Economics Chapters 1-18 Chapter 1
Scarcity and Shortages
Economics evaluates the careful
balance between people’s needs and wants. People always want more than
they can have. The desire for a limitless quantity of items causes
every resource to be scarce. Land is scarce. In early America there
seemed to be an unlimited supply of land. Free land was given to those
brave enough to live in the wild. Yet even at a time when land was
plentiful, land was scarce. As can be seen centuries later, the
craving for land exceeded the supply. The resource was scarce from the
beginning. Although land has always been scarce, now there is a
shortage. The exponential growth of the global population has caused
people to live in nearly every place on the planet. Yet these places
have not been enough. People have to live and work in apartments or
skyscrapers. Contractors have to build up rather than out because the
land to build on is limited. In San Francisco narrow houses touch each
other, giving neighbors little room. Backyards are almost no
existent. New York is just another area that is highly populated, like
many metropolitan cities. The earth cannot sustain the exponential
growth of the population. We are living in cramped quarters and the
environment is being destroyed in order to make room for more people.
In a few decades that land will not be there to be destroyed. It will
already be occupied and congested. We have to act now to limit the
population and their affluence or there will be a shortage of nearly
every resource.
Trade-Offs
When choosing choice A over B, you
are giving something up while getting something in return. When
countries go to war, they need to produce more tanks, planes, guns,
bombs, and other military essentials. These productions decrease the
resource supply, causing fewer products for the ‘homeland’ to be
produced. This dilemma is known by economists as guns or butter. In
World War II, the increased military resources production caused the
supply to be depleted. The United States responded to this problem by
rationing nearly everything. Ration books dictated what you could buy.
Recycling of metals and rubbers also became popular to support the
development of military machines. As the United States in another war,
with Iraq, we are experiencing shortages. Gasoline has become the
resource that affects the public the most. The war costs have created
an immense debt for the American people. The value of the dollar has
plummeted causing prices of all goods to be raised. Gas prices have
caused the greatest outcry. While rationing has not been put into
practice, the high prices have caused people to either cut back on
their driving or cut back in other areas. Still, the average American
is spending more than he or she makes. The debt of the country and its
people must be paid for eventually. Living in debt will only cause our
fragile economy to crumble. People need to learn to live within their
means and America needs to end the war. Then we can work together to
restore our nation back into prosperity. Then more individuals will be
able to experience the American dream, which is hard to come by in war.
Cost
Cost is not the price paid but what was lost in choosing one option over another. Every day, choices require a cost. Some have more at stake than others. When a farmer chooses which crops he should grow, he needs to determine what will grow well in his current location. If he lives in northern California he needs to pick crops that are suited for that region. If he chooses to grow bananas, few if any will grow. Bananas require at tropical climate and would not survive the cold winters of his farm. The cost to choosing bananas over a crop more suited to his region would be great. There would be a small harvest, if any, and money would be lost. He may be forced to sell his farm or find another job to pay his bills. However, if he choose to grow grapes, the harvest would have been greater because it is better suited to the region. Yet by choosing grapes over bananas, he would still be given up the small harvest of bananas and financial difficulties. Although they may not be considered profitable alternatives, he is still giving them up. If he then decided to purchase more land, he would face the law of increasing costs. If the land near him belongs to an old factory, the amount of money it would take to make that land usable for farming would use many resources. The economic expense of converting land is always great; therefore it is better to live within the system we currently have rather than change it, which will only lead to trouble.
Chapter 2
Economic Freedom
The United States is one of a few countries that provides a large amount of economic freedom to its citizens. In general its citizens are not restricted in what we can buy or what we can earn. The American dream is built upon the principle of economic freedom. Still our freedoms are not unlimited. There are laws on how many hours adolescents can work and where they can work. They are forced to attend school or be home schooled for many years which limits their own freedoms which their time. There are also laws that require the consumer to be a certain age to purchase items like cigarettes or alcohol. In the recent years the rules have been tightened further, requiring a certain age for cold medicine and lighters. Still people over 18 or 21 face limits. Different states or cities outlaw different items. In El Segundo it is illegal to use fireworks, although this law is often broken on the 4th of July. It is however, legal to use them in Inglewood. In California it is illegal to keep a ferret as a pet but legal in other states. Certain pesticides such DDT are illegal throughout the United States yet it is legal to sell them to other places. Although we can make nearly any amount, we will be taxed, limiting our progress and lifestyle. While these rules are generally for our safety they still control our freedoms. Yet accepting regulations due to the love of our country is one aspect of our patriotism.
