Pump Primer

1
Pump Primer

• Identify the two questions that help determine
  whether an economy is capitalistic or socialistic

2
Unit II Economics of the Nation

• Chapter 5 What Is the Economic Problem?
• Chapter 6 Economic Systems

3
Objectives

• Identify the economic problem
• List the four primary economic goals of most
  nations
• List the three critical economic questions
• Explain the command and market solutions to each
  of the three economic questions
• Describe the egalitarian and libertarian concepts
  of fairness
• Explain the biblical principles that apply to the
  distribution question

4
Objectives

• Describe mercantilism
• Describe Adam Smiths contribution to economics
• Define laissez-faire liberalism
• Identify the two questions that help determine
  whether an economy is capitalistic or socialistic
• Describe each of the major forms of capitalism
• Describe each of the major forms of socialism
• Explain how free-market capitalism compares to
  scriptural principles
• Explain how socialism compares to scriptural
  principles

5
BIBLICAL INTEGRATION

• God orchestrates every event in our live as
  believers for His purpose. We, therefore, need to
  trust God to work all things together for good
  for those who love Him. (Rom 828)

6
Three Economic Questions

• The Output Question What will the nation
  produce?
• The Input Question How will the nation produce
  its goods?
• The Distribution Question Who will receive what
  the nation produces

7
Consumption Goods Services

• Goods and services that are bought by individuals
  and used to provide personal enjoyment and
  contribute to a persons standard of living.
• Example movies and soda

(Bade 34)
8
Capital Goods

• Goods that are bought by businesses to increase
  their productive resources.
• Example shopping malls and auto assembly lines

(Bade 34)
9
Export Goods Services

• Goods and services produced in one country and
  sold in another country.
• Example airplanes produced by Boeing and
  purchased by Canada.

(Bade 34)
10
Government goods and services

• Goods and services bought by governments.
• Example missiles, weapons, police protection.

(Bade 34)
11
Governments

• Federal Government
• The federal governments major expenditures are
  to provide
• 1. Goods and services
• 2. Social Security and welfare benefits
• 3. Transfers to state and local governments

(Bade 44)
12
Federal Government

• The federal government finances its expenditures
  by collecting taxes.
• The main taxes are
• 1. Personal income taxes
• 2. Corporate (business) taxes
• 3. Social Security taxes
• In 2005, the federal government spent 2.5
  trillionabout 20 percent of the total value of
  all the goods and services produced in the United
  States in that year.
• Taxes raised less than 2.5 trillionthe
  government had a deficit.

(Bade 44)
13
Resource Market

• Resource is anything that can be used to produce
  something else.
• List of the economys resources usually begin
  with land, labor (machinery, buildings, and other
  man-made productive assts), and human capital
  (the educational achievements and skills of
  workers).

14
Factors of Production

• How Do We Produce?
• Factors of production are the productive
  resources used to produce goods and services.
• Factors of production are grouped into four
  categories
• Land
• Labor
• Capital
• Entrepreneurship

(Bade 36)
15
Land

• Includes all the gifts of nature that we use to
  produce goods and services. All the things we
  call natural resources.
• Land includes minerals, water, air, wild plants,
  animals, birds, and fish.

(Bade 36)
16
Labor

• work time and work effort that people devote to
  producing goods and services.
• The quality of labor depends on how skilled
  people arewhat economists call human capital
  (the knowledge and skill that people obtain from
  education, on-the-job training, and work
  experience).

(Bade 37)
17
Capital

• Tools, instruments, machines, buildings, and
  other items that have been produced in the past
  and that businesses now use to produce goods and
  services.
• Capital includes hammers, office buildings, and
  computers.

(Bade 38)
18
Entrepreneurship

• Human resource that organizes labor, land, and
  capital.
• Entrepreneurs come up with new ideas about what
  and how to produce, make business decisions, and
  bear the risks that arise from these decisions.

(Bade 39)
19
Factors of Production

• For Whom Do We Produce?
• Factors of production are 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 (or loss) Income earned by an
  entrepreneur for running a business.

(Bade 39)
20
Governments

• We divide governments into two broad levels
• Federal government
• State and local government

(Bade 44)
21
Circular Flow Models

• A model of the economy that shows
• The circular flow of expenditures and incomes
  that result from decision makers choices and
• The way those choices interact in markets to
  determine what, how, and for whom goods and
  services are produced.

