creek, Mich., struggles to describe where he stands. “It's too big, the federal government, and too involved in regulation as far as businesses are concerned, because that tends to stifle economic growth,” he begins. “But it's kind of a Catch-22 situation, in my mind. I think unregulated business to some degree can be a bad thing, too. That's what got us into this recession in the first place.” Here are some of the warning flags for politicians when Americans consider the subject of how big should the government be: • The government-is-the-problem refrain of conservatives draws only about one in five voters. There is a

broad consensus that the government ought to build transportation systems, protect consumers from unsafe products, preserve the environment, and combat discrimination.

• Nearly six in 10 say the government should make sure all Americans have adequate health care, despite qualms about the health care overhaul President Obama signed into law in 2010.

• “They aren't doing enough for the right people, for the poor,” says Yvette Chappell, 47, a mother of three from Hawthorne, Calif., who falls in the bigger-is-better category of views toward government. She wants more public help for the homeless in her community, especially families with children.

• The government-is-the-solution message of liberals also draws only about one in five voters. Half of those surveyed say there's too much government regulation of business, a new high. Three in four say business can do things more efficiently than the government.

• Six in 10 even disagree with the notion that the government generally does things in a way that is fairer than business, a traditional reason for government activism.

(continued)


UNITIII/LESSON10:page10 HandoutIII.10.D,“Debate”(continued)

Looking for What Works There's no question that there has been a backlash to steps the government took in 2008 and 2009 in the face of a possible financial meltdown—from the Wall Street bailout signed by President George W. Bush to the stimulus package and auto-rescue plan signed by Obama. Some voters fear billions of taxpayer dollars have been spent to little effect while their families still deal with hard times. “This spending like a madman was just incredible to me,” says Trace Oliver, 53, of Eagle, Idaho, a conservative who counts himself as a Tea Party sympathizer. His earnings as a salesman of high-end RVs has dropped by half since the recession hit. “We're Americans. We like the great country we live in but, damn it, you're giving it away.”

A Deficit of Trust “Americans historically have been skeptical of government and of concentrations of power generally... but there are two other more recent factors at work,” says William Galston of the Brookings Institution, a White House adviser to President Clinton and co-author of Democracy At Risk. “Trust in government is at a very low ebb... and the perception that spending is out of control and is not achieving its intended purposes is the central feature of the political landscape right now. It absolutely trumps everything else.”

“It's expanding too fast, and it's too large—the health care bill for one,” Robert Durden, 68, a retired elementary-school principal from San Antonio, says of the government. “We are quickly moving into becoming a socialist state, and that's something I definitely do not want to see happen.” A USA TODAY analysis of polling data used responses about the government to divide Americans into these four groups with distinct points of view. 1. Keep it small: This cohesive group wants government to stay away from regulating the free market.

They trust private enterprise over public institutions. Many support the Tea Party movement. They are the wealthiest, the most conservative, and the most predominantly white and male of any of the groups.

2. The mushy middle: Ninety-five percent of them end up somewhere in the middle when asked to place themselves on a five-point scale on the proper role of government — “1” meaning the government should provide only the most basic functions and “5” meaning the government should take active steps in every area it could.

3. The liberals: This group wants the government to take a big role in addressing economic disparities. It is the most suspicious of business: Six in 10 say business will harm society unless regulated by the government. They are the youngest group.

4. The bigger the better: The members of this group are the most likely of any to trust government and to endorse its involvement in addressing income inequality. This group is the most racially and ethnically diverse of any—45% of its members are Hispanic, African-American, or another racial minority—and has the lowest income levels. In their ranks, nine in 10 think the government should take a major role in ensuring adequate health care and a minimum standard of living for all Americans.

Most of those surveyed acknowledge a disconnect: 56% say most Americans demand more from the government than they are willing to pay for with taxes. More than three of four also see a day of reckoning approaching. They predict that the costs of entitlement programs will create major economic problems for the United States in the next 25 years if no changes are made. Recognizing the issue isn't the same as reconciling it, however. Raise taxes to address it? Fifty-six percent say no. Cut benefits instead? Sixty-six percent say no. Just 12% say both steps should be taken.

Adaptedfrom:http://www.usatoday.com/news/washington/2010‐10‐11‐1Abiggovernment11_CV_N.htm


UNITIII/LESSON10:page11 HandoutIII.10.D,“Debate”(continued)

Exercise:Basedonthehandout,listthreepiecesofevidencethatAmericanswantthegovernmenttobe

moreinvolvedandthreepiecesofevidencethatAmericanswantthegovernmentlessinvolvedintheeconomy.

More involvement in the economy Less involvement in the economy

1.

2.

3.

UNITIII/LESSON 11

Taxation

TimeFrame2days

StandardsNES:Economics–Describehowthegovernment’suseoftaxationandspendingaffectstheeconomy



GuidingQuestionHowwelldoesoursystemoftaxationwork?



Identify,define,andgiveexamplesofthevarioustypesoftaxesthatexistinourcountry.

Explainhowasocietycanusetaxestobothsupportgovernmentactivitiesandtoshapesocietalnorms.

Drawconclusionsastowhytaxesareconsidereda“necessaryevil”inAmerica.

Differentiatebetweenprogressiveandregressivetaxes.

TeacherBackground

Oneofthemostcontroversialissuesrelatedtooureconomyistaxation.Somepeoplecontendthattherearetoomanytaxesimposedoncitizensandthattheytaketoomuchmoneyfromus.Othersarguethatsuchtaxesarerequiredtosupportnecessarygovernment‐providedservicesandthattaxesdonot

takeenoughfromtheaffluent.Eventhosewhosupportcurrentlevelsoftaxationquestionthefairnessorprogressivenessofthetaxsystem.

HandoutIII.11.Acallsforthestudentstointerpretacartoonaboutthetaxissue.InHandoutIII.11.B,the

classwillreadapassageprovidingsomeofthereasonsforpayingtaxes.Therelatedexercisehasthemexaminesomeofthestatementstakenfromthereadinganddeterminewhichofthosestatementsare

factsandwhichareopinions.Next,inHandoutIII.11.C,theclasswillevaluatebothsidesoftheargumentaboutwhetherwepaytoomuchortoolittleintaxes.HandoutIII.11.Dcallsfortheclasstodifferentiatebetweenthefollowingfourtaxeskindsoftaxes:income,corporate,property,andsales.

Finally,inHandoutIII.11.E,studentswillidentifythedifferencebetweenprogressiveandregressivetaxes.




DistributeHandoutIII.11.A,“Cartoon.”Askstudentstofollowthedirectionsonthehandout,then


– Whatishappeninginthiscartoon?

– Whatdoesthecartoonistmeanwhenhehasthecharacterwhoisstandingsaytotheother,“Comfy?”?

– WhatistheopinionofthecartoonistaboutthetaxsystemintheU.S.?

DistributeHandoutIII.11.B,“ReasonsforTaxes.”Havestudentscompletetheexerciseattheendofthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Whatisthisreadingabout?

– Intheexercise,whichstatementsdidyouidentifyasfacts?Whichstatementsdidyouidentifyasopinions?

– Whichoftheargumentsexplainingthenecessityfortaxeswasmostpersuasive?

Distribute:HandoutIII.11.C,“TooMuchinTaxes.”Havestudentscompletetheexerciseattheend

ofthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Whatisthisreadingabout?

– Howdoestheauthoranswerthequestion“Aretaxestoohigh?”Howdoesheanswerthe

question“Aretaxestoolow?”

– Withwhichofthefollowingopinionsdoyouagree:taxesaretoohigh,taxesaretoolow,ortaxesarejustaboutright?

Distribute:HandoutIII.11.D,“Chart.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Whatarethemajordifferencesbetweenthefourtaxeslisted?

– Whichofthesetaxesaremostjustified?

– Ifyouwereataxpayer,whichofthesetaxeswouldyoubemostinfavorofeliminating?

Distribute:HandoutIII.11.E,“Q&A.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Whatarethemajordifferencesbetweenprogressiveandregressivetaxes?

– Howdidyouanswertheexerciseattheendofthehandout?

– Whatargumentscanyoumakeforandagainstkeepingprogressivetaxes?

– Whatargumentscanyoumakeforandagainstkeepingregressivetaxes?




Inlightofwhatwelearnedabouttaxesfromthislesson,howwouldyouexplainthecartoononHandoutIII.11.A?Doyouagreewiththecartoonist’sviewpoint?

FollowUpConductadebateinclassonthefollowingresolution:“Resolved:ThetaxationsysteminAmericaworksaboutaswellasitcan.”Assignthreedebaterstotheproandthreetotheconsideofthedebate.Aftergivingthedebatersasufficientnumberofdaystoresearchthetopicandpreparetheirpresentations,

havestudentsadheretothefollowingagendaonthedayofthedebate:

Openingstatements(1‐2minuteseach,maximum)

1.Proside

2.Conside

Mainarguments(5minuteseach,maximum)

1.Proside

2.Conside

Rebuttal(2minuteseach,maximum)

1.Conside

2.Proside

Closingstatements(1‐2minuteseach,maximum)

1.Conside

2.Proside

Questionsfromtheclassandgeneraldiscussion(remainderoftheclassperiod)



HandoutIII.11.A,“Cartoon”Directions:Studythecartoonbelowandcompletetheexercisethatfollows.

http://www.graphicshunt.com/funny/images/tax_cartoon‐12607.htm

Exercise:Answerthequestionsbelowaboutthecartoononthishandout.