Communism
The father of the communist movement, Karl Marx, published The Communist Manifesto
in 1848. While communism is traditionally looked down upon in the world
today, Marx viewed communism, in its ideal form, to be better than
capitalism. He believed that capitalism would lead to distinct class
levels that were unfair to the lower class citizens. The natural
progression of this unrest would lead to a communist revolution, which
would overthrow the capitalists societies just as capitalism over threw
feudalism in the past. Yet it is questionable as to whether or not
communism can ever truly exist to benefit everyone. The former Soviet
Union is one of many examples of communist governments that took
advantage of their citizens. Instead of helping the workers, the Soviet
Union worked its people relentlessly in order to gain global power and
prestige. In this central government, the government owned and
controlled everything. The government owned the land and dictated types
of crops and the yield expected. Citizens could not own their own land
or grow different crops. They instead were employed to work the fields,
with a guaranteed job and income. However, these guarantees also left
no incentives for workers to do a better job or produce more crops.
Without incentives people will never work harder. This backfired when
the Soviet Union could no longer feed its own people. While this type
of communism failed, communism has worked in the past. Indian tribes
were a type of communist society that Marx favored. Everyone in the
tribe worked to get food, build houses, and take care of each other.
Almost every resource was shared amongst the group. But these tribes
were much smaller than any country today, giving little hope to
communism ever taking this form again.
Laissez Faire
Laissez faire is the theory or belief that if the market is left to its own accord, without any government intervention, it will be most advantageous for its consumers and create the highest revenue. In theory, laissez faire seems to be the best option. If the consumer controls the market, the market will have to cater the consumer. The consumer driven market of America focuses on the best products for the best price. Companies that sell products that are high-priced, low quality items, tend to go out of businesses. However, companies that sell low-priced, high-quality items, tend to stay in businesses. Such a relation seems to prove laissez faire’s significance, but in truth a market cannot run without interference. The government needs to regulate its market in order to control monopolies. When a monopoly occurs, competition between businesses dies and the monopoly can charge unreasonable amounts for their products. Preventing monopolies can keep prices down through competition between companies. The government also needs to interfere with the market in order to obtain money and use it for the public good through education, national defense, roads construction, and public transportation. Governments also allow for regulation of businesses. The FDA ensures that comestibles be safe to its citizens. In The Jungle by Upton Sinclair, the meat industry at the time was exposed for its insanitary methods. President Roosevelt pushed measures to fix the problem, resulting in cleaner and better quality food for the public. Laissez faire is an important ideal in the American economy but some government intervention is still needed.
Chapter 3
Macroeconomics and Microeconomics
Microeconomics is the study of small economic choices in families, individuals, and businesses. Macroeconomics is the sum of all these behaviors. Ultimately it is macroeconomics which controls the overall economic strength of a country. But a close study of microeconomics will shed light on the future economy. Therefore close studies of both types of economics by the country’s leaders are ideal to promote a healthy economy. Right now, the United States is suffering an economic decline. This is due to many things. When looking at only one business, the banks, their failed policy on home loans to lower class citizens lead to their demise and the economies. These citizens could never afford these homes but were given loans anyways. When their payments rose, they could not pay them. The banks found themselves with foreclosed homes with lower market prices. Their debt increased. The seven hundred billion bank bailout plan soon was seen as a necessity to amend the situation and hopefully the economy. This is a drastic measure to a problem that should have been solved years ago. Another problem to the country’s economy is the decreased value of the dollar. Because the dollar is worth less, products, especially goods from other countries, are more expensive. Gasoline is the major expense that affected almost every American. In an effort to cope with the situation, Americans are spent less by either reducing their diving or reducing their budget elsewhere, which harms the economy. In order to repair the economy measures must be taken to decrease the debt of Americans and increase the value of the dollar. One the other hand, close inspection of economic behaviors can protect countries from such an immense decline.
Public Goods
Services available to all citizens through funds from taxes are often called public goods. Many people loathe taxes because of the huge percentage it deducts from their income, but they do not usually complain about all the amenities these taxes create. Without taxes the United States could not function nor could any other country. When The Articles of Confederation were created the federal government was not able to tax its citizen. This law was put into place because the colonists disliked the outrageous taxes from parliament without any representation. Yet without the power to tax, American leaders soon realized they could not accomplish anything. The Articles of Confederation were replaced with The United States Constitution which gave the government the right to tax its citizens. With the revenue, roads have been constructed across the country. However, roads are not built in deserted, untraveled places because the overall cost of creating such a road would outweigh the benefit to the consumer. Taxes also pay for part of the military costs despite the disapproval of the current war from some tax payers. Nevertheless, these people have been protected by the military in the past and it is a small price to pay to live in a free country. National parks and many conservation efforts are also paid for through taxes even through some tax payers may be against such measures. But in the end, everyone agrees with some aspect of government spending and can agree without taxes our country would fall apart.