(Bade 42)
22
Households Firms

• Households are individuals or people living
  together as decision-making units.
• Firms are institutions that organize production
  of goods and services.

(Bade 42)
23
Markets

• A market is any arrangement that brings buyers
  and sellers together and enables them to get
  information and do business with each other.
• Product markets (Goods) are markets in which
  goods and services are bought and sold.
• Factor markets are markets in which factors of
  production are bought and sold.

(Bade 42)
24
Circular Flow Model

• Real Flows and Money Flows

• In factor markets

• Households supply factors of production

• Firms hire factors of production.

In goods markets

• Firms supply goods and services produced.

• Households buy goods and services.

(Bade 43, 44)
25
(No Transcript)
26
Real Flows Money Flows

• Firms pay households incomes for the services of
  factors of production.

• Households pay firms for the goods and services
  they buy.

• These are the money flows.

• Blue flows are incomes
• (flows clockwise)
• Red flows are expenditures
• Goods and services (flows counter-
  clockwise)

(Bade 43)
27
The Circular Flow of resources, Goods, services
and Money Payments
(4) Money Payments (sales dollars)
THE PRODUCT MARKET
(3) Goods Services
(5) Taxes
(7) Taxes
HOUSEHOLDS (RESOURCE OWNERS)
BUSINESS FIRMS
GOVERNMENT
(6) Goods Services
(8) Goods Services
(2) Productive Resources
THE FACTOR MARKET
(1) Money-Income Payments (wages, rents,
interest, profit)
Figure 10.1
28
Understanding the Circular Flow Activity 10

• Break into groups of three to four and complete
  the following circular flow activity.
• National Council on Economic Education, New York,
  N.Y

29
Understanding the circular Flow

• Part A
• Each of the flows in the circular flow diagram
  in Figure 10.1 is numbered. Identify which
  number matches the transaction described in the
  following statements. Consider only the first
  transaction not the return flow.
• David buys a CD at the local store for 9.99.
  ____
• Emily earns 6.50 per hour entering data at the
  music conservatory. ____
• Marla pays her federal income tax. ____
• Jagdish receives 15,000 in profits from his
  half-ownership of a coffee shop. ____
• Keisha makes decorative pillows that she sells
  for 30.00. ____
• Mammoth Toys Inc. hires 100 new employees. ____
• The National Park Service opens two new
  campgrounds in Yellowstone National Park. ____.

4
1
5
1
3
2
6
30
Part BWrite T if the statement is true and F if
the statement is false.
T

1. Money flows are clockwise. ____
2. Goods and services flows are clockwise. ____
3. The resource market determines the price per acre
   of farmland. ____
4. The product market determines the price of
   computer. ____
5. Firms sell resources in the resource markets.____
6. Government buys resources and households sell
   resources. ____
7. Government buys products, and firms sell
   products.____
8. The product market determines the salary of the
   C.E.O. of a firm. ____
9. The resources market determines the price of
   soda. ____
10. The resources market determines the price of
    soda-bottling equipment. ____

F
T
T
F
T
T
F
F
T
31
State and Local Government Expenditures and
Revenue

• The largest part of the state and local
  governments expenditures are on
• Education
• Highways
• Public welfare benefits

(Bade 44)
32
Federal Government Expenditures and Revenue

• National debt is the total amount that the
  government has borrowed to make expenditures that
  exceed tax revenueto run a government budget
  deficit.
• The national debt is a bit like a large credit
  card balance.
• Paying the interest on the national debt is like
  paying the minimum required monthly payment.
• In 2008, we paid 252,757billion in interest on
  the national debt.