1. Whoisthepersontiedtothesignsupposedtorepresent?___________________________

2. Whodoestheotherperson,withthesmilingface,inthecartoonrepresent?

____________________________________________________________________________

3. WhatisthecartoonistsayingaboutthetaxsystemintheU.S.?

_____________________________________________________________________________



HandoutIII.11.B,“ReasonsforTaxes”Directions:Readthearticlebelowandcompletetheexercisethatfollows.

Some Reasons Why We Pay Taxes NANCY CZERWINSKI, Yahoo! Contributor Network, Apr 15, 2009

s hard as it is to believe, there are good reasons for paying taxes. I thought now would be a good time to review them. Our libraries are priceless to most of us and they are the center of activities, whether in person or online, during the months that school is in session. Children receive

assignments and sometimes they require research. What better place to go than where there's a learning atmosphere. Our libraries are safe, well-lighted, and the staff is always very knowledgeable. During the summer most libraries have reading programs. Children enjoy these programs but it does cost money to keep our libraries open. There are electric bills and gas bills and the wages of our librarians. They purchase new books when they become available. There’s always a display of magazines for us to read and a daily newspaper. Libraries have videos, CDs, and e-books. This is where some of our hard-earned tax dollars go and I believe we definitely benefit from our libraries.

The roads we travel on each day must be kept up and repaired. When you see the orange barrels on the highway you will know our tax dollars are at work. Can you imagine the way our roads would be if they weren't repaired on a routine basis? If the road crews were not out working we'd be in a sad state of affairs. Our food is transported by the truckers and our groceries are delivered to our stores every week. If our food is not delivered the grocery store shelves will empty out fast. Our school buses need safe roads to transport our children from home to school and back again. We also need safe roads to go to work and to complete our errands. There are a lot of factors involved in transportation and the upkeep of our city streets and highways. When you think about paying taxes remember the amount of money it takes to keep our roads safe for our families.

Lastly I'd like to mention our schools. Education is very important for our children. Children are our future and they will need as much knowledge as we can give them. I cannot think of a better way to spend our tax dollars than on the children of America. We will have space programs, scientific studies, health advances, financial markets, and different languages to learn and to teach. This is just a small list of ways that we will advance into the future and our children must be prepared. It is our duty as American citizens to prepare our young adults for what the future holds. Can you think of a better way to spend our tax dollars?

When it's time to pay your taxes remember the highlights that I have pointed out in this article. I believe that although it may be a bit of a struggle sometimes we must do what is best for our country. http://www.associatedcontent.com/article/1637409/some_good_reasons_why_we_pay_taxes_pg2.html?cat=27

Exercise:Indicatewhichofstatementstakenfromthereadingarefactsandwhichareopinions.

Statement Fact Opinion Not Sure

As hard as it is to believe, there are good reasons for paying taxes.

The roads we travel on each day must be kept up and repaired.

I cannot think of a better way to spend our tax dollars than on the children of America.

A



HandoutIII.11.C,“TooMuchinTaxes?”Directions:Underlinethreeargumentsthattheauthorusesinthereadingbelowtoanswerthe

question:“Dowepaytoomuchintaxes?”

Do Americans Pay Too Much in Taxes?

By Mark Willen, May 31, 2010

obody likes paying taxes, but it’s the only way to pay for those basic government services that everyone agrees are necessary, such as defense. There is no agreement, however, on a host of other government services that push up spending, which means there is no consensus

on how high taxes need to be. In fact, the Tea Party movement grew out of a sense that taxes are too high. “Tea” is actually an acronym for Taxed Enough Already.

But are we? Historically, taxes are actually fairly low as a percentage of personal income, according to the Bureau of Economic Analysis, and as a percentage of GDP, according to the Organization of Economic Development. They’re also low in comparison with the rest of the world. Of 30 developed countries across the world, including all of western Europe plus South Korea, Canada, Mexico, Japan, and a handful of eastern European countries, the U.S. ranks fifth lowest measuring as a percentage of GDP. And that includes state and local taxes plus payroll taxes for unemployment, etc., as well as federal income taxes.

Though 2006 is the latest year for which data are available, the rankings don’t shift much from year to year—just one or two spots. Which raises the opposite question: Are U.S. taxes too low?

Should they be raised to help close the budget deficit?

Not necessarily. Keep in mind that low taxes typically correlate well with high productivity gains. Ireland, Poland, South Korea, and Slovakia, for example, enjoyed strong growth in labor productivity in the last expansion. All have subpar tax burdens. So higher taxes could have a negative effect on productivity, which would slow growth.

It's something to think about as Congress searches for tax hikes in order to offset spending and reduce the deficit.

http://www.kiplinger.com/gateway/corporate_sales/#Reprints

N



HandoutIII.11.D,“Chart”Directions:ThechartbelowdescribesfourofthetaxespaidbyAmericanstovariouslevelsofgovernment.Afterstudyingthechart,completetheexercisebelow.

Name of Tax and Description 1) Income Taxes Many states, some cities, and the federal government impose an income tax. Americans pay up to

35% of their paychecks on income taxes. People with higher incomes generally pay not only a greater amount of money, but a higher percentage of their income in taxes than people with lower incomes.

2) Corporates Taxes Such taxes are levied on the profits of businesses. Businesses with higher earnings generally pay

not only a greater amount of money, but a higher percentage of their earnings in taxes than people with lower earnings.

3) Property Taxes These taxes are imposed mostly on real estate owners. Because everyone in the same locality pays

the same tax rate on their property, poorer people tend to spend a larger percentage of their income on housing than wealthier people.

4) Sales Taxes Such taxes are levied by state and local governments (there is no federal sales tax) at the point of

purchase for specific goods and services. The level of government charging the tax determines the tax rate. Because everyone who buys the same item (e.g., a television set) pays the same amount of money as a tax, people with lower incomes pay a higher percentage of their income in sales taxes than wealthier people.

http://www.granthammond.comhttp://everythingfinanceblog.com/read/42

Exercise:Identifytwodifferencesandtwosimilaritiesamongthetaxesdescribedabove.Listthose

similaritiesanddifferencesinthefollowingchart:

Differences Similarities 1.

1.

2.

2.



HandoutIII.11.E,“Q&A”Directions:ReadtheQ&Ahandoutbelow.Thencompletetheexercisethatfollows.

Question: Canyouexplainthedifferencesbetweenaprogressiveandregressivetax?

Answer: Aprogressivetaxisdefinedasataxwhoserateincreasesasthetaxpayer'sincome

increases.Thatis,individualswhoearnhighincomeshaveagreaterproportionoftheirincomestakentopaythetax.

Aregressivetax,ontheotherhand,isonewhoserateincreasesasthepayer'sincomedecreases.

IncometaxistheonlytaxintheU.S.whoserateistieddirectlytoincome.Itisaprogressive

tax,accordingtothedefinitionabove;individualsandfamilieswithhighincomesaretaxedatahigherratethanindividualsandfamilieswithlowincomes.

Othertaxeslikesalestaxareoftencalledregressivetaxesinthatindividualsorfamiliesat

thelowendoftheincomespectrumspendahigherproportionoftheirincomethanthoseatthehighend.Combinedwiththefactthatsalestaxistiedtoconsumptionratherthanincome,thisleadssometotheconclusionthatlow‐incomeindividualsandfamiliespaya

greaterproportionoftheirmoneyonsalestaxesthanwealthierpeople.

Exercise:ReviewHandoutIII.11.D,“Chart,”thencompletetheexercisebelowbyplacinganXinthe

appropriateboxtoindicatewhetherthetwotaxeslistedbelowareprogressiveorregressivetaxes.Intheboxmarked“Reasons,”explainthereasonsforyouranswer.

Tax Progressive Regressive Not Sure Reasons

Property tax

Corporate tax

UNITIII/LESSON12

TheFederalReserveandtheBankingSystem

TimeFrame1day

StandardsNES:Economics–DescribetheFederalReserve’sroleasthecentralbankoftheU.S.



GuidingQuestionHowdoestheFederalReserveoperateasthecentralbankfortheUnitedStates?



DescribethepurposesandstructureoftheFederalReserveastheU.S.centralbank.

ExplaintherelationshipbetweentheFederalReserveandthebankingsystem.

ExaminetheFederalReserve’sroleinthefinancialcrisisof2008.

TeacherBackground

TheFederalReserveistheUnitedStates’centralbank.Inthiscapacity,theFedisthegovernment’s

bank,abankforbankers,andabankregulator,withavarietyofresponsibilitiesrangingfromsupervisingbankstodistributingcurrency.Inordertoperformthesedutieseffectively,CongresshasgiventheFedanextraordinaryamountofindependence,allowingittoraiseitsownfundsandestablish

acentralarm(theBoardofGovernors)toworkwiththegovernmentand12regionalbankstoworkwithprivatefinancialinstitutions.

