LESSON 1: FUNDAMENTAL ECONOMIC CONCEPTS · • Free market economy means the most ... • The United States does not have a pure capitalistic economy because there ... Fundamental

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Unit 3: Fundamental Economic Concepts

LESSON 1: FUNDAMENTAL ECONOMIC CONCEPTS This lesson covers the following information:

• The relationship between supply and demand • The elements of a free enterprise economy

Highlights include the following:

• All economic systems deal with producing wealth and distributing that wealth among the people in a society.

• Each country needs to determine how to use its human, technical, and natural resources. • Two of the major economic systems in the world are the free enterprise system and the command

economic systems known as socialism and communism. • Free market economy means the most productive resources are in private hands, and decisions on their

use are based on market forces. The cost of an item is determined by the amount (supply) and the demand of the people who can

afford to purchase the items. Competition is critical and occurs when there is more than one buyer or seller of the goods and

services. • Producers are free to produce as much as they want and charge whatever buyers are willing to pay. • The United States does not have a pure capitalistic economy because there is some government regulation

and a social welfare system. • The command economic system is based on socialism.

Socialists believe in more government control and planning than the free enterprise system. The government owns and operates the important industries such as steel, coal, and

transportation. • Communism means all individuals contribute their best effort to the good of the community, and, in

return, the citizens will receive everything they need. The government decides what shall be produced, what quantity will be produced, and what wages

people will earn. • Labor is the effort towards something being produced or serviced. • The Sherman Anti-Trust Act prohibits trusts and prevents monopolies in the United States. • The McKinley Tarrif helped to raise taxes on foreign produced goods making those products more

expensive to purchase. • The NAFTA (North American Free Trade Act) eliminated duties and restrictions on trade between

Canada, The United States, and Mexico. • The more developed a country is, the greater its influence is likely to be in the interdependent global

economy. Developed nations have high levels of personal income, relatively low unemployment, and

healthy manufacturing and industrial sectors. • Factors such as limited health services, poor and crowded schools, high rates of illiteracy, and poor

productivity often hinder the economic progress of developing underdeveloped nations. • U.S. exports have grown by leaps and bounds, but they have failed to keep pace with imports. This

imbalance has created a trade deficit.



Reflection A command economy is an economy where a government determines wages, prices, and amount of production for products. Socialism and communism are examples of command economies. The United States is an example of a Free Market Economic System. There are complex relationship between supply and demand, identified the impact of world economies and the interdependence of nations on the economic health of the United States. Notes:



Fallen Phrases Solve the puzzle by dropping the letters into the boxes below to unscramble the phrase.



LESSON 2: MICROECONOMICS AND MACROECONOMICS This lesson covers the following information:

• The causes of inflation. • The impact of government policy on the inflation and deflation of goods and services. • The personal impact of gross domestic product.


• An economy, or economic system, includes the companies, the people, the government, the institutions, and the organizations that work together to determine the distribution and use of resources.

• Inflation is an increase of goods and services over a period of time. • Deregulation was the practice of limiting the number of constraints on businesses in the United States. • The Gramm-Leach-Bliley Act of 1999 removed regulations that kept financial companies from acting as

an investment bank, commercial bank, and insurance company. • A major portion of energy deregulation was the Emergency Petroleum Act, which was created in response

to OPEC price hikes during the early 1970's. • Economic freedom emphasizes free markets and ownership of private property and is essential for

political freedom. • Market failure is when entities are no longer efficient.

The market is monopolized or a small group of businesses have significant power. There are external costs that are not passed on to the consumer. The product or services is a 'public good.'

• Government intervention through taxes, subsidies, bailouts, wage/price controls, and increased regulations is used to correct the economic impact of a market failure.

• Keynesian economics states the most important factor to the economy is demand created by households, businesses and government and not the dynamics of the free markets.

• Congress passed the Banking Act of 1933 that created the Federal Deposit Insurance Corporation (FDIC) in direct response to the Great Depression where thousands of banks failed wiping out the life savings of many people,

• The Great Depression 1929-1939 was the worst and longest lasting depression in the history of the Western industrialized world

• A tool called the Consumer Price Index measures inflation. • Inflation and deflation means that the price of goods and services show a consistent increase over time.

Money loses its purchasing power and it takes more money to buy an item. Deflation is a consistent decrease in the cost of goods and services.

• President Ronald Regan implemented policies that are commonly associated with supply-side economics, commonly called trickle-down economics.

They were to reduce o the growth of government spending o income tax and capital gains tax o government regulation of economy o and control money supply to reduce inflation

• A country's gross domestic product (GDP) is the market value of their officially recognized goods and services during a given period of time.

• A nation's GDP reflects economic production and growth.



Reflection Macroeconomics is the part of economics that looks at the behavior, structure, and decision-making of an economy as a whole. Notes:



Crossword Puzzle Solve the puzzle.

Across

5. The market value of all officially recognized goods and services in any country during a given period of time.

Down

1. A consistent decrease in the price of goods and services over time. 2. A consistent increase in the price of goods and services over time. 3. The practice of limiting the number of constraints on businesses in the United States. 4. A slowing of production, trade, and economic activity over several months or years in a free market

economy.



LESSON 3: ECONOMIC EVENTS THAT HAVE SHAPED AMERICAN GOVERNMENT AND POLICIES This lesson covers the following information:

• The developing American economy and Westward Expansion. • The economic causes and impacts of war. • The impact of the Scientific Revolution and Industrial Revolution on the economy and the working class.


• The newly formed United States found itself in financial turmoil after the American Revolution ended. • President Hamilton created the First Bank of the United States (1791) as a way for war debts to be paid to

the nation and to generate new revenues to sustain the newly formed country. • The nineteenth century government was not involved in regulation, extensive taxation, or the personal

lives of individuals. • Mercantilism was the driving force behind colonization

Colonies provide the mother country with raw materials, markets for sale of the mother country's domestic goods, and a means of solving overcrowding.