(Bade 44)
33
State of California Proposed Budget Expenditure
for 2009-2010
Education is 30.2 of the budget. Health
Human Resource 28.2 Transportation 8.9
(Source CA 2009-2010 Purposed Budget )
34
State Revenue
(Source State of CA Estimated 2009-2010 Revenue)
35
The People

• U.S. Population 311,937,013 (Jan. 22, 2011)
• COMPONENT SETTINGS FOR JANUARY 2011
• One birth every...................................
  ............. 8 seconds
• One death every...................................
  .......... 11 seconds
• One international migrant (net)
  every............. 45 seconds
• Net gain of one person every......................
  ..... 15 seconds
• World population 6,895,200,639 (Jan. 22, 2011)
• Births per second...........4.2
  Deaths per
  hour.............1.8

(Source U.S. Census Bureau US and World
Population Clock)
36
Emerging Market and Developing Economies

• Emerging market economies - 28 countries of
  Central and Eastern European and Asia that were
  until the 1990s part of the Soviet Union.
• Almost 500 million people live in these
  countries.
• Developing economies -118 countries in Africa,
  Asia, the Middle East, Europe, and Central and
  South America that have not yet achieved high
  average incomes for their people.
• More than 5 billion people live in these
  countries.

(Bade 49)
37
What in the Global Economy?
In 2008, the global economy was estimated to
produce 70 trillion in goods and services.
Figure 2.8 shows the shares of global production.
(Bade 50)
38
(No Transcript)
39
Energy Source in the World Economy
The location of oil, natural gas, and coal
determines the sources of the worlds energy.
Figure 2.9(a) shows the distribution of oil.
(Bade 51)
40
(No Transcript)
41
Energy Source in the World Economy
The location of oil, natural gas, and coal
determines the sources of the worlds energy.
Figure 2.9(b) shows the distribution of natural
gas.
(Bade 51)
42
Energy Source in the World Economy
The location of oil, natural gas, and coal
determines the sources of the worlds energy.
Figure 2.9(c) shows the distribution of coal.
(Bade 51)
43
National Economic Goals

• The economic problem of a society is how it may
  best achieve its economic goals. Most societies
  have identified four primary economic goals
• A Low Level of Unemployment
• A Stable Price Level
• A Healthy Rate of Economic Growth
• A Fair Distribution of Income

(Carter 87-88)
44
National Economic Goals

• A Low Level of Unemployment High unemployment is
  usually accompanied by poverty, crime, despair,
  and a waste of human intelligence and labor.
• A Stable Price Level If prices start rising
  rapidly, people will decrease savings and spend
  greater portions of their incomes in an effort to
  beat the next price increase.
• Inflation The situation in which over-expansion
  of the nations money supply leads to a sustained
  rise in the average price level.
• Deflation A situation in which the general price
  level is declining usually caused by reduction
  in the growth rate of the money supply.

(Carter 87)
45
National Economic Goals

• A Healthy Rate of Economic Growth Economic
  growth is an increase in the quantity of goods
  and services a nation can produce.
• Extensive growth is an increase of goods and
  services produced by business firms that are
  using more land, labor, or financial capital than
  previously.
• Intensive growth is an increase of goods and
  services produced when business firms use
  existing factors of production with greater
  efficiency.
• A Fair Distribution of Income
• Should everyone be guaranteed equality of income,
  should a safety net of economic benefits be
  provided, or should the government let the market
  determine each persons income?

(Carter 87-88)
46
How will the Nations Goods Be Produced?

• A business firm that uses a great deal of human
  labor relative to real capital is referred to as
  being labor intensive.
• A business that uses relatively more automated
  equipment is said to be capital intensive.
• By using a great deal of human labor, a business
  firm is contributing to a low unemployment rate,
  which has the effect of reducing crime and
  poverty.

(Carter 93)
47
Who Will Receive What is Produced?

• Democratic fairness maintains that each person in
  the nation has a right to a part of the nations
  wealth simply because he is part of the human
  race.
• Economic leveling equally distributing the
  nations income regardless of each persons
  ability to contribute to its pool of wealth.
• Libertarian fairness (or Economic Darwinism)
  argues that the only economic right to which
  citizens are entitled is the right to own and use
  property free of government interference.
  (Survival of the fittest.)

(Carter 95)
48
Christian Viewpoint

• Christians sometimes need to be reminded that
  economic issues take a distant second to the true
  mission of the Word of God. (2 Tim. 316)
• Those who search Scripture to justify their
  libertarian or egalitarian economic philosophies
  run the risk of being side-tracked and missing
  the true lessons that God has in store.

