name date class 1-1 reading activities 3 ... name date class 2-3 for use with textbook pages 48–53...

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Guided Reading Activities 1

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For use with textbook pages 5–10

S CARCITY AND THE SCIENCE OF ECONOMICS

RECALLING THE FACTS

Directions: Use the information in your textbook to answer the questions. Use another sheet of paper if necessary.

1. What is the basic economic problem facing all societies?

2. How is need different from want?

3. What do the letters TINSTAAFL stand for, and what does the term mean to consumers?

4. What are the three basic questions societies have to answer about the way their resources are used?

a.

b.

c.

5. List the factors of production and define each one.

a.

b.

c.

d.

6. What are the four key elements of the study of economics? Explain briefly why each one is important.

a.

a.

b.

b.

c.

c.

d.

d.

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2 Guided Reading Activities

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B ASIC ECONOMIC CONCEPTS

OUTLINING

Directions: Locate the following headings in your textbook. Then use the information under the headings to help you write each answer. Use another sheet of paper if necessary.

I. Goods, Services, and Consumers

A. Introduction—What are economic products?

B. Goods—What is the difference between a consumer good and a capital good?

B.

C. Services—What kind of economic product is a service?

B.

D. Consumers—What is a consumer?

II. Value, Utility, and Wealth

A. Introduction—To what does value refer?

B. The Paradox of Value—What is the paradox of value?

B.

C. Utility—What is required for something to have value?

B.

D. Wealth—What is wealth?

III. The Circular Flow of Economic Activity

A. Introduction—What is the key feature of circular flow?

B. Factor Markets—What is a factor market?

C. Product Markets—Where do individuals spend their income from the resources they sell?

B.

IV. Productivity and Economic Growth

A. Productivity—What is productivity?

B. Investing in Human Capital—In what ways can government, businesses, and individuals invest in human capital?

C. Division of Labor and Specialization—How do division of labor and specialization affect productivity?

B.

D. Economic Interdependence—What is economic interdependence?

B.


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E CONOMIC CHOICES AND DECISION MAKING

FILLING IN THE BLANKS

Directions: Use your textbook to fill in the blanks using the words in the box. Some words may be used more than once. Use another sheet of paper if necessary.

trade-offs cost-benefit analysis maximum combinations

free enterprise economy standard of living decision-making grid

production possibilities frontier opportunity cost fully employed

Trade-Offs and Opportunity CostWhenever people make economic decisions, they face 1 , or alternative choices. Using a2 allows consumers to consider various alternatives and decide which one comes closest to meeting their needs. 3 is more than the price tag on a good or service. It is the cost of the next-best alternative use of money, time, or resources.

Production PossibilitiesTo illustrate the concept of 4 , economists use a diagram representing variouscombinations of goods and/or services an economy can produce when all productive resources are5 . By showing the various alternatives, the 6 allowsproducers to decide how to allocate limited resources. The diagram indicates the 7 of goods and/or services that can be produced. If, however, for various reasons some resources are not8 , the producer cannot reach its full production potential and the9 of that failure is whatever is not produced. Economic growth occurs when more resources or increased productivity causes the 10 to move outward.

Thinking Like an EconomistEconomists use various methods to help people make the best choices among the many wants that compete for the use of scarce resources. One of the most important ways is to build economic models. Another is 11 , a way of thinking about a problem that compares the costs of an action to the benefits received. This allows a business, for example, to choose investment projects that give the highest return per dollar spent.

The Road AheadThe study of economics can provide a more detailed understanding of a 12 , where consumers and privately owned businesses, rather than government, make the majority of economic decisions. It provides an understanding of a number of factors that have a bearing on our 13 , which is the quality of life based on the ownership of the necessities and luxuries that make life easier.


