Method to control inflation. What is the concept of the inflation-unemployment trade-off?
When inflation is high usually unemployment is low and vice versa.
The federal government , would rather tolerate the situation of high unemployment than high inflation which would affect the total population.
Unemployment is the lesser of the two evils.
Who was Adam Smith?
He fathered the classical law of political economics. Free-market capitalist, Laissez-faire approach.
"invisible hand" any interference by government with free competition is almost certain to be harmful.
What are the 3 parts of the gross domestic product (GDP)?
1. Expenditures of government
2. all investments
3. personal consumption of all products and services
What is communism?
Government/state owns all, and gives you what you need to live.
a theory or system of social organization based on theholding of all property in common, actual ownership beingascribed to the community as a whole or to the state.
What is Capitalism?
It allows for the total exploitation of workers. No government control or laws.
It regulates it by adding minimum wages, worker's rights to join unions and go on strikes.
What is socialism?
promotes the collective ownership of the means of production.
a governmental system led by a dictator having complete power, forcibly suppressing opposition and criticism, regimenting all industry, commerce, etc., and emphasizing an aggressive nationalism and oftenracism.
The U.S. is 4.3% of the world's _______?
The US uses __% of the world's natural resources.
The US produces __% of the world's GDP.
The best way to compare living standards?
How much time people used in their labor to consume an item
How many minutes does someone have to work to consume a like item comparatively.
America works less than others.
Causes of inflation.
Easy credit- too much money chasing too few goods
Monopolies- one producer of a product
limited supply of natural resources (oil, gas, wheat)
high wages, low productivity
Government activity- raise taxes, cut
price of gold
consumer price index
Methods to fight inflation
raise taxes- less spending by individuals
cut government spending programs
cut taxes- puts money back in pockets
increase government spending for programs and projects
What is the Federal Reserve System (the fed)?
A system composed of various bodies, organizations, and committees for regulating the U.S. money supply.
What are the 3 basic tools the Federal Reserve system uses to regulate money supply?
1. Reserve requirment- amount of money a member bank must hold against its excess reserves.
2. discount rate- the interest rate the fed charges member banks to borrow money.
3. open-market operations- the fed's sale/purchase of securities (bonds)
basic goals of the economy?
Freedom- free marketplace
efficiency- max output per unit input
security- protection for the people, unemply comp, etc.