InHandoutIII.12.A,theclasswillexamineabookcoverabouttheFederalReserve.Thisbookcoverwill

serveasaspringboardtodeterminestudents’priorknowledgeabouttheFed.HandoutIII.12.BallowsstudentstoexaminesomeoftheFed’stasksasthecentralbankoftheU.S.Finally,inHandoutIII.12.C,studentswilllookattheorganizationoftheFedtodeterminewhetherornotthecentralbankistoo

independentfromgovernment.




DistributeHandoutIII.12.A,“BookCover.”Askstudentstofollowthedirectionsonthehandout,


– WhatdoyouknowabouttheFederalReserve?

– WhydoyoulearnabouttheFederalReservefromthisbookcover?

– IfwehadaFederalReserveexpertwithusinclasstoday,whatquestionwouldyouwanttoaskhimorherabouttheU.S.centralbank?

DistributeHandoutIII.12.B,“CentralBank.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Whatdidyouwriteintheexerciseasyourconclusiontothishandout?

– Basedonwhatyouread,whatisacentralbank?

– Whydomostcountrieshavecentralbanks?

– Whydomanypeoplebelieveitisimportantforacentralbanktohaveitsindependencefromcommercialbanksandpoliticalleaders?

– Inwhatwaysarecentralbanksamongthemostpowerfulinstitutionsintheircountries?

DistributeHandoutIII.12.C,“MajorRoles.”Havestudentsexplaintheiranswerstothefollowingquestions:

– WhatdidyoulearnabouttheFederalReservefromthischart?

– HowwouldyoudescribeinyourownwordsthefollowingFederalReserveroles:bankregulator,abank’sbank,andthegovernment’sbank?

– Whichofthesethreeismostimportantroleinyouropinion?

Distribute:HandoutIII.12.D,“HowtheFedIsOrganized.”Havestudentscompletetheexerciseon

thehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– WhatdidyoulearnabouttheFed’sorganizationfromthishandout?

– WhyistheFedcalleda“decentralized”centralbank?

– WhatevidenceistherethattheFedisindependentwithingovernment?

– WhydoyouthinktheCongressgivestheFederalReservesomuchindependence?

– WoulditbeabetterideaiftheFedwasnotsoindependent?




BasedonwhatyoulearnedabouttheFedinthislesson,whataresometopicsthatshouldbeincludedinthebook(TheFederalReserve:OurCentralBank)whosecoveryoulookedatinHandoutIII.12.A?

FollowUpSomepeopleblametheFed,inpart,forthefinancialcrisisof2008,accusingtheinstitutionofnotproperlyregulatingbanksunderitscontrol.Havestudentsresearchthisissueandwriteaone‐pageeditorialunderthetitle,“DidOurCentralBankDoAllItCouldtoPreventtheFinancialCrisisof2008?”

Forthiseditorial,studentsshoulddevotesometimetoanexaminationoftheroleandpowersavailabletoacentralbank.(Remindthestudentsthataneditorialexpressesanopinionandthatanyopinionmustbesupportedbyevidence,whichcanonlybeobtainedafterconsultingavarietyofsources.)



HandoutIII.12.A,“BookCover”Directions:Studythebookcoverbelowandcompletetheexercisethatfollows.

http://4closurefraud.org/wp‐content/uploads/2010/06/federal‐reserve.jpg

Exercise:Inthespacebelow,writethreethingsyoueitherknowabouttheFederalReserve(theFed)orlearnedaboutitfromlookingatthisbookcover.

1.

2.

3.

The Federal Reserve – Our Central Bank –



HandoutIII.12.B,“CentralBanks”Directions:NowthatyouknowthattheFedisourcentralbank,youprobablywanttoknowwhatcentralbanksare.Readthehandoutbelowtolearnmoreaboutcentralbanking.Baseduponwhatyoureadonthehandout,completethe“Conclusion”below.

What Are Central Banks? June 05, 2010

The central bank has been described as "the lender of last resort," which means that it is responsible for providing its economy with funds when commercial banks cannot cover a supply shortage. In other words, the central bank prevents the country's banking system from failing. However, the primary goal of central banks is to provide their countries' currencies with price stability by controlling inflation. A central bank also acts a regulator of commercial banks and is the sole distributor of currency and coins in circulation. Time has proved that the central bank can best function in these capacities by remaining independent from government fiscal policy and therefore uninfluenced by the politicians who run a country. The central bank should also be completely divested of any commercial banking interests.

How the Central Bank Influences an Economy A central bank has two main kinds of functions: (1) macroeconomic functions – in which, the central bank regulates the level of inflation by controlling money supplies and (2) microeconomic functions – in which the central bank acts as a lender of last resort, which most often occurs when a commercial bank does not have enough funds to meet its clients' demands. (Commercial banks typically do not hold reserves equal to the needs of the entire market.) When this happens the commercial bank can turn to the central bank to borrow additional funds at an interest rate set by the central bank. At times when the central bank wants to encourage borrowing (e.g., to stimulate an economy in recession) it will set lower rates. By raising rates, the central bank discourages borrowing, thereby keeping spending down, which prevents an economy from overheating.

Conclusion Central banks are responsible for

_____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ They can do this by

_____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ For these reasons, central banks are considered very powerful. Adaptedfromhttp://www.investopedia.com/articles/ViewArticlePrintable.aspx?url=%2farticles%2f03%2f050703.asp

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UNITIII/LESSON12:page8 HandoutIII.12.D,“HowtheFedIsOrganized”(continued)

DistrictDirectorsEachofthe12ReserveBankshasninedirectorsonitsboard.Thedirectorsareresponsibleforthe

overalloperationsoftheirbanksandreporttotheBoardofGovernors.Thedirectorsaredividedintothreegroupsthatrepresentacross‐sectionofideasandinterestsfortheregion.ThesegroupsarecalledClassA,ClassBandClassC.ClassArepresentscommercialbanksthataremembersoftheFederal

ReserveSystem.ThesememberbankselectboththeClassAandClassBdirectors.ClassBandClassCdirectorsdonotcomefromthebankingindustry.Theyrepresenttheeconomicinterestsofthelocaldistrict,includingagriculture,manufacturing,labor,consumers,andnonprofits,andareelectedbythe

BoardofGovernors.Thisallowsboththeprivatesectorandthegovernment/publicsectortohaverepresentation.

RegionalReserveBanksEachregionalReserveBankpresidentisappointedtoafive‐yeartermbythebank'sBoardofDirectors,buttheBoardofGovernorsgetsthefinalsay‐sointheappointment.

Takenfrom:http://money.howstuffworks.com/fed.htm/printable

UNITIII/LESSON13

FiscalPolicy

TimeFrame1day

StandardsNES:Economics–Describehowthegovernment’suseoftaxationandspendingaffectstheeconomy

ExplainhowthegovernmentusesfiscalpoliciestoachievemacroeconomicgoalsNES:Skills–FollowdirectionsApplyeffectivelisteningskills


GuidingQuestionHowdoestheUnitedStatesgovernmentusefiscalpolicytohelpshapetheeconomy?



Definefiscalpolicy.

Provideexamplesillustratingthegovernment’suseoffiscalpolicyeitherthroughraisingorloweringtaxesorincreasingordecreasingspending.

Identifytheproblemsinvolvedinusingfiscalpoliciestostabilizetheeconomy.

TeacherBackground

Fiscalpolicyistheuseofgovernmentexpenditureandtaxationtoinfluencetheeconomy.Changesin

thelevelandcompositionofgovernmentspendingandtaxationcanimpactthefollowingvariablesintheeconomy:

Aggregatedemandandthelevelofeconomicactivity;

Thepatternofresourceallocation;

Thedistributionofincome.

Thethreemainpossiblestancesoffiscalpolicyareneutral,expansionary,andcontractionary.Aneutral

stanceoffiscalpolicyimpliesahealthyeconomicenvironment,inwhichgovernmentspendingisfullyfundedbytaxrevenueand,overall,thebudgetoutcomehasaneutraleffectonthelevelofeconomic


UNITIII/LESSON13:page2 activity.Anexpansionarystanceoffiscalpolicyusemeansthatgovernmentspendingisexceedingtax

revenue.Finally,acontractionaryfiscalpolicyusuallyoccurswhengovernmentspendingislowerthantaxrevenue.Typically,thisfiscalpolicyisassociatedwithaperiodofseriousinflation.

StudentswillanswertwopollquestionsinHandoutIII.13.Atodeterminetheirattitudestowards

governmenttaxingandspendingpolicies,InHandoutIII.13.B,theclasswillcreateillustrationstoaccompanyPowerPointslidesforalessonexplainingthebasicsoffiscalpolicy.SelectedstudentswillactoutoninterviewwithaneconomicsexperttalkingaboutautomaticstabilizersinHandoutIII.13.C.The

relatedexerciseaskstheclasstoposeonequestionaboutautomaticstabilizerstotheexpert.Supply‐sideeconomicfiscalpolicyisthefocusofHandoutIII.13.D.Finally,HandoutIII.13.Ecallsuponstudentstoexamineproblemsinherentinusingfiscalpolicytostabilizetheeconomy.


