Unit 4

Government actions affect economic activity.

Economic decisions require the government to evaluate the costs and benefits of actions.

Enduring Understandings

Essential QuestionsHow should the U.S. government carry out its economic roles? How healthy is the American economy

Terms

Gross Domestic Production Unemployment rate Inflation

Consumer Price Index Real and Nominal, per capita

Draw and identify phases of the business cycle Aggregate

Aggregate Supply- describe both the Keynesian and Classical models

Aggregate Demand Fiscal Policy Monetary Policy

Progressive Tax Rate Stagflation

Circular Flow Model

Business Government Individuals

Investors Government Consumer

Product Markets

Resource Markets

Financial

Goods and Services Goods and Services

SpendingRevenue

Resources- factors of productionLand Labor capital entrepreneurship

Resources- factors of production

Cost

Income

Goods and Services

Gov’tSpending

Resources and labor

Gov’tSpending

Taxes and loansTaxes

Subsidies Transfer Payments

Public Goods/Services Public Goods/Services

Supply Demand

SupplyDemand

Marginal- additional, MB= Marginal Benefit, MC= Marginal Cost, MR- Marginal Revenue, MRP- Revenue product, MRC- Resource cost,MSB- Marginal Social Benefit, MSC- Marginal Social Cost

MB= MCUtility Maximization

MR= MCProfit Maximizing Rule

(MC) S= D (MB) or (MR)

Profit maximizing rule of hiring MRP= MRC

Loans

Interest

Consumers+

Investors+

Government+

Net Exports__________

Gross Domestic Production

MSB= MSC

Identify Key terms and answer the associated questionsPart 1 (GDP)

G.D.P. (Gross Domestic Product)-

What factors contribute to the GDP? On another piece of paper chart the US GDP from 2000- 2011 (by year)

What does not contribute to the GDP? Next chart US real GDP from 2008-2011 by quarter

Explain:Nominal GDP

Real GDP

GDP per Capita

Explain how unemployment is it related to GDP?

Part 2 (Unemployment)

Explain the different types of unemployment and what is the natural rate of unemployment?

Frictional

Structural

Cyclical

What is the natural rate of unemployment? Why is this ok?

If our current unemployment rate is 9% how much is the cyclical unemployment?

What portion of the population is not counted toward unemployment rates?

What is real unemployment?

http://www.economagic.com/mgif/ECONOMAGIC!BLSLFUR-U1-2-3-4-5-6.gif

Part 3: The purchasing power of money

What is inflation?

What does higher inflation do the purchasing power of money?

How does this impact price?

What is CPI (Consumer Price Index)

How does the Consumer price index measure inflation?

What is monetary inflation?

Part 4: The Business Cycle

Diagram and Identify the different phases of the business cycle:

If the business cycle is natural and unavoidable should the government become involved? Explain your answer

To economist when is the business cycle officially in a recession?

Part 5: Government Role and the Recession:

Aggregate Supply and Demand (AS/AD)

What is Aggregate Demand

What is LRAS?

What is Aggregate Supply

What is the difference between Classical vs Keynesian Approach to Aggregate Supply?

How would an economist who believed in the classical approach draw Aggregate Supply? Why?

What would Keynesian economists say the Aggregate Supply , Aggregate Demand, and Price?

How does the Aggregate Supply depending on what model you are looking at? What are the three different phases?

What is Keynesian economics and what does it say about the government’s role in getting the economy out of a recession?

Part 8: Fiscal Policy and Monetary policy

Explain Fiscal Policy:

Explain Monetary policy:

How do both try to fix recessions and inflation?

Recession

Fiscal

Monetary

Inflation

Fiscal

Monetary

Part 7: Phillips Curve (inflation and unemployment) (Long and Short Run)

Explain the Phillips Curve and explain how we get short run and long run Phillip’s Curve