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E CONOMIC SYSTEMS

RECALLING THE FACTS


1. Define the term economic system.

2. Describe each type of economic system. Then briefly state its major advantages and disadvantages.

a. Traditional economy

Advantages:

Disadvantages:

b. Command economy

Advantages:

Disadvantages:

c. Market economy

Advantages:

Disadvantages:

d. Mixed economy

Advantages:

Disadvantages:

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E VALUATING ECONOMIC PERFORMANCE

OUTLINING


I. Economic and Social Goals

A. Economic Freedom

1. What are three examples of economic freedom for individuals?

2. What kind of economic freedom do business owners want?

B. Economic Efficiency—What happens if resources are wasted?

C. Economic Equity—What are two examples of economic equity?

D. Economic Security

1. What do American workers want protection from?

2. What kind of protection does Social Security offer?

E. Full Employment

1. What happens when people work?

2. What happens when people do not have jobs?

F. Price Stability

1. What is inflation?

2. What happens to people on fixed incomes when there is inflation?

G. Economic Growth—Why is economic growth needed as a population grows?

H. Future Goals—What may happen to our goals as society evolves?

II. Resolving Trade-Offs Among Goals

A. What is the opportunity cost of a policy of protecting a domestic industry, such as shoe manufacturers?

B. What is the trade-off in increasing the minimum wage?

C. How are trade-offs among goals resolved?


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A MERICAN FREE ENTERPRISE



economic freedom profit capitalism

private property rights voluntary exchange mixed economy

competition consumer sovereignty profit motive

free enterprise modified free enterprise economy

Introduction/Characteristics of Free Enterprise Capitalism1 is an economic system in which private citizens own and use the factors of production to generate profits. The U.S. economy is based on 2 , under which resources are privately owned and competition is allowed to flourish with a minimum of government interference. One characteristic of this kind of economy is 3 , which allows people to choose their occupation, employer, and job location. Another characteristic is 4 , the act of buyers and sellers freely and willingly engaging in market transactions that benefit both the buyer and seller.

Another major feature of capitalism is 5 , the privilege that entitles people to own and control their possessions. The extent to which people or organizations are better off at the end of a period than they were at the beginning is called 6 . The 7 is the incentive that encourages people and organizations to improve their material well-being. Finally, 8 thrives on 9 , which is the struggle among sellers to attract consumers.

The Role of the EntrepreneurThe entrepreneur’s role is to start new businesses and take risks. They are the sparkplugs of a 10 economy. When entrepreneurs are successful, many benefit.

The Role of the ConsumerIn the United States, consumers have power in the economy because they determine which products are produced. The term 11 is another way of saying that the customer is always right. Consumers “vote” with their dollars; that is, they have a say in what is and what is not produced.

The Role of GovernmentThe government’s involvement in the economy reflects people’s desire to modify the economic system. The result is the emergence of the 12 , or 13 , one in which people and businesses carry on their economic affairs freely but are subject to some government intervention and regulation.

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F ORMS OF BUSINESS ORGANIZATION

RECALLING THE FACTS


1. What are the advantages and disadvantages of a sole proprietorship?

Advantages:

Disadvantages:

2. What is the difference between a general partnership and a limited partnership?

3. How is a corporation formed?

4. What are the advantages and disadvantages of a corporation?

Advantages:

Disadvantages:

5. Explain the connection between a bond, principal, and interest.


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HAT IS DEMAND?

RECALLING THE FACTS


1. What three factors determine the demand for a product?

2. What is microeconomics?

3. What is the purpose of a demand schedule?

4. How is a demand curve similar to a demand schedule? How is it different?

5. What does the Law of Demand state?

6. What does the market demand curve show?

7. What is marginal utility?

8. How does the principle of diminishing marginal utility affect how much people are willing to pay?

W

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W HAT IS SUPPLY?

RECALLING THE FACTS


1. What does the Law of Supply State?

2. Explain how each of the following tools can help businesses make production decisions.

a. Supply schedule:

b. Supply curve:

c. Market supply curve:

3. What does a change in quantity supplied respond to?

4. Why does the supply curve shift to the left?

5. Name the seven factors that determine whether supplies increase or decrease.

a. b. c. d. e. f. g.

6. What is supply elasticity?

7. What characterizes an inelastic supply curve?

8. What changes does a unit elastic supply curve show?

For use with textbook pages 143–146.

P RICES AS SIGNALS

RECALLING THE FACTS


1. What are the four reasons that prices in a market economy perform the allocation function so well?

a.

b.

c.

d.

2. What is rationing, and when is it most likely to be used?

3. Describe the problems that rationing can lead to.

a.

a.

a.

b.

a.

b.

c.

a.