DistributeHandoutIII.13.A,“Poll.”Askstudentstofollowthedirectionsonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– HowdidyourespondtoQuestion#1?

– HowdidyourespondtoQuestion#2?

– Whyistheresomuchdisagreementovertaxingandspendingpoliciesofthegovernment?

DistributeHandoutIII.13.B,“SlidePresentations.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Inyourownwords,howwouldyoudefinefiscalpolicy?

– Whyiscuttingtaxesandraisinggovernmentspendingthefiscalpolicythatisoftenfollowedduringeconomicdownturns?

– Whyisraisingtaxesandcuttinggovernmentspendingthefiscalpolicythatisoftenfollowedduringtimesofinflation?

– Howcanyouexplainwhythesefiscalpoliciesdonotalwaysworkastheyaresupposedtoduring

economicdownturnsorperiodsofinflation?

Distribute:HandoutIII.13.C,“AutomaticFiscalPolicies.”Assignsixstudentsthefollowingroles:

Interviewer#1(I‐1);Interviewer#2(I‐2);Interviewer#3(I‐3);Interviewer#4(I‐4);Interviewer#5(I‐5);andEconomist(E).Havethesixstudentsactouttheinterviewaccordingtothescriptonthehandout.Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheir

answerstothefollowingquestions:

– Whatdidyoulearnaboutautomaticfiscalpoliciesfromthisinterview?

– Whyareunemploymentinsurance,welfare,andincometaxprogramscalledautomaticstabilizers?

– Howaretheseautomaticstabilizerssupposedtowork?

– Whatquestionwouldyouhaveaskedoftheeconomicsexpertaboutautomaticfiscalpolicies?


UNITIII/LESSON13:page3 Distribute:HandoutIII.13.D,“Supply‐SideEconomics.”Havestudentscompletetheexerciseonthe


– Inyourownwords,howwouldyoudescribesupply‐sideeconomics?

– Howissupply‐sideeconomicssupposedtowork?

– Whataresomeofthereasonsthatanumberofeconomistsopposethesupply‐sideapproach?

– Towhatextentdoyoubelieve,assupply‐sidersdo,thatinaneconomicdownturnitisbetterto

cuttaxestostimulatetheeconomy,ratherthantoincreasegovernmentspending?

Distribute:HandoutIII.13.E,“Editorial.”Havestudentscompletetheexerciseonthehandout,then


– Whatisthiseditorialabout?

– Howwouldyousummarizeinyourownwordseachofthefourproblemsassociatedwithusing

fiscalpolicythatareidentifiedinthiseditorial?

– Whichoftheseproblemsdoyouthinkisthemostdifficulttoovercome?

Summary/AssessmentsAskstudentstoexplaintheiranswerstothefollowingquestion:

Whatsuggestionswouldyouofferaboutfiscalpolicytomakeitamoreeffectivetoolinkeepingtheeconomystableandhealthy?

FollowUpPresenttotheclassthemostcurrentdataaboutthefollowingindicators:Economicgrowth(GDP),theemploymentsituation(unemploymentrateandnon‐farmpayrolljobscreated),andpricelevels(CPI).Afterallowingthestudentssometimetostudythisdata,havethemexplaintheiranswerstothe

followingquestions:

Accordingtothedatapresentedhere,whatwouldbeyourdiagnosisaboutthehealthofthe

economyatthepresenttime?

Basedonthisdiagnosis,whatfiscalpolicyshouldgovernmentofficialsbepursuingatthepresenttime?(I.e.,shouldthegovernmentbeincreasingordecreasingspending,raisingorloweringtaxes,

ordoingnothing?)



HandoutIII.13.A,“Poll”Directions:Indicatewhatyourresponsetothetwostatementsbelowbyplacingacheckmarknextto

choicesA,B,C,orD.

1. GovernmentSpending

____A.TheU.S.governmentshouldspendmoremoneyonprogramstopromoteahigherstandardoflivingforpeopleinneed(e.g.,thepoor,theelderly,andtheunemployed).

____B.TheU.S.governmentshouldspendlessmoneyonprogramstopromoteahigherstandardoflivingforpeopleinneed(e.g.,thepoor,theelderly,andtheunemployed).

____C.TheU.S.governmentspendsjusttherightamountofmoneyonprogramstopromotea

higherstandardoflivingforpeopleinneed(e.g.,thepoor,theelderly,andtheunemployed).

____D.I’mnotsurewhetherthegovernmentspendstoomuchornotenoughmoneyonprogramstopromoteahigherstandardoflivingforpeopleinneed(e.g.,thepoor,theelderly,andthe

unemployed).

2. Taxes

____A.TheU.S.governmentshouldraisetaxestopayforprogramstopromoteahigherstandardoflivingforpeopleinneed(e.g.,thepoor,theelderly,andtheunemployed).

____B.TheU.S.governmentshouldlowertaxes,evenifitmeansthatitwillnotbeabletopayforprogramsthatpromoteahigherstandardoflivingforpeopleinneed(e.g.,thepoor,the

elderly,andtheunemployed).

____C.TheU.S.governmentshouldkeeptaxesastheyarenowbecausethatitisallAmericanscanaffordtopay.

____D.I’mnotsurewhetherthegovernmentshouldtaxmore,taxless,orkeeptaxesastheyaretopayforprogramsthatpromoteahigherstandardoflivingforpeopleinneed(e.g.,thepoor,

theelderly,andtheunemployed).



HandoutIII.13.B,“SlidePresentation”Directions:Assumethatthethreeslidesbelow,whichcontainwordsbutnoillustrations,arebeingpreparedtoexplainfiscalpolicy,thesubject

oftoday’slesson.Undereachspacemarked“illustration,”createapicturethatyouthinkwouldgowellwiththewordsaboveit.Usestickfigurestorepresentpeople,ifyouprefer.

Slide #1 Slide #2 Slide #3 Wording: Fiscal policy – Definition: Using government spending and taxation to influence the economy

Wording: Fiscal policy – Purpose: To change or reverse the direction of the business cycle

Wording: Fiscal policy – Examples: 1. During recessions, spending is

increased and taxes are cut 2. During inflation spending is cut

and taxes are increased

Illustration: Illustration: Illustration:

Wordingtakenfrom:http://www.econlib.org/cgi‐bin/printcee.pl



HandoutIII.13.C,“AutomaticFiscalPolicies”Directions:Fiscalpoliciescomeaboutwhenthegovernmenttakescertainactions,likepassinglawsthat

increase/decreasespendingorraise/lowertaxes.Suchpoliciesalsoresultfrom“automaticstabilizers”takingeffect.Afterhearingtheinterviewbelowactedout,writeaquestionthatyouwouldhaveaskedaboutautomaticstabilizerstotheexpertwhoappearsinthisinterview.

I‐1: Todaywearehonoredtohavewithusanexpertonautomaticfiscalpoliciesorautomaticstabilizers.Let’sbeginbyaskingwhysuchpoliciesarecalled“automatic.”

E: AsopposedtoactionsrequiringavotebyCongress,automaticfiscalpoliciestakeplacemostofthetimewhetherornotlawmakerstakeanyaction.

I‐2: Canyougiveussomeexamples?E: Threeautomaticfiscalpoliciesthatwehearalotaboutare:1)unemploymentinsurance,

2)welfare,and3)incometaxprograms.

I‐3: Tellusaboutunemploymentinsurancefirst,please.E: Sure.Throughunemploymentinsurance,statesprovidepaymentstoeligibleworkerswhohave

losttheirjobs.Duringarecession,whenlargenumbersofpeopleareoutofwork,thenumberofpeoplereceivingpaymentsincreases,automatically.Inthisway,additionalfundsarepumpedintotheeconomytofighttherecession.Whenthingsgetbetterintheeconomyandpeoplereturntowork,theamountofpaymentsgoingtotheunemployeddeclines.Whileunemploymentinsuranceautomaticallygoestopeopleduringtheirfirstmonthswithoutajob,sometimesCongressmustpasslawstoextendthenumberofweeksanindividualmayreceiveunemployment.Theseextensionsusuallyareneededduringverydeeprecessions,whenhighunemploymentratesexist.

I‐4: Howdoeswelfareactasanautomaticfiscalpolicy?E: Welfaregoestopoorindividualsandfamilies.Someofitcomesintheformofcashpayments.

Otherformsofwelfarecomeasin‐kindservices(e.g.,foodstamps).Likeunemploymentbenefits,welfarepaymentsautomaticallyincreaseineconomichardtimes.Theseincreasedpaymentscanleadtomorespendingthathelpsbringusoutoftheeconomicdownturns.Duringexpansions,welfarepaymentstendtoshrink.

I‐5: Finally,tellushowincometaxprogramsactasautomaticstabilizers.E: Duringgoodeconomictimes,moretaxmoneyistakenoutofpeople’spaychecksastheirearnings

increase.Asaresult,peoplecannotspendasmuchastheymight,preventingtheeconomyfromoverheating,causinginflation.Ontheotherhand,ifwesufferthrougharecession,incomestendtofallandsodotheamountpaidintaxes—thisleavestaxpayerswithmoremoneytospend.Theincreasedspendinghelpsfighttherecession.

