Economic Challenges Facing
Discuss microeconomics and explain the
forces of demand and supply.
Describe macroeconomics and the issues
for the entire economy.
Identify how to evaluate economic
Discuss managing the economy’s
Describe the global economic
challenges of the 21st century.2
Analysis of the choices people and governments make
in allocating resources.
Includes microeconomics and macroeconomics
The study of small economic units, such as individual
consumers, families, and businesses.
Supply: Amount of goods and services for sale at different
Demand: Willingness and ability of consumers to purchase
goods and services at different prices.
Factors Driving Demand
Demand curve - shows the amount of a product buyers will purchase at
Driven by variety of factors such as competition, price, larger economic events,
and consumer preferences.
A change in overall demand shifts to a new demand curve.
Factors Driving Supply
Production plays a central role in determining the overall supply.
Supply curve - shows the relationship between different prices and
the quantities that sellers will offer for sale, regardless of demand.
of goods and services.
How Demand and Supply Interact
Supply and demand curves meet at the equilibrium price.
Buyers and sellers make choices that restore the equilibrium price.
Changes affect both supply and demand.
Issues for the Entire Society
Political, social, and legal environments differ
in every country.
Economies generally classified in one of three
Private enterprise system: capitalism or market
Planned economies: socialism, communism
Mixed economies (combinations of the two)
The Private Enterprise System and
Businesses meet needs of consumers and are
rewarded through profit.
Government favors a hands-off approach.
Marketplace competition regulates economic life.
Four degrees of competition:
Property owned and
shared by the community
under a strong central
Adopted in early 20th
century by many nations,
monopolies often suffered
and operation of major
industries, such as health
care or communications.
Some private ownership of
Government controls determine business ownership, profits, and resource allocation.
Mixed Market Economies
Economic systems that combine features of
private enterprise and planned economies.
Mixture of public and private enterprise can vary
widely from country to country.
Process of converting a publicly owned company
to a private one is called privatization.
Evaluating Economic Performance
Economic system should provide stable business
environment and sustained growth.
Business decisions and consumer behavior differ
at various stages of the business cycle:
Prosperity—High consumer confidence,
Recession—Cyclical economic contraction lasting
for six months or longer
Recovery—Declining unemployment, increasing
Productivity and GDP
Productivity: Relationships between the goods
and services produced and the inputs needed to
Gross Domestic Product (GDP): Sum of all
goods and services produced within a nation’s
boundaries; a measure of national productivity.
GDP is tracked in the United States by the Bureau
of Economic Analysis, a division of the U.S.
Department of Commerce.
Inflation is rising prices caused by a combination of
excessive consumer demand and increases in the
costs of raw materials.
Core inflation rate measures inflation minus energy
and food prices.
Demand-pull inflation - Excessive consumer demand.
Cost-push inflation - Rises in costs of the factors of
Hyperinflation - Soaring consumer prices.
Inflation devalues money. People can purchase less
with what they have (decreased purchasing power).
Deflation is when prices continue to fall. Deflation can
cause a weakened economy.
Measuring Price-Level Changes
Changing prices are tracked by the Consumer
Price Index (CPI).
The monthly average change in prices of goods
A multitude of items is priced to compile the data
included in the “CPI Market Basket.”
The Bureau of Labor Statistics calculates the
CPI monthly along with other economic
The unemployment rate is the percentage of total workforce actively seeking work
but currently unemployed.
Bureau of Labor Statistics
Unemployment “game show”
Managing the Economy’s
Monetary Policy - government actions to increase or
decrease the money supply and change banking
policy and interest rates to influence consumer
Expansionary monetary policy: Efforts to increase the money
supply to reduce costs of borrowing and encourage new
Restrictive monetary policy: Efforts to decrease the monetary
supply to curb rising prices and overexpansion.
The Federal Reserve System formulates and
implements monetary policy.
Government uses monetary and fiscal policy to fight unemployment,
Government uses monetary and fiscal policy to fight unemployment, increase
spending, and reduce the duration and severity of economic recession.
Fiscal Policy - Government actions to influence economic
activity through decisions about taxes and spending.
The Federal Budget - Annual plan for how the government
will raise and spend money in the coming year. The primary
sources of government funds:
taxes, borrowing, fees
When the government spends more than the amount of
money it raised, there is a budget deficit. When we borrow
money to cover the deficit, the national debt is increased.
If the government has more money than it spends, there is a
National debt is tracked by the Government Accountability