(Carter 97)
49
Christian Viewpoint

• Scripture does present some clear economic
  principles regarding income.
• Through ones labor (Gen. 317-19 2 Thess. 310)
• To care for family needs (I Tim. 58)
• Caring for the poor (Lev. 2322)

(Carter 97)
50
Early Economic System

• The 18th Century brought the rise of Adam Smith
  and the decline of the mercantilists and the
  physiocrats (fizzee ? kráts) .
• Mercantilism was an economic philosophy commonly
  held in Europe from the 16th to the 18th
  centuries that advocated the accumulation of gold
  and silver in order to build a wealthy and
  powerful state.
• Adam Smith coined the term mercantile system
  to describe the system of political economy that
  sought to enrich the country by restraining
  imports and encouraging exports.
• The goal of these policies was, supposedly, to
  achieve a favorable balance of trade that would
  bring gold and silver into the country and also
  to maintain domestic employment.

(LaHaye)
51
Adam Smith

• Smith devoted ten years of his life to write An
  Inquiry into the Nature and Causes of the Wealth
  of Nations.
• Adam asked, Why are some nations wealthy while
  others are poor? He answer by emphasizing the
  role of the division of labor and free markets.
• Adam argued that a nation is not made wealthy by
  the childish accumulation of shiny metals, but is
  enriched by the economic prosperity of its
  people.

(Carter 108)
52
Adam Smith

• Laissez-Faire Economy an economy that relies
  chiefly on market forces to allocate goods and
  resources and to determine prices.
• French for let alone.
• Smith argued that the monarch of a nation who
  wished his country to prosper should leave his
  subjects alone and allow them to seek their own
  profit.
• Because of his philosophy of limited government
  and personal responsibility, he became known as
  the father of laissez-faire or let alone
  economics.

(Laissez-Faire Economy )
(Carter 108)
53
Modern Economic System

• The debate still continues between those who
  favor economic freedom and those who believe that
  the state should control economic events, but
  today the two sides of the argument are
  capitalism and socialism.

Socialistic System
Capitalistic System
Radical Capitalism
Classic Liberal
Worker Management Socialism
Centralized Socialism
Communism
(Carter 111-114)
54
Modern Economic System
Socialistic System
Capitalistic System
Less Personal Ownership Less Personal Decision
Making
More Personal Ownership More Personal Decision
Making
(Carter 111-114)
55
Capitalism

• An economic system in which private individuals
  own most of the factors of production and make
  most economic decisions.
• Radical Capitalism
• Private citizens own all factors of production
  and make all decisions regarding what will be
  produced, how it will be produced, and who will
  receive the production.
• No government exists and the market is free to
  work unencumbered.
• Classic Liberal Capitalism
• Type of capitalism envisioned by Adam Smith. It
  accepts that government must exist but allows it
  only minimal ownership of resources and
  decision-making power to perform its
  responsibilities.
• Government s/b limited to three duties
• Protect its citizens from foreign aggression
  (maintaining a national defense system).
• Protect rights of its citizens from infringements
  by others
• Provide public goods and services that are
  impossible for private firms to create at a
  profit (highways, national parks, monetary system
  , etc.)

(Carter 111)
56
Capitalism

• State Capitalism
• Majority of natural resources, financial capital,
  and labor is owned by private citizens, but the
  government intervenes widely in the
  decision-making process to ensure that its
  egalitarian goals are carried out.

(Carter 114)
57
Socialism

• An economic system in which a central authority,
  committee, or the people in common generally own
  the factors of production and make economic
  decisions.
• European Social Democracy
• A transitional economic system between capitalism
  and socialism.
• Characterized by states taking possession of
  those industries that are the cornerstones of the
  economy
• Worker Management Socialism
• Government owns all business firms to prevent
  workers from being enslaved by private owners,
  but it realistically recognizes that it cannot
  operate all of the business firs from afar.
• Workers collectively decide what will be
  produced, in what quantities, styles, and so
  forth. They also decide how the goods will be
  produced. Workers are paid a base wage that
  increases as their individual productivity
  increases and paid a percentage of the firms
  profits.