Letmeconcludebysayingthattheautomaticstabilizersdonotalwaysdoenoughtofightrecessionsorinflation,whichexplainswhyCongresssometimeshastotakeadditionalactionstokeeptheeconomyhealthy.

Question:



HandoutIII.13.D,“SupplySideEconomics”Directions:Supply‐sideeconomistsfavoradifferentapproachtofiscalpolicyfromwhathasbeenpresentedthusfarinthislesson.Afterreadingthedescriptionbelow(takenfromanInternetsiteonSupply‐Sideeconomics),completetheexercisethatfollows.

WhatIsSupplySideEconomics?Supply‐sideeconomicsisthetheorythatthecorrectapproachtoremedyaneconomicdownturnistoreducetaxes,notincreasegovernmentspending.Supplysideadvocatesbelievethatreducingtaxesduringadownturnwillstimulatetheeconomybecauseitwillleadtoincreasedconsumerpurchasing.Accordingtothesupply‐sideargument,theboosttoeconomicgrowthwillgeneratealargetaxbaseovertime,morethanmakingupfortherevenuelostfromthetaxcut.

HowIsSupplySideEconomicsSupposedtoWork?Bycuttingincometaxes,moremoneywillgointoworkers'paychecks,whichtheywillspend.Thisincreaseinconsumerdemandmeansbusinessescanproducemoregoodsandservices,whichwillleadtomorejobs.Workerscanthenbargainforhigherwages,whichwilltranslatebackintohighertaxrevenues.

HowWellDoesSupplySideEconomicsActuallyWork?Economistsdisagreewhethersupply‐sideeconomicsreallyworksbecauseitisdifficulttofindreal‐worldproof.That'sbecauseitisnearlyimpossibletoisolatetheimpactoftaxcutsaloneoneconomicgrowthandonrevenue.Forexample,PresidentGeorgeW.Bushcuttaxesin2001and2003.Theeconomygrew,andrevenuesincreased.Supply‐siders,includingthePresident,saidthatwasbecauseofthetaxcuts.OthereconomistspointtolowerinterestratesinstitutedbytheFederalReserveastherealstimulatoroftheeconomy,notthetaxcuts.

STUDY SUPPORTING SUPPLY-SIDE:

Under President George W. Bush, the U.S. Treasury Department developed a model that showed that the Bush tax cuts would ultimately increase production by .7%. However, it is important to note that the model makes certain assumptions that some economists would not agree with.

STUDY THAT DOES NOT SUPPORT SUPPLY-SIDE:

A study by the National Bureau of Economic Research found that, rather than generating large amounts of money for the government, cutting taxes will result in 17% less income tax and 50% less corporate tax revenues going to the government. This study shows that, over the long-term, the revenue lost by tax cuts will be only partially regained. Without a decrease in spending, the study concludes, tax cuts will lead to an increase in the budget deficit, which will harm the economy over time.

Exercise:Aftercompletingthereadingabove,writewhatyoubelievewouldbeanappropriateconclusiontothisreadingaboutsupply‐sideeconomics.Conclusion:_________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

Adaptedfrom:http://useconomy.about.com/od/fiscalpolicy/p/supply_side.htm?p=1



HandoutIII.13.E,“Editorial”Directions:Readtheeditorialbelowandcirclethemostseriousproblemassociatedwithusingfiscal

policytostabilizetheeconomy.

Editorial: The Problem with Fiscal Policy

he difficulty with fiscal policy as a cure for our economic ills is that government measures do not always work as they are supposed to. One of the problems is that the success of fiscal programs is often tied to effective forecasting about the economy. While

economists can determine if the economy is doing well or doing poorly, predicting which way and when the economy will turn in the future is much more difficult. Very often, the government does not recognize we are in recession until many months after the recession has begun. With such poor forecasting, it is difficult to apply fiscal policy cures effectively. Even when forecasts are more accurate and timely, Congress and the president get in each other’s way, preventing the appropriate action from being taken when it is needed.

Second, politics often prevents effective fiscal policy actions from being taken. For example, since lowering taxes and increasing spending is generally more popular than the opposite, lawmakers tend to favor the former. On the other hand, politicians are reluctant to raise taxes and cut spending on programs that go to needy people. It is for these reasons that fiscal policies to fight recessions are easier to enact that those that used against inflation.

Next, fiscal policies are limited by the rigidity of the budget. Certain large budget items, like defense needs, interest payments, and social security, must be met and are difficult or impossible to limit, regardless of the economic conditions that exist. After these expenses are allotted for, Congress has only a limited amount of funding it can cut.

Finally, there is often a lack of coordination between the fiscal policies of the federal government on one hand and those of states and localities on the other, Often states and localities are spending money at time when they should be showing restraint, and cutting spending when it should be increased. Unlike the Federal government, which, by printing more money, can spend more than it takes in through taxes, states and localities cannot spend more than they take in when attempting to fight economic downturns.

T

UNITIII/LESSON14

BusinessintheGlobalEconomy

TimeFrame1day

StandardsNES:Economics–Describethenatureofinternationaltrade

DeterminetheimpactofculturalandsocialenvironmentsonworldtradeNES:Skills–FollowdirectionsApplyeffectivelisteningskills


GuidingQuestionHowisglobalizationaffectingtheU.S.economy?



Definetheterm“globalization.”

ExaminesomeofthepositiveandnegativeeffectsofglobalizationonAmericanbusinessesandtheU.S.economy.

Discusswhetherornotglobalizationisgoodforsmallbusinesses.

TeacherBackground

Globalizationisaprocessofinteractionandintegrationamongthepeople,companies,andgovernments

ofdifferentnations,aprocessdrivenbyinternationaltradeandinvestmentandaidedbyinformationtechnology.Thisprocesshaseffectsontheenvironment,onculture,onpoliticalsystems,oneconomic

developmentandprosperity,andonhumanphysicalwellbeinginsocietiesaroundtheworld.

Inthefirstactivity,studentsareaskedtoformulateadefinitionoftheterm“globalization.”InHandoutIII.14.A,studentswillcomparetheirdefinitionofglobalizationwithonepresentedonapopularwebsite.

HandoutIII.14.Boffersachartdealingwiththechangesininternationaltradethathavecoincidedwithglobalization.IntheexerciseforHandoutIII.14.B,studentsareaskedtodrawconclusionsaboutwhattheylearnedfromthechartaboutexpansionoftradeandglobalization.HandoutIII.14.Clooksat

globalizationthroughtheeyesofasmallbusinessowner.Finally,HandoutIII.14.Dcallsuponstudentstocreateatitleforareadingdealingwithsomethechallengesthatglobalizationpresents,especiallythoseconfrontingworkingpeople.




Writetheword“globalization”ontheboard.Askstudentstoexplaintheiranswerstothefollowingquestions:

– Whatdoesthistermmeantoyou?

– WhatdoesglobalizationmeantotheU.S.economy?

– Whatevidencecanyoushowthatglobalizationaffectsoureverydaylives?

DistributeHandoutIII.14.A,“Blog.”Havestudentsexplaintheiranswerstothefollowingquestions:

– Whatdidyoulearnaboutglobalizationfromthisblog?

– Howdotheideasaboutglobalizationexpressedinthisblogcomparetotheideasaboutthesubjectthatyouexpressedinanattempttodefinetheterm?

– Accordingtothedefinitionappearinginthisblog,globalizationhaseffects“oneconomic

developmentandprosperity.”Whataresomeofthoseeffects?HowimportantaretheseeffectsonAmericans:significantformostpeople,itdependsonwhoyouare,ornotverygreat?

Distribute:HandoutIII.14.B,“Chart.”Havestudentscompletetheexerciseonthehandout,then


– Whatinformationappearsinthischart?

– Whatisthemostimportantconclusionyoucandrawfromthischartaboutglobalizationandinternationaltrade?

– Isitbetterifimportsoutnumberexports,exportsoutnumberimports,ordoesitdependonother

factors?

Distribute:HandoutIII.14.C,“SmallBusinesses.”Havestudentscompletetheexerciseonthe


– Whatisthishandoutabout?

– Whatargumentsdoesthishandoutpresenttosupportthebeliefthatglobalizationisgoodfor

smallbusiness?

– Howconvincingaretheargumentspresentedheretosupporttheclaimthatglobalizationisgoodforsmallbusinesses?

DistributeHandoutIII.14.D,“Reading.”Havestudentscompletetheexerciseonthehandout,thenhavethemexplaintheiranswerstothefollowingquestions:

– Whatdidyoulearnfromthisreading?

– Whatdidyousuggestasatitleforthereading?

– WhatargumentscanbemadethatglobalizationisdoingmoreharmthangoodfortheAmerican

worker?Whatargumentscanmadefortheoppositepointofview?



– Inadditiontoitseffectsonworkers,whataresomeotherchallengesthatglobalizationhascreatedfortheU.S.economy?