Welfare
The amount of money put into the
welfare system and how this money is administered has been
controversial throughout the century. Right now aid is given to the
unemployed, the elderly, and people below the poverty threshold. Tax
revenues pay for these services. Democrats tend to favor more tax money
to be put into these programs. This results in cash transfers to the
people on welfare. The people receiving this money do not need to work
for the money and usually never overcome their financial hardships.
Republicans, on the other hand, advocate decreased government spending
on such projects. Instead Republicans have statistically given more
money to faith-based organizations. These charities tend to meet with
the people requiring aid. Depending on their problems, counseling may
be given in instances of drug addictions, teenage pregnancies, or other
life changing events. However in almost all cases the people are given
some type of job. Some work at the church for their pay. Others are
trained to get back into the work force. But everyone is given work
they are able to do. People are empowered through being able to work
for their money, which is why people who seek financial help from a
charity usually break free from their poverty. In 1932, President
Roosevelt created the New Deal. This government program allowed people
to work for their much needed salary during the Great Depression. A
system in which government funds go to jobs for those on welfare would
be a great change for the welfare system.
Chapter 4
Demand
It is a well-known fact by economists that the
more expensive an item is, the less it will sell, and the cheaper the
item the more it will sell. Therefore an important job in marketing a
product is to sell it at a price that customers are willing to pay and
that which would make the most money. When the price of gasoline was
dramatically increased, many people still continued to by the same
amount of gas. This is because people need gas to go to work, school,
and run almost any errand. If consumers decreased the amount of gas
they used, their life would have to change drastically. Carpooling to
work would mean more time spent in travel and therefore less free
time. However, because gas did get astronomically high, many people
did have to cut back. Since they did not want to change their daily
life very much, many people opted to spend less in other areas that
would have a lesser effect. Therefore many people went to the movies,
amusement parks, concerts, and other forms of entertainment less. Also
the money spent on shopping for clothes, furniture, and other items was
also reduced. This frugal spending backfired on many retailers
eventually forcing them to close their doors. However, the gasoline
companies continued to get richer because the demand for their product
was so high. People were still willing to pay for the gas despite the
price. Eventually, the gas prices came down again due to the United
States poor economic standing. Therefore Americans can still afford to
make gasoline one of their top expenses even in hard times.
Increases and Decreases in Demand
The phases of increases and decreases in demand
are usually affected by the overall economy. Increases in demand occur
when an item is desired in greater quantities usually due to the
increases salary of the consumer. Before the iPod came out, many people
were happy to use a CD player and headphones, however, once to
popularity of the iPod rose, there was an increase in its demand. More
people began purchasing and desiring the item. Today, the majority of
the population has an iPod. The iPod business also expanded to include
other iPod paraphernalia that was also in high demand. Items such as
iTunes and iHome became increasingly popular to use with an iPod.
Nevertheless, there was an economic change in American. When economic
times are bad there is usually a shift into a decrease in demand for
items. Right now the economic situation in the United States is poor.
Therefore people have less money to spend on extra items that they do
not need such as the iPod. Therefore a decrease in demand occurs,
because the iPod is purchased less. In general when the economy is
doing well, the demand for normal goods increases such as iPods,
designer clothes, new cars, and other pricy items. When people have
more money to spend they usually do, which was the idea of the stimulus
check which many hoped to jump-start the economy, but it failed to do
so. When the economy is doing poor, there is an increase in inferior
goods, such a generic band items, because they are cheaper.
Total Revenue
The total revenue of a company is the proceeds it
receives from items multiplied by the number of items sold. An
increase in the price of an item however, may not always mean an
increase in total revenue for the company. This phenomenon is due to
the elasticity of demand, in which consumers may change their spending
habits when prices change. If an item is inelastic, the majority of
consumers will continue to buy the product despite the cost. Gasoline
is one example of an inelastic good. Recently, the majority of
Americans continued to purchase gas despite high prices. This practice
made gasoline companies very rich at the cost of Americans. However,
some goods experience an elastic demand in which consumers will reduce
their spending if items become too expensive. For example, if the price
of a movie ticket doubles, consumers are more likely to go to the
movies less. In such a case they are likely to go less than half the
time due to the high price, therefore the movie industry would actually
lose money as a direct result to raising their prices. This is because
most people would wait to see a movie on TV or rent it when the DVD
comes out because it would save them money. However if a movie ticket
was increased by only a dollar, people would still probably come to the
movies just as often and therefore the company would increase its total
revenue off its increased prices.