• In the 1800s, America saw the need to become less dependent on England and Europe. • Samuel Slater memorized everything in factories, quit his job and built the first factory on a Rhode Island

stream. The use of child labor and orphans was needed since most of the adult workforce was still

agrarian, or working on farms. • In 1793 Eli Whitney created the cotton gin and developed mass production in manufacturing. • Many of the factories in the early 20th century operated under the philosophy of scientific management. It

was believed that workers should be hired to perform a small number of tasks, in a repetitive manner. • As the factory system changed so did the commercial system in America. The commercial system or

market revolution that expanded included canals, roads, and railroads. These systems established the basis for the modern capitalistic system of consumer markets we have today.

• The 19th century saw immigration explode in the United States. • There were social consequences to all the expansion in the west. • The Erie Canal was the first transportation system between the eastern seaboard (New York City) and the

western interior (Great Lakes) of the United States that did not require portage. Portage is the practice of boats and cargo over land.

• Immigrant and internal migration led to the growth of cities as manufacturing developed and became more profitable than agriculture.

• With immigration came tension and prejudice. The rise of nativism occurred. Nativists were those Americans who were hostile to foreigners and immigration.

• The American Labor Movement was made up of a series of events in the mid to late 19th century. • The Progressive movement was a push to solve many of the problems brought about by the Industrial

Revolution. • Another important aspect of the New Deal was the Social Security Act.

The deal revolved around the three "R's": Relief, Recovery, and Reform.



Reflection As the Founding Fathers shaped the American Government, there were bitter disputes over the government's role in the economy. Leaders in the early government fought over paying the national debt, the existence of a national bank and subsidizing domestic manufacturing. In principle, the Founding Fathers' economic principles supported a free economy where citizens had the right to own and use their property, the right to sell or give property to others (market freedom) and the government support of money. Notes:



Word Search Find all the words in the list. Words can be found in any direction.

COLONIZATION INFLATION MERCHANTILISM FISCAL CLIFF MARKET FREEDOM RECESSION FREE ECONOMY MASS PRODUCTION SOCIAL DARWINISM



LESSON 4: CONSUMER EDUCATION This lesson covers the following information:

• Understanding credit • Issues to consider when banking


• Credit is when you borrow money with a promise to repay at a later date. Credit is not free. It allows you to buy things when you don't have cash, but you will be charged interest and fees.

• Installment credit is credit that you use to borrow money and promise to repay in equal amounts over a specific period of time.

• Closed-end Credit (Installment) is used for a specific purpose and a specific amount of money is borrowed.

• Open-end Credit (Revolving) is department store credit cards, bank credit cards (like Visa and MasterCard), and using overdraft protection on your checking account are all examples of open-end credit.

• Public Utilities Credit is electricity, water, gas and telephone companies usually allow consumers to pay for their services after they have used them. By allowing consumers to pay later, utility companies are granting credit even though there is no formal credit contract signed.

• Incidental Credit (Non-installment Credit) is credit arrangements involving no extra cost and no specific payment plans.

• A credit report is one tool that creditors use when deciding whether or not to loan money to you or give you a credit card.

• Annual Percentage Rage is a measure of the cost of credit, expressed as a yearly interest rate. • Grace period is the time between the date of a purchase and the date interest starts being charged on that

purchase. • A good rule-of-thumb is to never owe more than 20% of your net income for installment loans (loans

over a predetermined amount of time with credit card like interest rates) and credit card debt. • If you do not pay your debts, you will be taken to court to have a portion of your earnings withheld from

your paycheck. This is a called a wage garnishment • When you choose to spend your money, you experience opportunity costs. Opportunity costs are all the

other things you give up when you choose to spend your money on one thing instead of another. • Fixed expenses are required expenses, typically for the same amount each month, and paid on a regular

basis. • Variable expenses are more difficult to budget for because the amount you spend in these categories

usually changes each month, and they may not even be paid each month. • A commercial bank is a financial institution that serves individuals and businesses by offering savings

and checking accounts, consumer and business loans, and other financial services. • Savings & loan associations are financial institutions that specialize in lending money to consumers to

buy homes as well as accepting deposits and paying interest. • A credit union is a financial institution that offers memberships to people who are in a particular

profession, company, religious affiliation, or labor union. • Money serves two important functions in our society:



Medium of exchange – widely accepted in exchange for goods and services. Unit of account – measurement in which value is expressed; value of goods & services

represented in dollar amount (price). Reflection Economics begin at the government level where policy is set and laws are created with the intention of ensuring that the free market economy succeeds. The government deals with issues such as Gross Domestic Product, managing inflation and deflation, and putting monetary policies in place in order to aid in a recession. That is macroeconomics – studying the larger picture of the economic systems. Yet, there is also a branch of economics that study individuals and how they allocate their personal finances. This is called microeconomics. Notes:



Crossword Puzzle Solve the puzzle.

Across

1. A a business that keeps a record of your credit history. 3. The maximum amount of credit you are allowed to use. 5. Paying later for goods or services that you receive and use now. 6. Interest Amount earned on principal only. 7. Interest earned on interest plus principal. 8. The amount of money deposited or invested.

Down

2. The percentage of an investment added to the account each time interest is paid. 4. The amount you still owe from last month after payments and charges were added to your balance. 5. Savings accounts, insurance policies, bonds or other property that are used to pay off a loan if regular

payments are not made according to the contract.

Documents

LESSON 1: FUNDAMENTAL ECONOMIC CONCEPTS · • Free market economy means the most ... • The United States does not have a pure capitalistic economy because there ... Fundamental