– WhatdoyouthinkJosephSchumpetermeantbytheterm“creativedestruction”?Howdoes

creativedestructionapplytowhat’shappeningtotheU.S.economyasaresultofglobalization?

– DoyouagreewithSchumpeter’sbeliefthatweshouldacceptthedestructionofoldeconomicwaysasapositivehappeningbecauseitclearsthewayfornewandbetterwaysofdoingthings,

likeglobalization?


Basedonwhatwehavelearnedaboutglobalizationinthislesson,whatadvicewouldyougive

entrepreneursabouthowtopreparethemselvestosucceedintheglobaleconomy?

FollowUp

Havestudentsinterviewthreebusinesspeoplewhooperateintheircommunities,askingeachthese

questions:

– Howmuch,ifany,hasyourbusinessbeenaffectedbyglobalization?

– Doyouthinkglobalizationisagoodorbadthingforentrepreneurs?

– Whatshouldafuturebusinesspersondotopreparetoworkintheglobaleconomy?

Haveaclassdiscussiononglobalizationfocusingonthequestionsthatstudentsusedintheir

interviews.

CulminatingActivity:“EconomicsJeopardy”

Drawthefollowingpointchartontheboard:

POINTCHART

EconomicSystems

U.S.EconomicSystem

BusinessCycleandEconomicIndicators

MonetaryandFiscalPolicy

GlobalEconomyandInternational

Trade

5Points 5Points 5Points 5Points 5Points







Herearetherulesfor“EconomicsJeopardy”:

1. Dividetheclassintotwoteams.

2. Tossacointodeterminewhichteamgoesfirst.

3. ThestudentseatedinthefirstseatinthefirstrowforTeamOnebeginsbyselectinganyofthefivepointboxesunderoneofthefivecategoriesthatappearonthe“PointChart.”Aseach

studentselectsapointbox,crossoffthatboxfromthe“PointChart.”

4. Refertothe“AnswerChart”(below)togettheanswerthatcorrespondstothepointboxselected.Then,readthatansweraloud.Inordertoearnthenumberofpointsattachedtothe

box,thestudentmustrespondwiththecorrectquestion(Forexamplefortheanswer“HewasthefirstPresidentoftheU.S.,”thecorrectquestionwouldbe“WhowasGeorgeWashington?”)Thecorrectquestionsforall25boxesappearinthe“AnswerChart.”

5. KeepgoingdowntherowofTeamOne,awardingpointsforeachcorrectresponse,untilastudentrespondsincorrectly.Foreachincorrectresponsethatastudentprovides,hisorherteamlosesthenumberofpointsoftheboxselected.ThencallonanystudentfromTeamTwo

whoraiseshisorherhand.IfthestudentcalledfromTeamTwodoesnotprovidethecorrectresponse,TeamTwolosesnopoints.Telltheclassthecorrectquestion.

6. NowitisTeamTwo’sopportunitytoselectfromthepointboxes.Beginwiththestudentsittingin

thefirstseatinthefirstrowforTeamTwo.Followthesamepatterndescribedaboveuntilall25boxeshavebeenselected.

7. Afterall25boxeshavebeenselected,theteamwiththemostpointswins.



ANSWERCHART

EconomicSystems U.S.EconomicSystemBusinessCycleandEconomicIndicators

MonetaryandFiscalPolicy

GlobalEconomyandInternationalTrade

A:Thebasiceconomicproblemallsocieties

face.

A:Thetwofactorsthatdeterminethepricesofgoodsandservicesinthe

U.S.economy.

A:Thisindicatormeasuresthetotal

marketvalueofgoodsandservicesproducedbyacountryinoneyear.

A:ThenameofthecentralbankoftheU.S.,whichmakesmonetary

policy.

A:Thenameofonecompanythatsellsitselectronicproducts

allovertheworld.

5PointsQ:Whatisscarcity?(Or,Whatismeetingunlimitedneedsandwantswithlimited

resources?)

Q:Whataresupplyanddemand?

Q:WhatistheGrossDomesticProductor

GDP?

Q:WhatistheFederalReserve?

Q:WhatisApple/Microsoft/Samsung/Panasonic?

A:AdamSmithissaidtobethefatherofthiseconomicsystem.

A:ManypeoplerefertotheU.S.asamixed,ratherthanapurely

capitalist,economyforthisreason.

A:Thenumberofphasesinthebusinesscycle.

A:Thetwobodiesofgovernmentthatmake

U.S.fiscalpolicy.

A:Thetermusedininternationaltradetodescribe

ataxonimportedgoods.

10Points

Q:Whatiscapitalism?Q:Whatisthefactthatthegovernmentplaysaroleintheeconomy?

Q:Whatisfour?

Q:WhoarethePresidentandCongress?

(Or,WhoaretheExecutiveandLegislative

branches?)

Q:Whatisatariff?

A:Inthiseconomicsystem,thegovernment

makesalmostalldecisionsaboutwhatgoodsandservicesare

produced.

A:Onekindofactivityorserviceperformedby

government,ratherthanprivateindustry,inthis

country.

A:Thenameoneofthephasesofthebusiness

cycle.

A:Inmakingfiscalpolicy,thegovernmentusesthesetwopowers.

A:Thisfactwasamajorcauseoftheglobalizationofthe

economy.

15Points

Q:Whatisacommandorcommunisteconomy?

Q:Whatisthepostoffice/roadbuilding,etc.?

Q:Whatisexpansion,peak,trough,or

recession?

Q:Whatarethepowerstotaxandspend?

Q:Whataretechnologicalbreakthroughsinscience,

technology,andtransportation?

(continued)



ANSWERCHART(continued)

EconomicSystems U.S.EconomicSystemBusinessCycleandEconomicIndicators

MonetaryandFiscalPolicyGlobalEconomyandInternationalTrade

A:Oneofthethreebasicquestionsalleconomicsystemsmustanswer.

A:Thephraseusedtodescribethestreamoffundsandeconomic

activitiesthatgobackandforthamongthe

government,businesses,andpublicinthiscountry.

A:Thistypeofindicatorisgivenitsname

becauseitmovesaheadoftheeconomy.

A:WhentheFedwantstofightinflation,itusually

takesthisaction.

A:Thenameforthetradeagreementthatwentintoeffectin1994,involvingtheU.S.,Canada,and

Mexico.20Points

Q:WhatisWhattoproduce?/Howtoproduce

it?/Howtodistributewhatisproduced?

Q:Whatisthecircularflow?

Q:Whatisaleadingindicator?

Q:Whatisraisingshort‐terminterestrates?

Q:WhatwasNAFTA?

A:Inthiskindofeconomicsystem

people'seconomicrolesarethesameasthoseof

theirparentsandgrandparents.

A:TherightU.Sconsumershaveto

decideforthemselveswhichgoodstheywill

buy.

A:Thisphaseofthebusinesscycleoccurswhentheeconomyhitsbottom,immediatelypriortotheexpansion

phase.

A:Thisisoneexampleofanautomaticfiscalpolicy

stabilizer.

A:Ininternationaltrade,thetermgiventothesituationinwhicha

countrycanproduceagoodatalower

opportunitycostthananothercountry.25Points

Q:Whatisatraditionaleconomicsystem?

Q:Whatisconsumersovereignty?

Q:Whatisthetroughphase?

Q:Whatisunemploymentinsurance/welfare/income

taxprograms?

Q:Whatiscomparativeadvantage?



HandoutIII.14.A,“Blog”Directions:Readthedefinitionofglobalizationthatappearsintheblogbelowandcompareittothe

definitionyouofferedatthebeginningofthelesson.

Globalization 101

Ihavesaidfrombeginningofthisblogthatitsprincipalconcernistheissueofglobalizationanditsimplicationsforthepeopleoftheworldandimpactontheplanetitself.

DefiningGlobalization

Nouniversaldefinitionofglobalization.

Economicdefinition:It’sabouttrade,financeandcommunications.

Broaderdefinition:TomFriedman–anInternationalSystemthatreplacedtheColdWar.

AgooddefinitionIhavefound(LevinInstitute,SUNY):

“Globalizationisaprocessofinteractionandintegrationamongthepeople,companies,and

governmentsofdifferentnations,aprocessdrivenbyinternationaltradeandinvestmentandaidedbyinformationtechnology.Thisprocesshaseffectsontheenvironment,onculture,onpolitical

systems,oneconomicdevelopmentandprosperity,andonhumanphysicalwell‐beinginsocietiesaroundtheworld.”(www.globalization101.org)

Adaptedfrom:http://the‐visionist.blogspot.com/2009/03/globalization‐101.html

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HandoutIII.14.C,“SmallBusinesses”Directions:ReadtheQ&Aonthispage.Underlinethreeargumentsthatappearbelowthatsupportthebeliefthatglobalizationis“especiallygoodforsmallbusiness.”

