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The U.S. Economy

The U.S. Economy. Characteristics. Close to pure capitalism Individualistic capitalism Competitive market Respect for wealth Smaller role of government in the economy (33% of GDP compared to 65% for Sweden) High income inequality. Facts. The largest economy in the world

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The U.S. Economy

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  1. The U.S. Economy

  2. Characteristics • Close to pure capitalism • Individualistic capitalism • Competitive market • Respect for wealth • Smaller role of government in the economy (33% of GDP compared to 65% for Sweden) • High income inequality

  3. Facts • The largest economy in the world • Almost $10 billion current GDP in 2000 • The highest living standard • The most competitive nation (www.imd.ch) • High in economic freedom and political freedom

  4. Industry Structure • Service-oriented economy (1999 data) • Agriculture 2% • Mining, construction, and manufacturing 22% • Services 62% • Government services 14% • Declining union power with shrinking manufacturing jobs • Many global corporations (multinational corporations)

  5. History of Government Intervention • Microeconomic intervention: 1870-1930 • Curbing monopoly power • Macroeconomic intervention: 1930-1964 • Fiscal policy (New Deal policy of 1930s) • Regulations of many key industries • Social security Act of 1935 • Labor and employment related acts • Social regulation; 1964-1975 • Environment • Equal rights (Anti-discrimination)

  6. Federal Government • Major revenues (1998) • Individual income taxes 41% • Social security taxes 33% • Corporate income taxes 11% • Borrowing 7% • Major expenditures (1998) • Mandatory 67% • Social security 23%, interest on debt 15%, medicare and medicaid 18%, others 11% • Discretionary 33% • National defense 16%, others 17%

  7. Strength of the U.S. Economy • The Wealth and Poverty of Nations by David Landes • Favorable climate and endowments • Work ethics and incentives • The Competitive Advantage of Nations by Michael Porter and The Competitive Edge by Morgan Stanley Co. • Technological prowess • Labor cost advantage (American wages are high, but also American workers are highly productive)

  8. Weakness of the U.S. Economy • High income inequality • Most unequal society among the advanced countries • May cause disharmony and distort democratic process • May cause debt-ridden society due to demonstration effect • Poverty • 32 million in poverty in 1999 (Data) • 12% of population in poverty in 1999, but much larger shares by ethnic minorities (Black and Hispanic)

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