Thursday, April 27, 2017

9.2 Aggregate Demand

Influences on the Gross Domestic Product (GDP)

Defining Aggregate Supply and Aggregate Demand

You already know about supply and demand and how these two forces interact in the market. The only difference here is the addition of aggregate, which means "total amount." Aggregate supply and aggregate demand are on a nationwide scale or large scale total national amount. Aggregate supply is the total amount of goods and services in the economy available at all possible price levels. Aggregate demand is the amount of goods and services in the economy that will be purchased at all possible price levels.
Directions:  Take a look at the following information regarding the effects of aggregate demand.
Then answer the following questions and post your answers.

The Effects of Aggregate Demand

Aggregate expenditures and price are inversely related. A rise in price level will cause a decrease in aggregate expenditures and a decrease in price level will cause an increase in aggregate expenditures. There are three things that explain why falling price levels increase aggregate expenditures.
They are:
  • The Wealth Effect: This says that a rise in the price level will make people who have money and other financial assets feel poorer. They then buy less, and the opposite is true if the price level were to fall- people would buy more. If people feel poorer and since consumption is a part of AD, then aggregate expenditures will decrease, thus decreasing the quantity demanded.
  • The International Effect: This states that as the price of our goods go up -and become more expensive to foreigners- net exports will fall. In addition, imports will increase because foreign goods will seem cheaper than the goods at home whose prices have risen. Since net exports will fall and this is a part of AD, then overall aggregate expenditures will decrease.
  • The Interest Rate Effect: This says that as price increases, interest rates will increase causing investments to decrease. If prices are higher, then people will have less money because they will be forced to spend more. If interest rates are higher, people will be less willing to put what little money they have into investments. Since Investments are part of the aggregate demand, the quantity of aggregate expenditures will go down, showing a negative relationship between price and aggregate expenditures. 

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1.) An international crisis has caused consumers to save their money and postpone big purchases. What is the effect on aggregate demand and aggregate supply?  choose the best answer below
 a. Will the aggregate supply decrease, raising the price level and lower real GDP.
 b. Will the aggregate demand decrease lowering both real GDP and the price level.

2.) Describe how the wealth factor influences aggregate demand?

9.1 The Fed Chair Game

The Federal Reserve System:

Yellen sworn in as chair of Federal Reserve, first female to hold the post

 The Associated Press

janet yellen federal reserve.jpg


The Federal Reserve System is overseen by the Board of Governors of the the Federal Reserve. The Board of Governors is headquartered in Washington, D.C. Its seven members are appointed for staggered fourteen -year terms by the President of the the United States with the advice and consent of the Senate. The President also appoints, from among these seven members, the chair of the Board of Governors. The Senate confirms the appointment. Chairs serve four-year terms. The chair acts as the main spokesperson for monetary policy for the country.Monetary policy refers to the actions the Fed takes to influence the level of real GDP.


The Fed Chairman Game (FCG) is an interactive online website tool to help you better understand the impact of the Federal Funds Rate on unemployment and inflation.  Put yourselves in the chair’s shoes and try your hand at monetary policy through steering a simulated economy. Crises pop up throughout the game in order to lend an element of surprise and to simulate sudden changes in the economy. At the end of the game, the “Chair” is reappointed if you did well in keeping inflation low and stable and meeting the unemployment target.

Directions: Check out the Fed Chair Game and then answer the following questions and post your answers.

1.) What is the relationship between interest rates and demand for money?
2.) When the economy is expanding quickly and inflation is high, what should the Chair do to slow inflation?
3.)  Describe several of the key roles of Chair of the Federal Reserve?
4.) Explain how the Chair of the Federal Reserve plays a key role in the economy.

Monday, March 6, 2017

Study Guide Chapters 1-18

Final Study Guide: 
Use this study guide as a tool to study and take notes as you read your Economics text book. As a bonus for having completed the study guide you can earn points towards your final. A completed handwritten study guide can be turned in on the day of the final for 10 extra points. 

