Module 1.6 Special Topic. Basic Economics

Business and Personal Finance Copyright © by McGraw-Hill Education. All rights reserved.
Economics and the Global Economy

Chapter
2
How can your understanding of economic

principles and government policies
influence your financial decisions?
Chapter
2
The more you know about how an economy operates and the
government’s role in the economy, the better educated you will
be when making life decisions about the use of your financial
resources, voting for government officials, and planning your
future career.
Chapter
2
fiat money inflation

money supply deflation
budget deficit recession
budget surplus trough
patent specialization
copyright international trade
trademark absolute advantage
Gross Domestic comparative advantage
Product (GDP) balance of trade
Consumer Price Index protectionism
(CPI)
Chapter
2
tariff
quota
embargo
Chapter
2
Chapter
2 Section 1 The Economy and the Government
Name the three main functions and properties of money.

Discuss the roles government plays in the United States
economy.
Explain the Federal Budget.
Cite examples of government agencies established to
protect investors, workers, consumers, and the
environment.
Describe the structure, purpose, and function of the
Federal Reserve System.
Chapter
Role
2 of1 Money
Section The Economy and the Government
Trading Saving
What Is Money
Used for?
Investing Lending
Chapter
Role
2 of1 Money
Section The Economy and the Government
Money in the United

States is fiat money.
fiat money
money deemed to be
legal tender
Chapter
Functions
2 of Money
Section 1 The Economy and the Government
Functions of Money
Medium of Unit of Store of

Exchange Value Value
Chapter
Properties
2 of Money
Properties of Money
Divisible Usable Stable
Chapter
Properties
2 of Money
Chapter
Money
2 Section 1 Supply
The Economy and the Government
=
Production
Money No Inflation
of Goods
Supply or Deflation
and Services
money supply
total amount of money in
circulation in a country
Chapter
Role
2 of1 Government
Section in the
Economy
Chapter
Role
2 of1 Government
Section in the
Economy
Budget budget surplus

Surplus financial situation that
Budget occurs when more
money is received than
Deficit spent
budget deficit
financial situation that
occurs when more money
is spent than is received
Chapter
Role
2 of1 Government
Section in the
Economy
Regulation
Securities and Exchange Commission (SEC)
Investors
Federal Reserve System (The Fed)
Occupational Safety and Health Administration (OSHA)

Workers
Equal Employment Opportunity Commission (EEOC)
Food and Drug Administration (FDA)

Consumers
Federal Trade Commission (FTC)
Environment Environmental Protection Agency (EPA)
Chapter
Role
2 of1 Government
Section in the
Economy
patent
Patent exclusive right granted by the
Protecting government to an investor to
Companies prevent anyone else from using the
from Copyright invention for a period of time
Imposters
copyright
Trademark exclusive right granted by the
government to an author
trademark
an indicator that protects a
company’s name and reputation
Chapter
Role
2 of1 Government
Section in the
Economy
Assistance
Social Security Act
Federal Insurance Contribution Act (FICA)
Medicare
Medicaid
National School Lunch Program
Grants, Scholarships, Fellowships, Student Loans
Federal Emergency Management Agency (FEMA)
Chapter
Federal
2 Reserve
Section 1 The Economy and theSystem
Government
Interest Rates
The Federal Guides Monetary

Reserve Policy
System is the Foreign Exchange
Central Bank Rates
of the United
Regulates the U.S.
States
Banking System
Chapter
Federal
2 Reserve
Government
Role in the Economy
Supervise and Provide banking Write regulations

regulate depository services to member and implement
and other financial banks and the consumer credit
institutions government protection laws
Offer statistics and

Publish related
information on the
reports
economy
Chapter
Federal
2 Reserve
Government
Functions
Regulate the Money Supply Foreign Exchange Markets
Influences the economy through Changes in monetary policies

control over the federal funds affect international relations and
rate trade
May lower interest rates in a A weak dollar and a strong dollar

recession affect the economy in different
ways
May raise interest rates when the
economy is growing too fast
Chapter
2 Section 1 The Economy and the Government
What is the government’s role in supporting and

stabilizing the economy? How do these actions impact
your personal finances?
The government controls the federal rate. If the

government raises the rate, the rates on loans will
increase.
Chapter
2 Section 2 The Economy and Global Trade
Cite the three basic goals of an economy.