4. What is a rebate, and how is it used?


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M EASURING THE NATION’S OUTPUT AND INCOME

RECALLING THE FACTS


1. What is gross domestic product?

2. What things may be excluded from GDP? In each case, give a brief explanation why.

a.

b.

c.

d.

3. What are the limitations of the GDP?

4. List the five measures of national income.

a.

b.

c.

d.

e.

5. What are the four sectors of the economy? Explain each one briefly.

a.

b.

c.

d.

6. What is the output-expenditure model?

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P OPULATION AND ECONOMIC GROWTH

OUTLINING


I. Introduction—Why does the government periodically take a census?

II. Population in the United States

A. Counting the Population—What are the two classifications of population?

B.

B. Historical Growth—What has been the trend in the rate of population growth since colonial times?

B.

C. Regional Change—Which parts of the country are growing in population and which are showing losses?

B.

D. Consequences of Growth—What happens when a population shifts toward a certain area while growing overall?

B.

III. Projected Population Trends

A. Age and Gender

1. What is the population pyramid?

2. What is the dependency ratio?

B. Race and Ethnicity

1. What group is currently the largest component in the total population?

2. What other racial/ethnic groups make up the total population?

C. Population Growth—What are the three most important factors affecting the rate of population growth?

B. D. Future Population Growth—What is expected of the rate of future population growth?

B.

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P OVERTY AND THE DISTRIBUTION OF INCOME



Lorenz curve food stamps workfare

welfare negative income tax income assistance

poverty threshold Earned Income Tax Credit discrimination

monopoly power enterprise zones education

PovertyPoverty is a relative measure that depends on prices, the standard of living, and the incomes that others earn. People are living in poverty if their incomes fall below the 1 , even if they have supplements such as food stamps, subsidized housing, and Medicaid. To evaluate the distribution of income, economists use the 2 , which shows how much the actual distribution of income varies from an equal distribution.

Reasons for Income InequalityA number of reasons explain why the incomes of various groups may be different. One is 3 , which puts workers in a better position to get higher-paying jobs. The wealthy can afford to send their children to expensive schools or set them up in a high-paying job. There are also groups that hold 4 and are in a better position to demand higher wages. Another factor is 5 , which may favor some groups over others in hiring and advancement.

Antipoverty ProgramsOver the years, the federal government has instituted a number of programs to help the needy. Most come under the general heading of 6 . Some programs provide direct cash assistance. Supplemental Security Income (SSI) is an 7 program that makes cash payments to blind or disabled persons age 65 or older. Other programs, such as 8 , do not provide direct cash payments. Instead, eligible persons receive government-issued coupons that can be redeemed for food. Many working low-income Americans qualify for special tax credits such as the 9 , which provides federal tax credits and sometimes cash. To help businesses start up in run-down or depressed areas, laws have been set up to establish 10 . Because of rising welfare costs, many states now have 11 programs in which welfare recipients work for their benefits. The 12 , is a proposed type of tax that would make cash payments to certain groups below the poverty line.

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B USINESS CYCLES AND FLUCTUATIONS

OUTLINING


I. Business Cycles: Characteristics and Causes

A. Phases of the Business Cycle—What is the difference between a recession and a depression?

B. Changes in Investment Spending—How do changes in capital expenditures affect business cycles?

C. Innovation and Imitation—What does an innovation usually trigger in industry?

D. Monetary Policy Decisions—What happens when the Fed follows an easy money policy?

E. External Shocks—Give an example of a positive and a negative external shock.

II. Business Cycles in the United States

A. The Great Depression—Why did the government declare a “bank holiday” in 1933?

B. Causes of the Great Depression—How did easy and plentiful credit contribute to the Great Depression?

C. Recovery and Legislation—List two laws or agencies that were established after the Great Depression in an effort to protect people and prevent another depression.