Directions: Print your study guide and begin completing it with important details from the chapter. 

Final Study Guide Prentice Hall 

CHAPTERS 1 – 18 (Prentice Hall text)

Chapter 1 – What is Economics
Section 1
Define economics.
Explain why scarcity and choice are basic problems of economics.
Describe the three factors of production and the two types of capital.
Section 2
Explain the relationship between trade-offs and opportunity costs.
Describe the different types of economic products.
Section 3
Explain the information provided by a production possibility curve and the factors that affect it.

Chapter 2 – Economic Systems
Section 1
Identify the three key economic questions.
Describe the characteristics, advantages, and disadvantages of the traditional, command, and market economies.
Section 2
Explain why markets exist.
Explain the circular flow of economic activity.
Identify the advantages of a free market economy.
Section 3
Describe how a centrally planned economy is organized.
Identify the problems of a centrally planned economy.
Section 4
Explain the rise of mixed economic systems.

Chapter 3 – American Free Enterprise
Section 1
Describe the tradition of free enterprise in the U.S. and the constitutional protections that underlie it.
Explain the basic principles of the U.S. free enterprise system.
Describe the role of the consumer and government in a free enterprise system
Section 2
Explain how the government tracks and seeks to influence business cycles.
Section 3
Identify examples of public goods.
Explain how the government allocates some resources by managing externalities.
Section 4
Summarize the U.S. political debate on ways to fight poverty.
Describe the main programs through which the government redistributes income.

Chapter 4 – Demand
Section 1
Explain the law of demand.
Understand how the substitution effect and the income effect influence decisions.
Section 2
Explain the difference between a change in quantity demanded and a shift in the demand curve.
Explain the causes of a change in quantity demanded.
Explain the factors that could cause a shift in the demand curve.
Section 3
Explain the concept of demand elasticity and how to calculate it.
Identify when demand curves are elastic and inelastic.
Identify factors that affect elasticity.

Chapter 5 – Supply
Section 1
Explain the law of supply.
Interpret a supply graph.
Explain the relationship between elasticity of supply and time.
Section 2
Explain how firms decide how much labor to hire to produce to a certain level of ouput.
Identify the types of production costs.
Section 3
Explain factors that can create changes in supply.
Identify three ways that the government can influence the supply of a good.

Chapter 6 – Prices
Section 1
Explain how supply and demand create balance in the marketplace.
Describe price ceilings and price floors and explain their effects.
Section 2
Identify the determinants that create changes in price.
Describe how a market reacts to a fall in supply or a shift in demand.
Section 3
Explain the advantages of using prices as a way to allocate economic products.
Explain problems that arise with a command economy, such as rationing, shortages, and black market.

Chapter 7 – Market Structures
Section 1
Explain the four conditions of perfect competition.
List two common barriers that prevent firms from entering a market.
Section 2
Explain monopolies and how they are formed, including government monopolies.
Section 3
Describe characteristics and give examples of monopolistic competition.
Explain how firms compete without lowering prices.
Describe the characteristics and give examples of oligopoly.
Section 4
Summarize three market practices that the government regulates or bans to protect competition.
Define deregulation and list its effects on several industries.

Chapter 8 – Business Organizations
Section 1
Describe the characteristics, advantages, and disadvantages of the sole proprietorship.
Section 2
Explain the different types of partnerships.
Describe the advantages and disadvantages of partnerships.
Section 3
Describe the characteristics, advantages, and disadvantages of corporations.
Identify types of corporate combinations.
Section 4
Explain how a business franchise works.
Identify different types of cooperative organizations.
Summarize the purpose of nonprofit organizations and the different types.

Chapter 9 –Labor
Section 1
Describe how trends in the labor force are tracked.
Section 2
Explain the relationship between supply and demand in the labor market.
Identify the relationship between wages and skill level.
Explain reasons for the discrepancy in pay between men and women.
Describe factors that affect wage levels.
Section 3
Describe the purpose of labor unions.
Explain why union membership has declined.
Describe several ways to resolve labor and management differences.