Q: Asasmallbusinessowner,Iamfrustratedbyhowglobalizationhasaffectedmybusiness.Iam

especiallyupsetbytheincreasingoutsourcingofjobsoverseasbymylargecorporatecompetitors.Theyseemtohavesomanyadvantagesalready;now,byoutsourcingworkoverseas,theyaremakingitevenharderforussmallbusinesses.HowamIsupposedtocompetewhentheycannow

hirepeopleinIndia?—SmallBusinessOwner,Somewhere,USA

A: LetmefirstsaythatIhaven'tlostmyjobbecauseithasbeenoutsourcedoverseas,andIfeelbadforthosewhohave.Thatsaid,however,inthebiggerpicture,Ithinkfreetradeandglobalizationgetabadrap.Thefactis,globalizationisgoodfortheworld,andit'sespeciallygoodforsmallbusiness.

Whentalkingaboutglobalization,Iamreferringtoincreasingfreetrade,theoutsourcingofjobsoverseas,theopeningofnewmarkets,fewertradebarriers,andglobaleconomicintegration.Inafragmentedworld,globalizationcreatesbonds.Inaworldwheretoomanypeopleyearnfor

freedom,globalizationoffershope.Inaworldwheretotalitarianismisalltoopresent,globalizationfostersdemocracy.Andinaworldwheresmallbusinessesfaceincreasingcompetition,globalizationcreatesmarketsandopportunities.

Freetradeandglobalizationoftengetabadrapbecausethereisabeliefthattheyallowhugemultinationalcorporationstoactwithoutconcernforhumanrightsordemocraticvalues.Butthefactisfreetradehelpssmallbusinessfarmorethananyoneelse.Here'sanexample:Iworkwitha

companythatmakesaproductthatitsellstocompaniesacrossthecountry.TheproductismanufacturedinChinaandimportedtotheU.S.becauseitisfarlessexpensivetohaveitmadethere.Yetbydoingso,byridingtheglobalizationwave,mycolleagueshavebeenabletocreatea

businessthatemploysmanypeopleintheUSAandcreateswealthforitsowners.Iftheymanufacturedtheproducthere,theywouldn'tbeabletocompete.

Sothefirstthingtonoteisthatglobalizationcreatesjobs.Here'sanotherexample:AccordingtoHowardShatz,inhistestimonybeforetheHouseCommitteeonSmallBusiness(September2003),betweenmanufacturers,wholesalers,andother"tradefacilitators,"fully94%ofexportersin

Californiaaresmall‐andmedium‐sizebusinesses.Thatisanamazingstatistic;morethan9outof10exportersaresmallbusinesses.Whyisthat?Byopeningnewmarketswithfewerbarriers,freetradeandglobalizationmakeiteasierforU.S.smallbusinesstomanufactureandselltheirgoods

overseas.TheInternetalonehasopenedawholenewavenueofmarketsforthosesmallbusinessessmartenoughtotakeadvantageofit.

(continued)


UNITIII/LESSON14:page10HandoutIII.14.C,“SmallBusinesses”(continued)

Muchofthistradegoestoourlargesttradingpartner,Mexico,whereagrowingnumberofsmall

businesseshavecroppeduptoimportU.S.goods.AccordingtoaUniversityofMiamistudy,"99%ofMexico'sprivatesectoriscomposedofsmallbusinessesthatgenerateover80%ofemploymentinMexico."Andthatnew,boomingmarketawaitsthesmallbusinesssavvyenoughtotapit.Sothe

secondbenefitisthatglobalizationcreatesmarkets.Freetradeandglobalizationnotonlyfostersmallbusinessgrowthathome,itfostersbusinessgrowthabroad,andthat,inturn,accordingtothestudy,"fuels…demandwithinMexicoforU.S.‐madegoodsandservices."It'sawin‐winrelationship,

wherebothsidesbenefit.

Thesedays,maybethemostpositiveoffshootofglobalization,accordingtoDanGriswoldinhis

paper,"TradingTyrannyforFreedom:HowOpenMarketsTilltheSoilforDemocracy,"isthat"economicintegrationpromotescivilandpoliticalfreedomsdirectlybyopeningasocietytonewtechnology,communications,anddemocraticideas....Bypromotingfastergrowth,freetrade

promotespoliticalfreedomindirectlybycreatinganeconomicallyindependentandpoliticallyawaremiddleclass."

Significantly,Griswoldnotes,"nationsthathave[opened]themselvestotheglobaleconomyare

significantlymorelikelytohaveexpandedtheircitizens'politicalandcivilfreedoms."

Bycreatingjobsathome,bynurturingamiddleclassabroad,byfosteringdemocraticideals,bydevelopingnewmarkets,bytearingdownbordersandbarriers,globalizationhasaverypositive

impactontheworldatlarge,anditistheU.S.smallbusinessthatisattheforefrontofthisrevolution.Americansmallbusinessescancontinuetochangetheworldforthebetterbyridingtheglobalization/freetradewaveandsellingtheirgoodstoemergingmarketsoverseas.

http://www.usatoday.com/money/smallbusiness/columnist/strauss/2004‐05‐17‐globalization_x.htm#



HandoutIII.14.D,“Reading”Directions:Afterreadingthepassagebelow,suggestatitleandwriteitonthelineprovided. _________________________________________________________________________________ (title)

hangesresultingfromglobalproductionandtradehavebeendifficultforcertainsectorsoftheU.S.economy,especiallyforworkersintheseaffectedsectors.Asothercountrieshavedevelopednewmanufacturingcapacities,thelowerwagesofworkersinthosecountrieshavegiventhema

costadvantagerelativetomanufacturingintheUnitedStates.ThishasledtoasteadyincreaseinU.S.importsofmanufacturedgoodsthatarecheaperthanequivalentdomesticgoods.IthasalsopromptedanumberofU.S.companiestoclosefactoriesintheUnitedStatesandbuildnewonesindevelopingcountries,wheretheycantakeadvantageoflowerwagesandimprovedmanufacturingskills.Combinedwithtechnologicalchangesandotherfactors,thesedevelopmentsintradehave:

1. ContributedtoagradualshrinkageintheshareoftheU.S.workforceholdingsecure,manufacturingjobswithdecentwages;and

2. Spurredalong‐termdeclineintheinflation‐adjustedincomeofworkersinthemanufacturingsector.

Americanworkerswithalowdegreeofskillshavebeenhithardestbyforeignimportsandplantclosings,becausetheytendtoworkintheindustriesinwhichemergingindustrialcountriesaremostcompetitive.Overthepastfewdecades,asemploymentandwageshavedeclinedintraditionalU.S.manufacturingsectors,manymorejobshavebeencreatedinhighertechmanufacturingindustriesandintheservicesector.Thesejobsareoftenhigherpayingthanthemanufacturingjobsthathavebeeneliminated.Manyworkerswithmanufacturingbackgroundslackthetrainingandeducationnecessarytotransitionintothesenewfields.

ThechangingstructureofAmericantradeoverthepastfewdecadesisinmanyrespectsareflectionofalargersetofchangesinthestructureoftheU.S.economy.TherelativesharesofU.S.economicoutputaccountedforbyeachofthethreemajorformsofeconomicactivity(manufacturing,services,andagriculture)areconstantlychanging.Atthebeginningofthe20thcentury,thedominanttrendwasthedeclineofagriculturalproductionandtheriseofmanufacturing.Inrecentdecades,thedominanttrendhasbeenthedeclineofmanufacturingandtheriseofthehightechnologyandservicesectors.

Theselong‐termchangesinthestructureofaneconomycanbemarginallyshapedbypolicy.Toalargeextent,though,theyaretheinevitableresultoftheroutineoperationofacapitalisteconomy.

TheAustrianeconomist,JosephSchumpeter,inhisbookCapitalism,SocialismandDemocracy,famouslycharacterizedcapitalismasaprocessof"creativedestruction."Thatis,afreemarketeconomywillnaturallyeliminatefirmsandindustriesthatarelessefficientorproduceinferiorgoods.Whenthesecompaniesareeliminated,theirmoreefficientcompetitorsareallowedtomaximizetheadvantagestheybringtothemarket.Effortstokeeptheseoldindustriesproppedupnotonlyinhibittheoperationsofbetterfirms,buttheyusuallycomeatthegreatexpenseoftaxpayers.

Ratherthantryingtodelayorpreventsuchtrends,thealternativewouldbetoofferassistancetothoseindividualsorcommunitiesthatexperiencedifficulty.

http://www.globalization101.org/uploads/File/Trade/tradeall2011.pdf

C



HandoutIII.14.A,“Blog”Directions:Readthedefinitionofglobalizationthatappearsintheblogbelowandcompareittothe

definitionyouofferedatthebeginningofthelesson.

Globalization 101

Ihavesaidfrombeginningofthisblogthatitsprincipalconcernistheissueofglobalizationanditsimplicationsforthepeopleoftheworldandimpactontheplanetitself.

DefiningGlobalization

Nouniversaldefinitionofglobalization.

Economicdefinition:It’sabouttrade,financeandcommunications.

Broaderdefinition:TomFriedman–anInternationalSystemthatreplacedtheColdWar.