D. Cycles After World War II—What happened to business cycles following World War II?

III. Forecasting Business Cycles

A. Using Everyday Economic Statistics—What is the composite index of leading economic indicators?

B. Using Econometric Models—What is an econometric model?

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I NFLATION

OUTLINING


I. Measuring Prices and Inflation

A. Introduction

1. What is a price index?

2. What is the consumer price index?

B. Market Basket

1. What is a market basket?

2. What is a base year?

C. The Price Index—How is the dollar cost of a market basket converted to an index value?

D. Measuring Inflation

1. What is the difference between creeping inflation and hyperinflation?

2. What is stagflation?

E. Other Price Indexes—What is the producer price index?

II. Causes of Inflation

A. Demand-Pull—In what way does excessive demand cause inflation?

B. Cost-Push—How do labor costs affect inflation?

C. Wage-Price Spiral—What is the wage-price spiral?

III. Consequences of Inflation—What effects does inflation have on an economy?

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U NEMPLOYMENT



unemployed outsourcing GDP gap

cyclical unemployment frictional unemployment unemployment rate

labor force technological unemployment misery index

structural unemployment seasonal unemployment uncertainty

Measuring UnemploymentThe measure of joblessness is the 1 . The Bureau of Labor Statistics defines the civilian labor force, or 2 , as the sum of all persons age 16 and above who are either employed or actively seeking employment. The Bureau of the Census defines the 3 as people available for work who have made a specific effort to find a job in the past month and who, during the most recent survey week, worked less than one hour for pay or profit. The monthly unemployment rate is expressed as a percentage of the entire 4 . The 5 understates unemployment because it does not count workers who are too frustrated to look for work, and considers part-time workers as employed.

Sources of UnemploymentEconomists have identified several kinds of unemployment. One common type is 6 , where workers are between jobs for one reason or another. A more serious type of unemployment is7 —when a fundamental change in the economy reduces the demand for workers and their skills. More recently, businesses have increased the use of 8 . A third kind of unemployment is 9 , which occurs when machines or automated systems replace workers. A fourth kind of unemployment is 10 , which is directly related to swings in the business cycle. A fifth type of unemployment is 11 , resulting from seasonal changes in the weather or in the demand for certain products or jobs.

Costs of InstabilityCosts of economic instability can be measured in economic and human terms. One measure of the economic cost of unemployment is the 12 —the difference between the actual GDP and the potential GDP that could be produced if all resources were fully employed. The 13 is the sum of the monthly inflation and unemployment rates. In an unstable economy, a great deal of 14 exists. An unstable economy can also lead to political instability as well as a rise in crime rates and poverty.

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T HE EVOLUTION, FUNCTIONS, AND CHARACTERISTICS OF MONEY

RECALLING THE FACTS


1. What is the Federal Reserve System?

2. What is a barter economy?

3. What is commodity money?

4. What is fiat money?

5. In early America, what was used to “back” paper currency?

6. Why was specie considered the most desirable form of money?

7. What is a monetary unit?

8. What characteristics must money have in order to have value?

9. What are three functions of money? Define each term.

a. b. c.

10. What do these money supplies consist of?

a. M1:

b. M2:

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T HE DEVELOPMENT OF MODERN BANKING

OUTLINING


I. The Development of Banking in America

A. Privately Issued Bank Notes—What led to Americans' distrust of paper currency during the Revolutionary War?

B. Growth of State Banking—Why did banking become popular after the Revolution?

C. Problems with Currency—What three problems arose from having different sources of paper currency?

D. Greenbacks—Why did Congress finally decide to print paper currency?

E. The National Banking System—What was established by the National Currency Act of 1863?

F. Other Federal Currencies—What were gold and silver certificates?

II. The Creation of the Fed

A. The Federal Reserve System—Who owns the Federal Reserve System?

B. Banking in the Great Depression—List two factors that contributed to the bank failures at the start of the Great Depression.

C. Federal Deposit Insurance—What is the FDIC?

D. Fractional Reserves and Deposit Expansion—How is the size of bank reserves determined?

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T HE FEDERAL RESERVE SYSTEM AND MONETARY POLICY



open market operations regulatory and supervisory FOMC currency

monetary policy easy money policy member bank district banks

reserve requirement federal government Board of Governors

discount rate tight money policy interest rates

Structure of the FedOne of the unique features of the Fed is that it is privately owned by its 1 , commercial banks that are members of, and hold shares or stock in, the Fed. The Fed is governed by a seven-member 2 , who are appointed by the U.S. president and approved by the Senate for a 14-year term of office. The Board is primarily a 3 agency that sets general policies for its member banks. It also helps make policies that affect the level of 4 and the general availability of credit. It reports annually to Congress. The Fed has twelve 5 that provide many of the same functions for banks and depository institutions that banks provide for the public. The 6 meets eight times a year to review the economy and to evaluate factors such as trends in wages, prices, and consumer spending. The Federal Advisory Council, the Consumer Advisory Council, and the Thrift Institutions Advisory Council advise the Board.