Chapter 10 – Money and Banking
Section 1
Explain the three uses of money.
Describe the six characteristics of money.
Explain the sources of money’s value.
Section 2
Explain the purpose of the Federal Reserve System.
Describe the protection offered by the FDIC.
Note: American leaders in the early United States wanted to establish a stable banking system in order to promote international trade and economic growth.
Section 3
Explain the functions of financial institutions.
Identify the different types of financial institutions.
Chapter 11 – Financial Markets
Section 1
Explain how investing contributes to the free enterprise system.
Explain how the financial system works to transfer funds from savers to borrowers.
Describe the role of various nonbank financial intermediaries.
Identify the trade-offs among risk, liquidity, and return.
Section 2
Identify three components of bonds.
Identify different types of bonds.
Identify the types of major financial assets and their characteristics.
Section 3
Explain the benefits and risks of buying stockes.
Describe how stocks are traded.
Explain how stock performance is measured.

Chapter 12 – Gross Domestic Product and Growth
Section 1
Explain how Gross Domestic Product (GDP) is measured.
Identify the main limitations of GDP
Section 2
Explain the phases of a business cycle.
Identify four key factors that keep the business cycle going.
Section 2
Explain how unemployment is measured.
Describe five types of unemployment.
Section 3
Describe how economists measure the growth of the U.S. economy.
Identify factors that influence economic growth.

Chapter 13 – Economic Challenges
Section 1
Describe the different types of unemployment.
Describe how full employment is measured.
Section 2
Explain the effects of rising prices.
Explain the use of price indexes to compare changes in prices over time.
Identify the causes and effects of inflation.
Section 3
Define who is poor according to government standards.
Describe reasons for income inequality and poverty.

Chapter 14 –Taxes and Government Spending
Section 1
Describe types of tax bases and tax structures.
Explain the economic impact of taxes.
Identify the characteristics of a good tax.
Identify who bears the burden of a tax.
Section 2
Describe the process of paying individual income taxes.
Identify typical items that can be claimed as a tax deduction, such as home mortgage interest, charitable donations, and some medical expenses.
Describe other types of taxes.
Section 3
Explain the difference between mandatory spending and discretionary spending.
Describe major entitlement programs.
Identify categories of discretionary spending.
Section 4
Explain where state taxes are spent.
Identify major sources of state revenue.
Summarize local government spending and revenue.

Chapter 15 – Fiscal Policy
Section 1
Describe how the government uses fiscal policty as a tool for achieving economic goals.
Describe the impact of fiscal policy decisions on the economy.
Section 2
Summarize the basic principles of classical, Keynesian, and supply-side economics.
Section 3
Explain the importance of balancing the budget.
Explain how the federal deficit is related to the federal debt.
Explain the impact of the federal debt on the economy.

Chapter 16 – The Federal Reserve and Monetary Policy
Section 1
Describe the structure of the Federal Reserve System.
Section 2
Explain the roles of the Federal Reserve System.
Section 3
Describe the process of money creation.
Explain tools of monetary policy.
Section 4
Explain the difference between an easy money policy and a tight money policy, and the conditions for which each is used.

Chapter 17 – International Trade
Section 1
Explain the advantage of international trade.
Section 2
Identify different types of trade barriers and their effects.
Summarize arguments in favor of protectionism.
Section 3
Explain how changes in exchange rates of world currencies affect international trade.

Chapter 18 – Economic Development and Transition
Section 1
Describe what is meant by developed nations and less developed countries.
Section 2
Identify causes and effects of rapid population growth.
Identify the importance of human capital to development.
Identify “brain drain”.
Section 3
Identify sources of funds for economic development.
Section 4
Identify steps in moving from a centrally planned economy toward a free market economy.