Chapter 5
Law of Supply
In the law of supply, the greater the price of
the item, the greater amount of the item is produced and vise versa.
The overall supply is the number of items available. Therefore if a
company is producing an item that is in high demand by consumers, such
as the prius, they are likely to up the price. Hybrid cars came in high
demand after the alarming raise in gas prices. Therefore retailers of
hybrid cars sold the cars at higher prices as compared to their
traditional cars. Consumers were still willing to spend more money on a
hybrid car, because in the long run, it would save them money on gas.
Because hybrid cars were in high demand the price was raised and the
supply increased which directly correlates to the law of supply.
However, because the gas prices were lowered again, the hybrid car
industry is likely to soon experience a lower demand for the cars. When
gas is not expensive it has been a trend in the American culture to by
larger, high miles per gallon, cars. Therefore the demand decreases
there will be fewer hybrid cars produce and the price of the cars will
also decrease as predicted by the law of supply. At the same time, the
demand for larger cars will increase and both the price of traditional
cars and the production of these cars will increase. This same trend
was experienced in the 1970s when gas prices rose and later fell in the
car industry.
Marginal Product of Labor
The marginal product of labor is the difference
in production due to the addition of one more employee. Henry Ford, who
founded Ford Motor Company, implemented the maximum marginal product of
labor, and has become renowned for it. Henry Ford believed that all
Americans should be able to afford a car. At that time only upper-class
Americans could afford vehicles. That’s when Henry Ford began his own
car manufacturing company using an assembly line. This is when each
worker on the line does a different task which ultimately makes the
product, which in this case is a car. Henry Ford found that by each man
doing a different part of the car, they worked faster. This allowed a
car to be produced in less time and therefore the car could be sold for
less money. If Ford had one man building the cars if would have taken
longer to make the cars and therefore the cars would be more expensive
to make. When Ford used more workers to do a specialize job, the
production was quicker, saving money. However if Ford would have
employed more workers, the price it would take to pay their wages would
decrease the marginal product of labor. This state is known as
diminishing marginal returns, in which each added employee is producing
less and less. Therefore, at this point is would be more profitable for
Henry Ford to fire some of his employees in order to reach an optimum
level of marginal product of labor.
Subsidy
Government payment to a business or market is known as a subsidy. Most subsidies have been kept out of the public eye. However, major subsidies have been making headlines and news stories. In the poor economic situation, the United States Federal Government has tried to revive the economy through bailouts. The first major bailouts were to the banks. The banks were given a bailout after the Clinton administration had passed a law that banks needed to finance homes for lower-class citizens. This spurred on low interest loan that millions of Americans began to use. However when the interest raised, many Americans could not pay their home loan and subsequently lost their homes. This gave the bank homes to sell that were worth much less than they were a few years ago due to decreasing house prices. Ultimately, the banks lost money when selling the homes. This caused many banks to go out of business and the federal government intervened. The subsidy towards the banking industry was nothing short of generous, by the severely in debt government, who gave $800 billion. Many critics are against this subsidy as have many been in the past to other bailouts. Many argue that the economy would revive in a few years and that this use of United States money would only drag out the problem rather than help it. The harsh criticism of the bailout has not stopped the federal government from bailing out other failing industries, including the automotive industry.
Chapter 6
Equilibrium
In any circumstance, equilibrium means a balance
between two or more things. In economics, equilibrium of an item occurs
when the price is balanced to the quantity of items produced. This
situation creates a good economy. In today’s poor economy the amount of
good demanded is less than that produced. When consumers have less
money to spend, they will purchase fewer items, which is one sign of a
dwindling economy. However, this creates ill effects for businesses.
This circumstance decreases the profit for corporations and in some
cases results in debt. In this dwindling economy, many corporations
have gone bankrupt. Likewise, when the economy returns to a better
state, more people will have more money to spend of extra items. This
will strengthen current companies and help create new ones. This would
further better the economy. This situation was what was believed would
happen with the stimulus check sent to American citizens this summer.
Each citizen received $600 or less depending on their salary. The
federal government encouraged people to spend the check and wanted this
to revive the economy. However, because the economy was already poor,
many people either saved the check in preparation for harder times, or
spent the check on their mortgage or other essential items. Needless to
say, after a few months, the check has seemed to have done no good.