AgooddefinitionIhavefound(LevinInstitute,SUNY):

“Globalizationisaprocessofinteractionandintegrationamongthepeople,companies,and

governmentsofdifferentnations,aprocessdrivenbyinternationaltradeandinvestmentandaidedbyinformationtechnology.Thisprocesshaseffectsontheenvironment,onculture,onpolitical

systems,oneconomicdevelopmentandprosperity,andonhumanphysicalwell‐beinginsocietiesaroundtheworld.”(www.globalization101.org)

Adaptedfrom:http://the‐visionist.blogspot.com/2009/03/globalization‐101.html

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HandoutIII.14.C,“SmallBusinesses”Directions:ReadtheQ&Aonthispage.Underlinethreeargumentsthatappearbelowthatsupportthebeliefthatglobalizationis“especiallygoodforsmallbusiness.”

Q: Asasmallbusinessowner,Iamfrustratedbyhowglobalizationhasaffectedmybusiness.Iam

especiallyupsetbytheincreasingoutsourcingofjobsoverseasbymylargecorporatecompetitors.Theyseemtohavesomanyadvantagesalready;now,byoutsourcingworkoverseas,theyaremakingitevenharderforussmallbusinesses.HowamIsupposedtocompetewhentheycannow

hirepeopleinIndia?—SmallBusinessOwner,Somewhere,USA

A: LetmefirstsaythatIhaven'tlostmyjobbecauseithasbeenoutsourcedoverseas,andIfeelbadforthosewhohave.Thatsaid,however,inthebiggerpicture,Ithinkfreetradeandglobalizationgetabadrap.Thefactis,globalizationisgoodfortheworld,andit'sespeciallygoodforsmallbusiness.

Whentalkingaboutglobalization,Iamreferringtoincreasingfreetrade,theoutsourcingofjobsoverseas,theopeningofnewmarkets,fewertradebarriers,andglobaleconomicintegration.Inafragmentedworld,globalizationcreatesbonds.Inaworldwheretoomanypeopleyearnfor

freedom,globalizationoffershope.Inaworldwheretotalitarianismisalltoopresent,globalizationfostersdemocracy.Andinaworldwheresmallbusinessesfaceincreasingcompetition,globalizationcreatesmarketsandopportunities.

Freetradeandglobalizationoftengetabadrapbecausethereisabeliefthattheyallowhugemultinationalcorporationstoactwithoutconcernforhumanrightsordemocraticvalues.Butthefactisfreetradehelpssmallbusinessfarmorethananyoneelse.Here'sanexample:Iworkwitha

companythatmakesaproductthatitsellstocompaniesacrossthecountry.TheproductismanufacturedinChinaandimportedtotheU.S.becauseitisfarlessexpensivetohaveitmadethere.Yetbydoingso,byridingtheglobalizationwave,mycolleagueshavebeenabletocreatea

businessthatemploysmanypeopleintheUSAandcreateswealthforitsowners.Iftheymanufacturedtheproducthere,theywouldn'tbeabletocompete.

Sothefirstthingtonoteisthatglobalizationcreatesjobs.Here'sanotherexample:AccordingtoHowardShatz,inhistestimonybeforetheHouseCommitteeonSmallBusiness(September2003),betweenmanufacturers,wholesalers,andother"tradefacilitators,"fully94%ofexportersin

Californiaaresmall‐andmedium‐sizebusinesses.Thatisanamazingstatistic;morethan9outof10exportersaresmallbusinesses.Whyisthat?Byopeningnewmarketswithfewerbarriers,freetradeandglobalizationmakeiteasierforU.S.smallbusinesstomanufactureandselltheirgoods

overseas.TheInternetalonehasopenedawholenewavenueofmarketsforthosesmallbusinessessmartenoughtotakeadvantageofit.

(continued)


UNITIII/LESSON14:page10HandoutIII.14.C,“SmallBusinesses”(continued)

Muchofthistradegoestoourlargesttradingpartner,Mexico,whereagrowingnumberofsmall

businesseshavecroppeduptoimportU.S.goods.AccordingtoaUniversityofMiamistudy,"99%ofMexico'sprivatesectoriscomposedofsmallbusinessesthatgenerateover80%ofemploymentinMexico."Andthatnew,boomingmarketawaitsthesmallbusinesssavvyenoughtotapit.Sothe

secondbenefitisthatglobalizationcreatesmarkets.Freetradeandglobalizationnotonlyfostersmallbusinessgrowthathome,itfostersbusinessgrowthabroad,andthat,inturn,accordingtothestudy,"fuels…demandwithinMexicoforU.S.‐madegoodsandservices."It'sawin‐winrelationship,

wherebothsidesbenefit.

Thesedays,maybethemostpositiveoffshootofglobalization,accordingtoDanGriswoldinhis

paper,"TradingTyrannyforFreedom:HowOpenMarketsTilltheSoilforDemocracy,"isthat"economicintegrationpromotescivilandpoliticalfreedomsdirectlybyopeningasocietytonewtechnology,communications,anddemocraticideas....Bypromotingfastergrowth,freetrade

promotespoliticalfreedomindirectlybycreatinganeconomicallyindependentandpoliticallyawaremiddleclass."

Significantly,Griswoldnotes,"nationsthathave[opened]themselvestotheglobaleconomyare

significantlymorelikelytohaveexpandedtheircitizens'politicalandcivilfreedoms."

Bycreatingjobsathome,bynurturingamiddleclassabroad,byfosteringdemocraticideals,bydevelopingnewmarkets,bytearingdownbordersandbarriers,globalizationhasaverypositive

impactontheworldatlarge,anditistheU.S.smallbusinessthatisattheforefrontofthisrevolution.Americansmallbusinessescancontinuetochangetheworldforthebetterbyridingtheglobalization/freetradewaveandsellingtheirgoodstoemergingmarketsoverseas.

http://www.usatoday.com/money/smallbusiness/columnist/strauss/2004‐05‐17‐globalization_x.htm#



HandoutIII.14.D,“Reading”Directions:Afterreadingthepassagebelow,suggestatitleandwriteitonthelineprovided. _________________________________________________________________________________ (title)

hangesresultingfromglobalproductionandtradehavebeendifficultforcertainsectorsoftheU.S.economy,especiallyforworkersintheseaffectedsectors.Asothercountrieshavedevelopednewmanufacturingcapacities,thelowerwagesofworkersinthosecountrieshavegiventhema

costadvantagerelativetomanufacturingintheUnitedStates.ThishasledtoasteadyincreaseinU.S.importsofmanufacturedgoodsthatarecheaperthanequivalentdomesticgoods.IthasalsopromptedanumberofU.S.companiestoclosefactoriesintheUnitedStatesandbuildnewonesindevelopingcountries,wheretheycantakeadvantageoflowerwagesandimprovedmanufacturingskills.Combinedwithtechnologicalchangesandotherfactors,thesedevelopmentsintradehave:

1. ContributedtoagradualshrinkageintheshareoftheU.S.workforceholdingsecure,manufacturingjobswithdecentwages;and

2. Spurredalong‐termdeclineintheinflation‐adjustedincomeofworkersinthemanufacturingsector.

Americanworkerswithalowdegreeofskillshavebeenhithardestbyforeignimportsandplantclosings,becausetheytendtoworkintheindustriesinwhichemergingindustrialcountriesaremostcompetitive.Overthepastfewdecades,asemploymentandwageshavedeclinedintraditionalU.S.manufacturingsectors,manymorejobshavebeencreatedinhighertechmanufacturingindustriesandintheservicesector.Thesejobsareoftenhigherpayingthanthemanufacturingjobsthathavebeeneliminated.Manyworkerswithmanufacturingbackgroundslackthetrainingandeducationnecessarytotransitionintothesenewfields.

ThechangingstructureofAmericantradeoverthepastfewdecadesisinmanyrespectsareflectionofalargersetofchangesinthestructureoftheU.S.economy.TherelativesharesofU.S.economicoutputaccountedforbyeachofthethreemajorformsofeconomicactivity(manufacturing,services,andagriculture)areconstantlychanging.Atthebeginningofthe20thcentury,thedominanttrendwasthedeclineofagriculturalproductionandtheriseofmanufacturing.Inrecentdecades,thedominanttrendhasbeenthedeclineofmanufacturingandtheriseofthehightechnologyandservicesectors.

Theselong‐termchangesinthestructureofaneconomycanbemarginallyshapedbypolicy.Toalargeextent,though,theyaretheinevitableresultoftheroutineoperationofacapitalisteconomy.

TheAustrianeconomist,JosephSchumpeter,inhisbookCapitalism,SocialismandDemocracy,famouslycharacterizedcapitalismasaprocessof"creativedestruction."Thatis,afreemarketeconomywillnaturallyeliminatefirmsandindustriesthatarelessefficientorproduceinferiorgoods.Whenthesecompaniesareeliminated,theirmoreefficientcompetitorsareallowedtomaximizetheadvantagestheybringtothemarket.Effortstokeeptheseoldindustriesproppedupnotonlyinhibittheoperationsofbetterfirms,buttheyusuallycomeatthegreatexpenseoftaxpayers.

Ratherthantryingtodelayorpreventsuchtrends,thealternativewouldbetoofferassistancetothoseindividualsorcommunitiesthatexperiencedifficulty.

http://www.globalization101.org/uploads/File/Trade/tradeall2011.pdf

C