(Carter 114)
58
Socialism

• Centralized Socialism
• Maintains that government should be both the
  central owner and the decision maker in all
  economic affairs of the state.
• It is the brand of socialism that Karl Marx
  envisioned for the world. He believed it was the
  nature of all mankind to oppress one another,
  most notably the rich against the poor. He
  believed that being an employer in a capitalistic
  system was nothing more than being a slave.
• Since the state owns all factories and equipment,
  centralized socialism treats the nations economy
  like one big company with the nations leaders
  acting like a board of directors.
• Marx believed centralized socialism was a
  stepping stone to communism.
• Communism
• Socialism in the extreme. Everyone in the society
  would selflessly concern themselves with the
  welfare of all other members. Each person would
  voluntarily contribute as much as he possibly
  could and would demand of society only that which
  he absolutely needed.
• Marx believed that that after socialism has been
  eliminated, the communist nation would
  automatically govern itself.

(Carter 114-116)
59
Activity Why Are Some Nations Wealthy?

• The contentious debate on globalization often
  centers on why some nations are rich and others
  remain in poverty.
• A nations wealth affects the standard of living
  of its citizens.

(Capestone Exemplary Lessons for High School
Economics. National Council on Economic
Education. New York, NY Unit 7 Lesson 43.)
60

• The key to economic prosperity is long-term
  economic growth.
• What explains the difference among nations in
  long-term economic growth?
• Economists have identified keys to economic
  growth they include technological innovation,
  investment in physical and human capital, low
  inflation, political stability, and a
  decentralized market economy.

61

• The anti-globalization movement is a major
  threat to world prosperity.
• According to Steven Landsburg the particular
  responses endorsed by the anti-globalization
  crowdkick back, relax, keep your environment
  clean and dont worry so much about where your
  next meal is coming fromare responses that have
  never worked well for poor people in the U.S. or
  anywhere else.

62

• The way to achieve economic growth is to create
  incentives to save, invest, and innovate.
• Every year the Heritage Foundation and The Wall
  Street Journal publish the Index of Economic
  Freedom.
• Every year the findings are similar. Countries
  with most economic freedom (low taxes, less
  government regulations, sound monetary policy,
  protection of property rights, decentralized
  markets) also have the highest rates of economic
  growth.

63
Rich Nation/Poor Nation

• Part 1 You are secret agents assigned to find
  out if a county is rich or poor. From the
  information provided, identify each of he five
  countries listed.
• Write down the countrys name opposite each
  bold-face heading.
• Then, rank them from the richest country to the
  poorest country in Part 2.

64
Mystery Nations

• Singapore
• Per capita GDP 26,500
• Population 4,300,419
• Japan
• Per capita GDP 24,900
• Population 126,771,6662
• Nigeria
• Per capita GDP 950
• Population 126,635,626

Russia Per capita GDP 7700 Population
145,471,197 Argentina Per capita GDP
12,900 Population 37,384,816
65
Richest to Poorest Country

1. Country E Singapore
2. Country B Japan
3. Country A Argentina
4. Country D Russia
5. Country C Nigeria

66
Works Cited

• Bade, Robin and Michael Parkin. Foundations of
  Economics. Boston Pearson Education, Inc. 2007.
• Carper, Alan. Economics for Christian Schools.
  Greenville Bob Jones University Press, 1998.
• LaHaye, Laura. "Mercantilism." The Concise
  Encyclopedia of Economics. 2008. Library of
  Economics and Liberty. 13 June 2009.
  lthttp//www.econlib.org/library/Enc/Mercantilism.h
  tmlgt.
• Laissez-faire economy." WordNet 3.0. Princeton
  University. 12 Jun. 2009. ltDictionary.com
  http//dictionary.reference.com/browse/laissez-fai
  re economygt.
• Overview of the Governors Budget Legislative
  Analysts Office. 8 Jan 2009. Web 22 Jan 2011. lt
  http//www.lao.ca.gov/2009/budget_overview/09-10_b
  udget_ov.aspxgt
• Physiocrats." Dictionary.com Unabridged (v 1.1).
  Random House, Inc. 12 Jun. 2009. ltDictionary.com
  http//dictionary.reference.com/browse/physiocrats
  gt.
• U.S. World Population Clocks U.S. Census
  Bureau 22 Jan 2011 Web. 22 Jan 2011. lt
  http//www.census.gov/main/www/popclock.htmlgt