Corporations are still shutting down left and right and people are
still losing their homes. The United States is at disequilibrium.
Fads
Fads are products that a surge in demand that
soon dissipates. Often, children are responsible for the fads. Each
Christmas time, there are a few must have toys that almost every child
is demanding from Santa. From a couple of months to a few years this
product is in high demand. Every parent is searching high and low to
purchase it for their children, because the supply is lower than the
demand. Such a situation creates search costs, when a parent drives all
over town to find an item, such as the Ferby, which was popular couple
years back. The retailers see that the product has a shortage that
cannot supply the demand of consumers. Often they will raise the price
of the Ferby, because they know parents will still but it. While child
cherished their Ferby for a few years, and some even learned Ferbish,
in a few years the toy was obsolete. Manufactures suddenly had excesses
Ferbies which no one wanted to buy. Often the price of the item will
be cut so that more people will buy it. But the Ferby fad had passed.
The Ferby had been replaced with a new fad as the pet rock had been
decades earlier. Fads also occur frequently in music in which one style
lasts for about a decade and a new style takes over. In fact, fads are
present in every industry and are short lived. Long lasting businesses
have learned to adapt to the changing American culture.
Rationing
When products are in such high demand that the current supply cannot fulfill demand, rationing can become necessary. Supply shock is what results during times of high demand when there is a great shortage of products. The greatest example of rationing at work occurred during World War II. Many types of goods were necessary to supply the war. Therefore Americans had to cut back on items that would help the war. The federal government forced Americans to cut back on certain items through rationing. This way, the United States decided how goods would be distributed amongst the American people and the war effort. Still the United States did not want to raise the prices of item in times of war so the Office of Price Administration was set up to organize the rations of imports and to keep prices down. In most situations where products are limited, the easiest way to decrease the demand for the products is to raise the price. However, during the war, the American people worked together to gather and recycle resources for the war. Many women also worked to keep the economy going by taking over the men’s jobs that were at war. The federal government used rationing to give all Americans regardless of their economic status, equal amounts of goods. After the war was over, the rationing was lifted and the American people could purchase any item they could afford. American returned to being a truly, economically free nation.
Chapter 7
Perfect Competition
Perfect Competition encompasses an ideal economy. In order to have a perfect competition between business, there needs to be large numbers of both buyers and sellers in which the sellers offer the same products. Also the buyers and sellers need to be well educated on the products and are able to freely leave or enter the market. A traditional American value encompasses the belief that when sellers are competing with high quality products, the consumer will be able to purchase a high quality item at a low price. This American ideal is why the United States has a capitalistic economy. However, most market do not resemble the model of perfect competition. John D. Rockefeller is known as one of history’s richest men and possible America’s first billionaire. He founded Standard Oil which was highly successful. While Rockefeller encompasses the American Dream by being able to become rich through hard work, he also went against perfect competition and other American values. Rockefeller created a monopoly with Standard Oil in which he had no competition. In a monopoly situation, consumers can be forced to pay high prices because they have no other alternative. Also, consumers may be forced to have lower quality items because there is no other place to purchase it. In perfect competition, Standard Oil would have had many competitors. The competition between businesses would have caused a better product to be produced and at a lower price. However, Standard Oil had no competitors. Eventually, the company was shut down because it was a monopoly.
