Chapter 2 Eye on

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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
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CHAPTER 2 What, How, and for Whom

• WHAT we produce
• Consumption goods and services
• Capital goods
• Government goods and services
• Export goods and services

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What We Produce
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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

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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.

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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.
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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).
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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.
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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.

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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.
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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
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INCOME DISTRIBUTION rich become richer, the
poor become

• Functional

• Personal

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Income Distribution
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CIRCULAR FLOWS of markets

• Households

• Firms

• People living together making collective decisions

• Institutions that produce goods services

MARKETS any arrangement that brings buyers
and sellers together
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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 GS
• Households buy GS
• Households pay firms for goods and services they
  buy

Money Flows
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• Blue flows are incomes.

• Red flows are expenditures.

• Orange flows are Real flows

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GOVERNMENT Expenditures and Incomes

• FEDERAL

• STATE and LOCAL

Expenditure

• Goods and Services
• Social security and welfare
• Transfers to state and local government

• Goods and services
• Welfare
• Education

Income

• Personal Income taxes
• Corporate taxes
• Social security taxes

• Sales tax
• Property tax
• State income tax

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• Households and firms pay taxes and receive
  transfers.

• Governments buy goods and services from firms.

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Federal Government
Revenue
Expenditures
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State and Local Government
Revenue
Expenditures
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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
• gt5B people

• Advanced
• Emerging
• Developing

• Richest 29 countries
• 28 countries (Soviet)
• 118 countries

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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.

After 9/11, government started to grow again.
During the 1980s and 1990s, government shrunk.
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Value of Production
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Energy Sources
Coal
Natural Gas
OIL
WHY the United States takes a strong interest in
the Middle East.
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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.
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GLOBAL ECONOMY

• Human Capital Differences
• Physical Capital Differences
• Food
• Other goods and services

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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?

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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/L
oss