Conducting Monetary PolicyOne of the most important functions of the Fed is to conduct 7 —short run changes in the availability and cost of credit in order to influence the general level of economic activity. Under an 8 , the Fed expands the money supply, causing interest rates to fall. Using a 9 , the Fed restricts the size of the money supply. The Fed uses three tools to conduct monetary policy, changing the amount of excess reserves. The first is the 10 . The second tool is 11 , which is the buying and selling of government securities in financial markets. The third tool is the 12 —the interest the Fed charges on loans to financial institutions.

Other Fed ResponsibilitiesToday's 13 , the paper component of the money supply, is made up of Federal Reserve notes and is distributed to the Fed's district banks. Some of the Fed's other responsibilities include maintaining the payments system, establishing guidelines that govern banking behavior, preparing consumer legislation, and providing financial services to the 14 .

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M ACROECONOMIC EQUILIBRIUM

RECALLING THE FACTS


1. What tools do we use to discover where the balance is in macroeconomics?

2. What is aggregate supply?

3. What is an aggregate supply curve?

4. What factors could decrease aggregate supply?

5. What is aggregate demand?

6. What is an aggregate demand curve?

7. What factors could cause aggregate demand to decrease?

8. What is macroeconomic equilibrium?

9. What determines the point of macroeconomic equilibrium?

10. What is one dilemma facing economic policy makers?

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S TABILIZATION POLICIES

OUTLINING


I. Demand-Side Policies

A. Introduction

1. What is the goal of demand-side policies?

2. What is fiscal policy and from whose theories does it derive?

B. Keynesian Economics—According to Keynes, which sector of the economy creates economic instability?

C. Role of Government—What is Keynes' justification for temporary federal deficits?

D. Automatic Stabilizers—What are automatic stabilizers?

E. Limitations of Fiscal Policy—What is most effective at countering business cycles?

II. Supply-Side Policies

A. Introduction—What are supply-side policies?

B. Smaller Role for Government—What are some ways that the government’s role in the economy can be reduced?

C. Lower Federal Taxes—What is the supply-siders’ argument for lowering tax rates?

D. Limitations of Supply-Side Policies—What is a limitation of supply-side policies?

III. Monetary Policies—Who are monetarists and what kinds of policies do they favor to combat inflation?

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E CONOMICS AND POLITICS



monetarists structural lags supply-side

passive discretionary monetary policy demand-side

economic politics Congress economic theories

Council of Economic Advisers fiscal policies

Introduction/Changing Nature of Economic Policy1 are government attempts to manage the economy through taxing and spending actions. Fiscal policy can take any of three forms. Policy that someone must choose to implement is called2 fiscal policy. When no new or special action is required, that is 3 fiscal policy. When it involves plans and programs to strengthen the economy in the long run, it is called 4 fiscal policy. One reason that 5 fiscal policy is being used less today is that various 6 occur between recognizing that there is a problem and actually doing something about it. The Congressional gridlocks that occurred in the 1990s over views on the budget also contributed to the decline of 7 fiscal policy. The void created by its decline has been filled by the 8 of the Fed.

Economics and Politics TodayChoosing what economic policies will work best is difficult. In recent years, politics and economics seem to have merged in what might be called 9 . Most of the major debates in 10 are overspending, taxing, and other budgetary matters. Economists differ for various reasons. Sometimes they support a certain policy because they think some problems are more critical than others. They also differ because most 11 are a product of the times. The period following the Great Depression produced 12 economists. The 13 who emerged in the 1960s through 1980s gained influence because of the decline of discretionary fiscal policy.14 economics grew from the rejection of “big government” by those who thought a smaller government was the key to economic growth. Today’s politicians are concerned with the economic consequences of what they do. A three-member group called the 15 reports to the president on economic developments and also proposes strategies.