In some cases monopolies are permitted and even established by the United States Federal Government. A natural monopoly occurs when a monopoly is the most efficient way to run the market. The United States Postal Service is a type of monopoly in that the federal government has complete control over the mail both sent a delivered. If perfect competition existed in this industry, excess mail trucks would need to be produced to go on the same routes as other trucks from other companies. This would create an excess of time spent delivering of mail and a waste of resources used in such process, like gasoline. However when the federal government controls the mail, the system operates under maximum efficiency. Many people are beginning to think that a universal health care system would be the best option for another United States monopoly. Under this monopoly all people in the United States would receive health care despite their economic status. Therefore many illegal immigrants would receive health care at the cost of middle and upper class Americans. President-Elect Barack Obama promised such a plan during his campaign. However with the current economic turmoil, it is questionable if he will be able to implement such an expensive system, with both the United States in severe debt and the American people. However, under all monopolies, competition is reduced. The major question is without competition will the quality of health care decrease? Monopolistic Competition In a monopolistic competition different companies have a monopoly over their product but other companies have monopolies over another similar product, inducing competition. A prime example occurred when apple came up with the iPod. Apple created a new way to listen to music allowing the listener to be free from the bulky CD player and upload thousands of their favorite songs on the iPod. This created a more convenient way to listen to music. iPods quickly overtook the market. Almost every man, woman, and child wanted and received an iPod. At the time iPod seemed to have no competition. However, Zune came out with another type of mp3 player to rival the iPod with capabilities to play video. The iPod then too responding by advertising their products more and by making new models which included videos and more memory. The new iPod touch allowed for a bigger screen with a smaller size. Through monopolistic competition, two different retailers continued to better their product and reduce to price. This type of competition allows the inventor of the iPod to still retain ownership of the item but allows other retailers to sell similar items. Eventually the competition will also lead to a dramatic decrease in prices known as non price competition. This these types of competition the American consumer can purchase high quality items at lower prices. In a pure monopoly, however, this competition does not occur and often the product quality is degraded while the price is raised, all at the cost of consumers. Chapter 8 Sole Proprietorship In a sole proprietorship one person owns and manages the business. This person receives all profits and is responsible for any debts acquired by this business. The type of business is highly popular and according to the International Revenue Service, about three fourths of all businesses are run in this manner. However, most sole proprietorship businesses are small and collectively only generate six percent of all sales in the United States. These types of small businesses allow the average American to simply set up a business they want and change the area they live. For instance, if Joe the plumber wants to set up his own plumbing business his company can easily be initiated with little paperwork and legal expenses. Then the plumbing business must meet the requirements as allocated by the government, city, and state. At least, Joe the plumber would have to get a business license in the area he chooses to work and a special plumbing license from the state. Also he would need a site permit to work out of a building other than his home. Lastly he would need a name for his business, and register the business name. A name such as Joe the Plumber would instantly give his many clients due to his recent popularity in the recent campaign for president between John McCain and Barack Obama. All types of sole proprietorship businesses have few regulation besides following local zoning laws. It is also the cheapest and easiest way to set up a business, with the owner having full control and responsibilities. If the business is not profitable, the owner can also easily shut down the business. General Partnerships General partnerships ease the financial responsibility of starting a business by two or more people sharing both the profits and debts of the business. General partnerships can also be a type of sole proprietorship. Many business are started with partners because it allows a business to be built with the aid of another person. Often partnerships are formed between doctors, lawyers, and accountants when starting a new business. Also family businesses are a common form of partnerships between family members. One famous designer Coco Chanel once had a business partnership with the highly successful Pierre Wertheimer. While both partners were successful, Coco Chanel soon began to resent her partner. She believed that she deserved more than ten percent of the profits he made because she was so successful and famous. Partnerships often induce these feelings of hate towards the other member because money is involved. This is one of the great downfalls to partnerships because when the business begins to become successful, money will corrupt the relationships. This is why partnerships break up like the one between Coco Chanel and Pierre Wertheimer. Chanel still kept her fan base and has expanded it since. Her fashion designers are still at the top and compete with the best designers including Louis Vuitton, Prada, Christian Dior, and other legendary designers. Therefore the falling out of business partners may not always be a negative aspect of general partnerships. It may be the next step in an entrepreneur's successful career, however this is not always the case. Nonprofit Organizations Nonprofit operate similar to other businesses except they do not generate a profit. Most nonprofit organizations work to benefit society. Churches, public schools, charities, hospitals, and museums are a few types of common nonprofit organizations. All nonprofit organizations are exempt from income taxes. If fact, many nonprofit organizations receive subsidies from the federal government. A famous nonprofit organisation is the American Red Cross. The American Red Cross works to provide health aid in disasters. The American Red Cross received a great deal of press coverage and participation after the terrorist attacks on September 11th, 2001. Many people wanted to do anything they could to help the people who had been hurt by the attacks. Americans banned together by either donating time