Describe economic indicators and their significance.
Discuss the segments of the business cycle.
Examine the reasons nations trade with one another.
Explain balance of trade.
Compare free trade and protectionism
Chapter
Economic
2 Indicators
Section 2 The Economy and Global Trade and
You
Gross Domestic Product
(GDP) Gross
value of all final goods and Domestic Product (GDP)
services produced inside a
country in a given period
of time
Economic
Indicators Consumer
Unemployment
Price
Rate
Consumer Price Index Index (CPI)
(CPI)
a measure of the changes in
prices for commonly
purchased goods and
services in the United States
Chapter
Economic
2 Indicators
Section 2 The Economy and Global Trade and
You
Inflation inflation
rise in the level of prices
for goods and services
Deflation over time
deflation
decline in the level of
prices for goods and
services over time
Chapter
Business
2 Cycles
Section 2 The Economy and Global Trade
recession Expansion
a period of economic downturn
Achieving
Recession
Economic Business
Goals
trough Cycles
a low point in a business cycle
Recovery Trough
Chapter
Business
2 Cycles
Section 2 The Economy and Global Trade
Chapter
Roles
2 of
Section Trade
2 The Economy and Global Trade
Individuals Trade skills for wages
Trade goods and

Organizations
services for revenue
Trade with other

Nations
nations for resources
Chapter
Roles
2 of
Section Trade
Specialization
Individualsand nations specialize
Organizations
Everyone is economically interdependent
Production and consumption increase with specialization
Organizations
For trading to be efficient, there is a division of labor and
specialization
Nations
specialization
in manufacturing, a division of tasks
among different workers
Chapter
Roles
2 of
Section Trade
International Trade
Imports Exports
Goods coming Goods sold to

into a country
Country other nations
international trade
exchange of goods and services
among nations
Chapter
Roles
2 of
Section Trade
Chapter
Roles
2 of
Section Trade
Why Nations Trade

Individuals
Scarcity of resources
Abundance of resources
Low employee wages in other countries
Organizations
Absolute advantage
Comparative advantage
absolute advantage
economic advantage a country has when it can produce more of
a product than can any other country
comparative advantage
economic advantage that a country has when it can produce a
product more efficiently and at a lower opportunity cost than
another country
Chapter
Roles
2 of
Section Trade
Balance of Trade
balance of trade
difference between the value of a country’s
imports and exports during a period of time
Chapter
Roles
2 of
Section Trade
Protectionism
Restricting
Trade
protectionism
practice of using barriers to free trade
Chapter
Roles
2 of
Section Trade
Protectionism
Tariff
Restricting
Trade
tariff
tax on imports
Chapter
Roles
2 of
Section Trade
Protectionism
Tariff
Restricting
Trade
Quota
quota
restriction on the quantity or value of goods that can be
imported into a country
Chapter
Roles
2 of
Section Trade
Protectionism
Tariff
Restricting
Trade
Quota
Embargo
embargo
restriction on imports and exports to and from a country
Chapter
2 Section 2 The Economy and Global Trade
If the economy is in a recession, what advice would you give to

a business owner, and investor, and a consumer? How would
your advice change if the economy was in a period of recovery?
Sample answers:
In a recession, I would advise business owners and consumers
to cut back on spending. Investors should cut their losses. In a
recovery, business owners and consumers could resume
spending. Investors can be more aggressive.
Chapter
2
Economic Activity
In a market economy, the
flow of economic resources,
income, and goods and
services is circular.
Chapter
2
The Flow
of the Segments of
the
Business Cycle
Chapter
2
End of

Module 1.6 Special Topic. Basic Economics

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Module 1.6 Special Topic. Basic Economics

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Business and Personal Finance Copyright © by McGraw-Hill Education. All rights reserved.

Economics and the Global Economy

How can your understanding of economic

fiat money inflation

Name the three main functions and properties of money.

Money in the United

Medium of Unit of Store of

Divisible Usable Stable

Budget budget surplus

Occupational Safety and Health Administration (OSHA)

Food and Drug Administration (FDA)

Environment Environmental Protection Agency (EPA)

The Federal Guides Monetary

Role in the Economy

Supervise and Provide banking Write regulations

Offer statistics and

Regulate the Money Supply Foreign Exchange Markets

Influences the economy through Changes in monetary policies

May lower interest rates in a A weak dollar and a strong dollar

What is the government’s role in supporting and

The government controls the federal rate. If the

Cite the three basic goals of an economy.

Individuals Trade skills for wages

Trade goods and

Trade with other

Goods coming Goods sold to

Why Nations Trade

If the economy is in a recession, what advice would you give to

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