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A BSOLUTE AND COMPARATIVE ADVANTAGE

RECALLING THE FACTS


1. Why is specialization an important reason for trade?

2. What is the difference between exports and imports?

3. What evidence is there to show the importance of international trade to the United States?

4. Under what circumstances does a country have an absolute advantage?

5. What is a production possibilities frontier?

6. Under what circumstances does a country have a comparative advantage?

7. On what assumption is the concept of comparative advantage based?

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B ARRIERS TO INTERNATIONAL TRADE

OUTLINING


I. Restricting International Trade

A. Tariffs—What is a protective tariff? A revenue tariff?

B. Quotas—How are quotas typically used?

II. Arguments for Protection

A. Introduction—What is the difference between what protectionists and free traders want?

B.

B. Aiding National Defense

1. How do protectionists use national defense as an argument to support trade barriers?

2. What is the free traders’ argument in response?

C. Promoting Infant Industries—What is the infant industry argument?

B.

D. Protecting Domestic Jobs—How could tariffs and quotas protect domestic jobs?

B.

E. Keeping the Money at Home

1. What is the response of free traders to this argument?

2. What industries can be hurt by this type of protectionism?

F. Helping the Balance of Payments—What is the balance of payments?

B.

III. The Free Trade Movement

A. The World Trade Organization—What is the role of the World Trade Organization?

B.

B. NAFTA—How has trade changed between the U.S., Canada, and Mexico since NAFTA was created?

B.


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F OREIGN EXCHANGE AND TRADE DEFICITS



flexible exchange rate trade deficit fixed exchange rate

foreign exchange rate trade surplus foreign exchange markets

trade-weighted value of the dollar gold standard trade imbalance

Introduction/Financing International TradeBecause each country has its own currency, trade between nations is made somewhat more complicated. Foreign currencies are bought and sold in 1 . This market includes banks that help secure foreign currencies for importers, as well as banks that accept foreign currencies from exporters. The 2 is the price of one country's currency in terms of another country's currency. There are two types of exchange rates. Under a 3 system, the price of one currency is fixed in terms of another so that the rate does not change. This system was used when the world was on the4 but ended when the United States stopped redeeming foreign-held dollars for gold. Now, under the 5 , the forces of supply and demand establish the value of one country’s currency in terms of another country's currency.

Trade Deficits and SurplusesA country has a 6 whenever the value of the products it imports exceeds the value of the products it exports. It has a 7 , whenever the value of its exports exceeds the value of its imports. Each is dependent on the international value of its currency. The Fed keeps a statistic that measures the international value of the dollar. It is called the 8 , and it is an index that shows the strength of the dollar against a group of major foreign currencies. When the index falls, the dollar is weak. When the index rises, the dollar is strong.

A persistent 9 tends to reduce the value of a country’s currency and can cause a chain reaction that affects income and employment. However, under 10 , trade deficits tend to correct themselves automatically through the price system. A strong currency tends to cause a trade deficit; a weak currency tends to cause a 11 , which eventually pulls up the value of the currency.

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E CONOMIC DEVELOPMENT



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developing countries semidevelopment crude birthrate external debt

population growth life expectancy takeoff corruption

primitive equilibrium high development natural resources

transition poverty industrialized countries

Introduction/The Importance of Economic DevelopmentMost people in the world today live in 1 . In most of these countries, 2 is rampant. The income gap between 3 and developing countries is large. The industrialized countries of the world have helped developing countries for various humanitarian, economic, and political reasons.

Stages of Economic DevelopmentIt is helpful to think of economic development as occurring in stages. Economic development begins with the 4 stage. At this stage, the society has no formal economic organization. The second stage is 5 —a break from the primitive equilibrium and a move toward economic and cultural changes. The third stage is 6 . The people begin to put aside old customs and start to imitate new techniques displayed by outsiders. New industries begin to grow rapidly. The fourth stage is 7 : national income grows faster than the population, and the country builds its core industries, invests more on capital investments, and makes technological advances. The final stage is 8 , which is when the nation no longer emphasizes industrial production, but with its basic needs met, it increases services and provides more public goods.

Obstacles to DevelopmentOne major obstacle to economic development is 9 . The population of most developing countries grows at a rate much faster than the populations of industrialized nations. Reasons for this growth include the high 10 and an increasing 11 —the average remaining lifetime in years for persons who reach a certain age. There are several other hindrances to economic growth: limited 12 , major health problems and substance abuse, lack of appropriate education and technology, significant amounts of 13 , government 14 , and capital flight.