through volunteering at the American Red Cross, donating money or even donating blood. Through these donations the American Red Cross was able to operate and give blood to people who had suffered a great deal of blood loss during the attack. Medical professionals aided the injured in anyway possible. The efforts of the American Red Cross were and still are greatly appreciated by the American public. Nonprofit organizations show the generosity and the good within the American culture. Charities and churches in the United States help the poor and other people in difficult times. Without nonprofit organizations we would have more homeless on the streets, more people out of work, and more cynical people. Nonprofit organizations bring our humanity back into the business market. Chapter 9 Labor Market Trends Labor market trends are the phenomenas experienced in the labor force. These trends are closely monitored each month by the Bureau of Labor Statistics. The labor force is comprise of all citizens not in the military that are employed or unemployed. Citizens are considered employed if they are sixteen years or older and have either worked at least an hour for pay within the week, worked fifteen hours without pay in a family business, or have jobs but were out due to sickness, vacation time, poor weather, or labor disputes. In good economic times the employed rate among citizens is high. A few years ago, the United States had a extremely high employment rate. However, the economic has quickly changed that statistic with the United States having one of its greatest unemployment rates to date. People are unemployed if they do not meet and of the criteria of an employed person. A large amount of able unemployed workers is certainly a bad sign for the economy. With more people out of jobs, more people are further in debt and less likely to spend money on more items, causing many businesses to go out of business and leave more people unemployed. Therefore president-elect Barack Obama has promised to raise the employment rate. When the employment rate increases more people are employed and more items are likely to be purchased allowing the economy to revive. Therefore, it is crucial that Obama follows through with this promise, which is the major reason he was elected. Temporary Workers Temporary workers are employees that are hired for a period of time or to complete a task and then are let go. Temporary workers are often hired around the Christmas season in which the majority of shopping is done. Most stores need extra employees to deal with the longer hours the store is open and the increase both customers and their demand. The employees are usually dismissed in a few months. However, a new alarming trend in temporary workers has occurred. More full time workers are being let go in order for the company to higher part time employees. This allows companies to quickly higher more employees during its busy seasons such as the holiday season and easily let them go when business returns to normal. Such an arrangement is not as easily done with permanent employees. Permanent employees would require a severance pay whereas temporary workers would not, saving the company money. Also temporary workers usually make less per hour than permanent workers and receive fewer benefits than permanent workers. In all of these aspects, temporary workers save business more money. This is important during poor economic times that are occurring in America currently. In general temporary workers increase during bad economic times while permanent workers increase during good economic times. Overall, for the working class, permanent workers are best due to greater pay and better benefits, but temporary workers are better for business owners because it saves them money. Wage Discrimination Generally unskilled laborers receive the least pay while professionals receive the greatest pay. However, pay grade may not simply depend on a person's education and job performance. When wage discrimination occurs a person is paid less than another employee for no job related reason. One of the most apparent wage discrimination's occurred in the last century when African American workers were paid less than white workers for doing the same job. More recently the long running problem of women being under paid has come to the surface. Historically women in the United States were not allowed to work the same jobs as men. Usually if a woman worked it was looked down upon, especially after she was married. Consequently even as woman were allowed to receive an education, they were discriminated against in the job force. Although more women are attending college then men, women are still discriminated against in the job force. Women who have the same job as a man with the same job performance will receive less pay and are less likely to be promoted. Many people argue that women are likely to start a family and therefore lack in their job performance whereas men will continue to work. However, more men than ever are becoming stay at home fathers while their wife works. In the twenty first century this type of discrimination against women has been occurring too long. Hopefully a woman president is not far from reality to prove to the country that women are as capable as men. Chapter 10 Fiat Money Fiat money or legal tender has value because the federal government has decreed its worth. Fiat money include both bills and coins as both containing worth and the ability to pay debts. The United States Federal Reserve regulates the production of money and therefore helps to keep the value of American money. If unlimited amounts of money were produced, the value of the dollar would greatly decrease. At this point the value of the dollar has decreased, despite the control on production of legal tender. The United States has instead chosen to borrow money from China. This had caused an constantly increasing federal debt that has affected the value of the dollar. The impact of this decrease can be seen through the poor economic situation in the United States and the companies that have gone bankrupt. Because the market has become a global market, the United States is at a further disadvantage with the dwindling value of the dollar. At the same time as Americans are becoming poorer, many business owner no longer what to accept the penny as payment. Instead many retailers want to round prices up to the nearest nickel which would induce an additional $600 million spent by Americans. It is estimated that out of all of the pennies produced only a third are in circulation. The rest are in collections, jars, in clothes, or just lying around. However, it is more likely that instead of the extinction of pennies, people will just use credit or debit cards as forms of payment to reduce theft of money and the annoyance of change. Gold Standard With a gold standard being adopted by the United States the value of legal tender is equal to the value of the amount of gold. Use of the gold standard gave many people peace