The U.S. and Global Economies

2. 2 The U.S. and Global Economies CHAPTER EYE ONS Capital Firms Land Capital goods Human capital Market Circular flow model Goods markets National debt Entrepreneurship Households Profit Rent Wages Interest Factor markets Labor Functional distribution of income Personal distribution of income Consumption goods & services Government goods & services Export goods & services

3. CHAPTER 2: What, How, and for Whom • WHAT we produce • Consumption goods and services • Capital goods • Government goods and services • Export goods and services

4. What We Produce

5. CHAPTER 2: What, How, and for Whom • HOW we produce Factors of Production: • Land: Gifts of nature • Labor: Time & effort devoted by humans to production of goods and services • Capital: Tools, instruments, machines, buildings, & other items that themselves have been produced • Entrepreneurship: Human resource that organizes labor, land, and capital

6. CHAPTER 2: What, How, and for Whom • HOW we produce Factors of Production: • Land: Minerals, water, air, plants, animals, birds, fish, farmland, and forests • Labor: Depends on quality of human capital • education, on-the-job training, work experience • Capital: Includes semi-finished goods, office buildings, computers. • Does not include money, stocks, or bonds. • Entrepreneurs: New ideas on WHAT and HOW to produce, make business decisions, and bear the resulting risks.

7. Changes in How We Produce in the New Economy • The new economy consists of the jobs and businesses that produce and use computers and equipment powered by computer chips. • In each pair of photos, the new technology enables capital to replace labor.

8. Changes in How We Produce in the New Economy • In the top pair of images, illustrates how the ATM (capital) is replacing many bank tellers (labor). • In the bottom pair of images illustrates how a flight check-in machine (capital) is replacing many check-in clerks (labor).

9. Changes in How We Produce in the New Economy • The number of bank teller and airline check-in clerk jobs is shrinking. • But new technologies are creating a range of new jobs for people who make, program, install, and repair these new machines.

10. CHAPTER 2: What, How, and for Whom • For WHOM we produce Paid Incomes: • Rent: Income paid for the use of land. • Wages: Income paid for the services of labor • Interest: Income paid for the use of capital • Profit/Loss: Income earned by an entrepreneur for running a business.

11. Changes in What We Produce • Over the past 65 years, the number of people who work on farms and who produce goods have decreased. While the number of people who produce services has expanded.

12. Changes in Human Captical • Over the past 90 years, the amount of education people receive has increased. The importance of education has become known and more people are making sacrifices to achieve educational goals

13. INCOME DISTRIBUTION ‘rich become richer, the poor become ……’ Functional Personal

14. Income Distribution

15. CIRCULAR FLOWS of markets Households Firms Institutions that produce goods & services • People living together making collective decisions MARKETS ‘any arrangement that brings buyers and sellers together’

16. Real Flows MARKET ‘any arrangement that brings buyers and sellers together’ Factor Market Goods Market • Buy and Sell Factors of production • Households supply FOP • Firms hire FOP • Firms pay households income for services on FOP • Buy and Sell Goods and services • Firms supply G&S • Households buy G&S • Households pay firms for goods and services they buy Money Flows

17. Blue flows are incomes. • Red flows are expenditures. • Orange flows are Real flows

18. GOVERNMENT ‘Expenditures and Incomes’ FEDERAL STATE and LOCAL Goods and services Welfare Education Expenditure • Goods and Services • Social security and welfare • Transfers to state and local government Income • Personal Income taxes • Corporate taxes • Social security taxes • Sales tax • Property tax • State income tax

19. Households and firms pay taxes and receive transfers. • Governments buy goods and services from firms.

20. Federal Government Revenue Expenditures

21. State and Local Government Revenue Expenditures

22. NATIONAL DEBT ‘total amount borrowed (by govt.) in excess of tax revenues’ THE PEOPLE • U.S. population: 302,313,818 (July 11, 2007) • World population: 6,607,270,768 • The U.S. clock ticks along showing a population increase of one person every 10 seconds. • The world clock spins faster, adding 25 people in the same 10 seconds • http://www.census.gov/main/www/popclock.html THE COUNTRIES • 1B people • 1/2B people • >5B people • Advanced • Emerging • Developing • Richest 29 countries • 28 countries (Soviet) • 118 countries

23. Growing Government • A 100 years ago, the federal government spent 2 cents out of each dollar earned. • Government grew during two world wars and in the 1960s and 1970s social programs expanded. • During the 1980s and 1990s, government shrunk. • After 9/11, government started to grow again.

24. Value of Production

25. Energy Sources OIL Natural Gas Coal WHY the United States takes a strong interest in the Middle East.

26. Income Per Day In 2007, U.S. average income was $124 a day. In advanced economies, it was about $90 a day. In Africa, it was only $8 a day.

27. GLOBAL ECONOMY • Human Capital Differences • Physical Capital Differences • Food • Other goods and services

28. The U.S. and Global Economies in Your Life • How can you use the facts and trends about what, how, and for whom goods and services are produced in the U.S. and global economies? • As you think about your future career, you know that a job in manufacturing is likely to be tough. A job in services is more likely to lead to success. • What sort of job will you take? • As you think about the stand you will take on the political question of protecting U.S. jobs, you are better informed. • But how will you vote?

29. 2 The U.S. and Global Economies CHAPTER EYE ONS WHAT Consumption goods & services (60%) Capital goods Government goods & services Export goods & services HOW FOR WHO Land Rent Labor Wages (64%) Capital Interest Entrepreneurship Profit/Loss