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A CHIEVING ECONOMIC DEVELOPMENT

OUTLINING


I. Funding Economic Development

A. Importance of Savings—What must a country do to generate internal funds?

B. Microfinance—What is a micro loan?

C. International Agencies

1. What is the International Monetary Fund?

2. What is the World Bank?

D. Government Aid Grants—How can governments assist needy countries?

E. Private Foreign Investment—How does expropriation discourage foreign investment?

II. Regional Economic Cooperation

A. Introduction

1. What is a free-trade area?

2. What is a customs union?

B. The European Union—How is the EU a single market?

C. ASEAN—What countries are ASEAN members?

D. OPEC—How is OPEC a cartel?

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T HE TRANSITION TO CAPITALISM

RECALLING THE FACTS


1. What is capitalism?

2. Why is there a macroeconomic trend toward capitalism?

3. What is privatization, and why is it so important in a country’s transition to capitalism?

4. What incentives are essential for a successful transition to capitalism?

5. What was the Russian Gosplan and how did it manage the economy?

6. What was China’s Great Leap Forward, and what was its outcome?

7. What two Latin American countries have taken steps toward capitalism?

8. What is the black market, and how did Hungary’s experience with it affect their transition to a market economy?

9. What are the reasons for Japan’s economic success?

10. What led to the defeat of the Socialist Party in Sweden?


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G LOBALIZATION: CHARACTERISTICS AND TRENDS



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Introduction/Characteristics of GlobalizationOne of the most important trends in the world today is 1 —the movement toward a more integrated and interdependent world economy. This is taking place because of the voluntary decisions we make as consumers. Many of the products we use are made by 2 that produce and sell without regard to national boundaries. Globalization extends beyond international business to production as well. One of the more controversial aspects of global production is 3 , or hiring outside firms for non-core operations to lower operating costs. Another aspect of globalization is the growth of international organizations that promote trade between nations. One example is the 4 , which led to the World Trade Organization.

Globalization TrendsWith continued globalization, two trends stand out: growing economic 5 and growing regional integration. As markets develop, producers become more specialized in their activities. If producers who perform a specialized task have a 6 , they will be able to compete more effectively in the market. When countries focus on producing their specialized product, the result is an incredible amount of 7 , in which countries rely heavily upon one another. The European Union was born out the 8 and is one of the most successful examples of regional 9 . The organization was formed in 1951 to coordinate iron and steel production, making it difficult for the member countries to go to war against each other. Another example is the 10 , established in 1994 to set up a regional free trade area in the Americas with no internal barriers to trade. Despite the growth and support for 11 , progress has not always been smooth. While globalization can lead to great economic gains, these gains may not be important to everyone.

interdependence outsourcing ECSC

economic integration globalization Free Trade Area of the Americas

comparative advantage multinationals General Agreement on Tariffs and Trade

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G LOBAL PROBLEMS AND ECONOMIC INCENTIVES

OUTLINING


I. Global Population Growth

A. Malthus: Views on Population—What makes Malthus’ views relevant in today’s world?

B. World Population Growth—What is the annual population growth rate?

C. Economic Incentives—What is one explanation for the high rate of population growth in developing countries?

II. The Demand for Resources

A. Renewable Resources—What is an example of biomass and what makes biomass sources important?

B. Nonrenewable Resources—How is population pressure affecting the supply of fossil fuels?

C. Energy Use in the United States—What is the energy type most commonly consumed in the United States?

D. Markets and Price Incentives—What was the result of the 1973 oil embargo?

III. Pollution and Economic Incentives

A. The Incentive to Pollute

1. Why does pollution occur?

2. How can pollution be controlled?

B. Legislative Standards—What are legislated standards?

C. Pollution Fees—How do pollution taxes motivate companies to stop polluting?


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A PPLYING THE ECONOMIC WAY OF THINKING

RECALLING THE FACTS


1. What are the five steps to economic decision-making as recommended by the National Council on Economic Education?

a. b. c. d. e.

2. What is cost-benefit analysis?

3. What are opportunity costs?

4. What is one advantage of a market economy?

5. What has happened to these competing economic systems?

a. communism in the Soviet Union:

b. socialism:

6. What was the capitalism of the 1930s like?

7. In what ways has that early capitalism been modified?

name date class 1-1 reading activities 3 ... name date class 2-3 for use with textbook pages 48–53...

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