8.4 Government Regulatory Agencies

Federal Regulatory Agencies:


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The government has created a number of federal regulatory agencies to oversee the economy. The government's involvement in our economy has created a modified free enterprise system. The agencies are intended to protect and regulate industries and consumers. Some of the agencies you maybe familiar with are:

  • FDA - Food and Drug Administration
  • NLRB- National Labor Relations Board
  • EPA - Environmental Protection Agency
  • FAA -  Federal Aviation Administration
  • FDIC -Federal Deposit Insurance Corporation
Directions: Watch the following video: FDIC   and visit the following website: FDA and answer the following questions. Post your answers.

1. If you open a savings account in a bank that indicates deposits are FDIC insured, what protection does that give you?

2. If you purchase uncooked meat at the grocery store what government agency will oversee monitor the quality and safe handling of the product?

3. Which Agency oversees the safety and procedures of the airline industry?

4. Select a Federal Agency that interests you. Tell us about the agency include the name, the purpose, and how the agency benefits American society.

8.2 Anti-Trust Legislation

 Anti-Trust Legislation

Directions: Review document below. Watch at least one of the two links. Answer the questions. Post your answers. 

Sherman Anti-Trust Act (1890)

 Chapter 7 Section 3

The government can encourage competition and regulate monopolies in order protect the public welfare. This power was established in the late 1800's when a law was passed to prevent monopolies, combinations and trusts. The law was the Sherman Antitrust Act of 1890. It outlawed all contracts in restraint of trade in order to slow the growth of trusts and monopolies. The Act was intended to maintain competition. However, more specific laws were needed to stop practices that interfered with trade between the states. The government created four anti-monopoly legislative acts known as:1890 Sherman Antitrust Act, 1914 Clayton Antitrust Act, 1914 Federal Trade Commission Act and the 1936 Robinson Patman Act. The over arching goal of the legislation is to prevent market failures due to inadequate competition and restrictions on trade between the states. 

The Sherman Anti-Trust

Directions: Watch one or both of the above posted videos which describes the Sherman Anti Trust Act and answer the following questions. Post your answers.
1. Define the following terms trust and monopoly.
2. Describe the Sherman Anti Trust Act noting when, where and what it was about.
3. What was the chief effect of the  Sherman Antitrust Act?

8.1 Self Interest and Competition in the Economy

Current News and the Economy
Image result for current economic news image

The term laissez-faire originated with a group of eighteenth century French economists who supported free trade. Their slogan, laissez fiare, laissez passer ("let us alone, let us have free circulation of goods") was adopted by Adam Smith to describe the idea of no government interference in the economy. (Glencoe TE Econ Principles and Practices p. 164) Recall what has been covered on our discussion board regarding competition and self interest. 

Directions: This week monitor newspapers, current events, and magazines to find stories related to  competition or self interest in the economy. Find one article and.......

  • write a summary of the article
  • note the publication from which the article came from 
  • explain how the article relates your economic assignments
  • post your summary
  • comment on another student's summary

Month 7.4 Market Structures - Self Interest

Chapter 7 Market Structures

Adam Smith on Self-Interest (Document A)

Adam Smith was a Scottish professor that strongly believed in the idea of a free economy. His ideas were the foundation of Capitalism.  In this passage  from his book The Wealth of Nations, Adam Smith discusses his law of self-interest, which is the idea that people work for their own good.     

“The natural desire of every individual is to improve his own condition (life).  
For example, it is not because of the benevolence (kindness) of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their own self-interest
It is for his own benefit, and not that of the society, that the butcher is thinking about when he slaughters his pigs for meat. His self-interest leads him to choose that employment (job) which is also helpful to society, but he intends (desires) only his own gain. If people were not willing to pay the butcher good money for his meat, then the butcher would not care to slaughter his pigs.”

Guiding Questions
  1. Analyze: What does Smith mean when he says “the natural desire of every individual is to improve his own condition”? Explain.

  1.  Summarize. Why does Adam Smith believe the butcher does his job (EXPLAIN! Don’t just say “self-interest!”)?

  1. Interpret: Do you agree with Adam Smith that people do their jobs only out of self-interest? Are there any jobs that people might do for a different reason? Explain.