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Chapter 02 - Understanding Economics and How It Affects Business
produce very similar products that buyers never-
theless perceive as different.
b. The fast food industry is an example.
2. Free-market capitalism provides opportunities for
Chapter 02 - Understanding Economics and How It Affects Business
critical thinking
exercise 2-4
STANDARD OF LIVING
COMPARISON
This exercise asks students to research key economic indi-
cators for a capitalist country, a socialist country, and a com-
munist country. (See complete exercise on page 2.76 of this
manual.)
PPT 2-29
Free Market Benefits and
Limitations
(See complete PowerPoint slide notes on page 2.53.)
Chapter 02 - Understanding Economics and How It Affects Business
2-23
poor people to work their way out of poverty.
3. Capitalism also creates INEQUITIES between
those who have gained wealth and those who are
not able to.
learning goal 3
Compare socialism and communism.
III. UNDERSTANDING SOCIALISM
distributed to the poorer members of the popula-
tion.
2-24
PPT 2-30
The Government Needs
(See complete PowerPoint slide notes on page 2.54.)
PPT 2-31
Atypical Taxes
(See complete PowerPoint slide notes on page 2.54.)
progress
assessment
(Text page 41)
PPT 2-32
Progress Assessment
(See complete PowerPoint slide notes on page 2.55.)
PPT 2-33
Socialism
(See complete PowerPoint slide notes on page 2.55.)
Chapter 02 - Understanding Economics and How It Affects Business
2. Workers in socialist countries are given free edu-
cation, free health care, free child care, and more
employee benefits.
C. THE NEGATIVE CONSEQUENCES OF SOCIALISM
1. Socialism may create EQUALITY, but it TAKES
AWAY SOME WORK INCENTIVES.
PPT 2-34
Benefits of Socialism
(See complete PowerPoint slide notes on page 2.56.)
PPT 2-35
Negatives of Socialism
(See complete PowerPoint slide notes on page 2.56.)
PPT 2-36
Communism
(See complete PowerPoint slide notes on page 2.56.)
Chapter 02 - Understanding Economics and How It Affects Business
C. Most communist countries today are SUFFERING
SEVERE ECONOMIC DEPRESSION, including North
Korea and Cuba.
1. FREE MARKET ECONOMIES
will get them, and how the economy will grow.
PPT 2-37
Two Major Economic Systems
(See complete PowerPoint slide notes on page 2.57.)
Chapter 02 - Understanding Economics and How It Affects Business
b. These economies are known as SOCIALISM
and COMMUNISM.
B. No one economic system is perfect by itself.
D. THE U.S. HAS A MIXED ECONOMY.
1. The role of government in many parts of the
economy is a matter of some debate.
PPT 2-38
Mixed Economies
(See complete PowerPoint slide notes on page 2.57.)
PPT 2-39
Trending Toward Mixed Economies
(See complete PowerPoint slide notes on page 2.57.)
REACHING BEYOND
our borders
(Text page 44
PPT 2-40
China’s Changing
Economy
(See complete PowerPoint slide notes on page 2.58.)
TEXT FIGURE 2.4
Comparisons of Key Economic
Systems
(Text page 45)
This text figure compares capitalism, socialism, communism,
and mixed economies on five key elements.
progress
assessment
(Text page 46)
PPT 2-41
Progress Assessment
(See complete PowerPoint slide notes on page 2.58.)
Chapter 02 - Understanding Economics and How It Affects Business
A. KEY ECONOMIC INDICATORS
1. GROSS DOMESTIC PRODUCT (GDP)
a. GROSS DOMESTIC PRODUCT (GDP) is the
total value of final goods and services pro-
duced in a country in a given year.
employed and tried to find a job within the
prior four weeks.
Chapter 02 - Understanding Economics and How It Affects Business
2-32
PPT 2-42
Gross Domestic Product
(See complete PowerPoint slide notes on page 2.58.)
PPT 2-43
The United States GDP
(See complete PowerPoint slide notes on page 2.59.)
PPT 2-44
Playing Catch Up
(See complete PowerPoint slide notes on page 2.59.)
PPT 2-45
Unemployment
(See complete PowerPoint slide notes on page 2.59.)
Chapter 02 - Understanding Economics and How It Affects Business
2-33
TEXT FIGURE 2.5
U.S. Unemployment Rate
1989-2011
(Text page 47)
This text figure shows the unemployment rate for the years
from 1989 to 2011.
PPT 2-46
Unemployment Rate of the U.S.
(See complete PowerPoint slide notes on page 2.60.)
TEXT FIGURE 2.6
Four Types of Unemployment
(Text page 49)
This figure describes the four types of unemployment: fric-
tional, structural, cyclical, and seasonal.
PPT 2-47
Best and Worst Cities for a Job
Search
(See complete PowerPoint slide notes on page 2.60.)
Chapter 02 - Understanding Economics and How It Affects Business
b. INFLATION is a general rise in the prices of
goods and services over time.
B. PRODUCTIVITY IN THE UNITED STATES
Chapter 02 - Understanding Economics and How It Affects Business
PPT 2-48
Inflation
(See complete PowerPoint slide notes on page 2.60.)
lecture link 2-6
OTHER ECONOMIC INDICATORS
In addition to the GDP, CPI, and unemployment indicators,
there are other economic indicators that can forecast changes
in the economy. (See the complete lecture link on page 2.68 of
this manual.)
lecture link 2-7
NEW ECONOMIC MEASURES
Michael Gelobter thinks that the GDP, unemployment lev-
els, and price indices should be replaced with the “genuine
progress indicator (GPI).” (See the complete lecture link on
page 2.69 in this manual.)
Chapter 02 - Understanding Economics and How It Affects Business
PPT 2-49
Consumer Price Index
(See complete PowerPoint slide notes on page 2.61)
TEXT FIGURE 2.7
How the Consumer Price Index is
Put Together
(Text page 48)
This text figure how the Consumer Price Index is figured
out and released.
PPT 2-50
Producer Price Index
(See complete PowerPoint slide notes on page 2.61)
PPT 2-51
Productivity
(See complete PowerPoint slide notes on page 2.61)
3. The U.S. economy is a SERVICE ECONOMY–
very labor intensive–creating productivity issues.
C. PRODUCTIVITY IN THE SERVICE SECTOR
policy to minimize these disruptions.
Chapter 02 - Understanding Economics and How It Affects Business
2-38
PPT 2-52
Productivity in the Service Sector
(See complete PowerPoint slide notes on page 2.62.)
PPT 2-53
Business Cycles
(See complete PowerPoint slide notes on page 2.62.)
lecture link 2-8
CHINA’S POTENTIAL REAL
ESTATE BUST
After years of growth, financial experts are afraid the Chi-
nese real estate boom could turn into a bust. (See the complete
lecture link on page 2.69 in this manual.)
lecture link 2-9
WHAT IS A DEPRESSION?
There is a well-established definition for a recession. A de-
pression is, well, not so easy to define. (See the complete lec-
ture link on page 2.70 in this manual.)
Chapter 02 - Understanding Economics and How It Affects Business
learning goal 6
Contrast fiscal policy and monetary policy, and explain how each affects the economy.
E. STABILIZING THE ECONOMY THROUGH FISCAL
POLICY
money that the federal government spends over
and above the amount it gathers in taxes.