of mind because they knew they could cash in their bills and coins for gold which always retains its value will currency may not. It gave people a solid investment they could trust. Since gold continues to increase in price, the value of the American dollar too would increase in price. Also using a gold standard limits the number of currency that can be printed. Since each fiat money must be backed by the same amount in gold, the federal government cannot print more money than it can posses. This created a strong belief in the American currency that held strong from the 1870s, when it was implemented, until the Great Depression. In the Great Depression, the greatest economic recession in American history, people could not withdraw their money from the banks.The banks ran out of money to give their costumers. After the country regained its footing as a strong economic country through FDR's New Deal, eventually the federal government made a promise to its people. Now the banks are backed by the federal government, in that the money in the account is promised to its people. This guarantee of safe money is placed on every bank that says its FDIC insured. Therefore even though the United States is in an economic recession, the money that the American people place in a bank will always be theirs, a promise made by the federal government. Fractional Reserve Banking Fractional reserve banking is practiced by the majority of banks in which only of the percentage of money loaned to the bank is kept while the rest is loaned out of other customers. Money loaned to customers is used to help them pay for a home remodel, to buy a house, car, or other large investments. The money is loaned and must be paid back with interest. Loans generate revenue for the bank which allows them to pay for their buildings, employees, and pay interest to individuals that deposit their money in the bank. Loans have recently become highly controversial. Within the last decade or so, banks were required to give loans to lower class citizens so they could afford a house. Therefore many banks used very low interest loans to attract people into using loans. While this allowed many citizens to purchase homes that otherwise they could not have afforded, it eventually backfired. Soon the interest on the loans sky rocketed and most people could not afford their loans. High interest loans in conjunction with the failing economy left many people penniless. Countless homes were foreclosed and banks began to feel the economic crisis. Recently the United States Federal Government chose to bailout the banks in another attempt to fix the economic crisis. Although, it has seemed as if the bailout have failed in the past. A better option would be a fixed loan in which both the banks and consumers know that the interest on their loan will always stay constant. This could lead to economic stability between the banks and consumers. Chapter 11
Bonds Bonds are loans from a consumer the the federal government or business had to pay back. Bonds are a type of investment that consumers make in the government or corporations that embark on a new project with the hope that they will receive extra money. The coupon rate of a bond is the interest rate that the corporation will pay its bondholders. Maturity of a bond is the time at which the bond holder will receive their payment. The par value or the amount that the investor spent on the bond will also be returned to them when the bonds are mature. During World War II, war bonds were pushed through propaganda of Nazis. The overall patriotic mood of the United States was high in which many people volunteered to help the war effort. Rationing of goods and recycling of needed resources also occurred. Despite the situation many women filled the jobs of the men in the military. Therefore the purchase of war bonds to help the war effort seemed to be another logical step to help the country win. After the war, when the bonds were mature, the United States Federal Government was required to pay back the bonds purchased by its citizens with interest. However, because bonds involve relatively no risk in losing one's investment, they also receive lower interest rates than other riskier investments. In fact, most returns on bonds are lower than for other investments. In the recent election many new projects were passed. This will mean that more federal bonds will become available to invest in the projects with no risk but low returns. The Stock Market The New York Stock Exchange has become infamous for the United States stock market. The stock market involves the buying and selling of stocks. The stock exchange is one of the best markets in the United States for perfect competition. In order to be a part of the stock market a consumer must buy shares of a stock in a company. By purchasing stock the consumer owns a portion of the company. The more shares the consumer purchases, the greater fraction of the company he or she will own. When a company sells stock they receive money that is put towards the company either to help start up a company, run it, or expand it. Therefore stock allows a company to increase in value. However, the stock exchange has rules and regulation just like other industries in the United States. The Martha Stewart case was a recent case that made headlines. She received insider trading tips to sell stock in a certain company that was failing. Martha Stewart traded her stocks into another company, illegally saving herself money. However, this did not go unnoticed by the federal government. Martha Stewart was tried in court and found guilty of insider trading. She than faced house arrest and public ridicule. For the average American, in good economic times stock prices will rise and in bad economic times stock prices will fall. Recently stock prices have fallen several hundred points in a single day but they will eventually go back up.
Gross Domestic Product
The gross domestic product is the total value of a county's goods and services produced within the last year. One method in which economists calculate this is through the output-expenditure approach. In this approach, economists calculated the amount of money spent in each of the four categories and add these amounts to reach the gross domestic product. The first category includes the consumer goods and services, which include both durable goods and non durable goods. Durable goods are usually more expensive because they last longer. Refrigerators, cars, homes, are some examples of durable goods. Often consumers can receive loans to help pay for these items. For example, the automotive industry has been struggling in the poor economic times to continue to bring in customers. The federal government recently gave the industry a bailout in billions of dollars due to their economic hardships. Since then many car lots have begun advertising their great loans and low down payments. They have tried to distance themselves from the banks economic turmoil, even though they are suffering themselves. Whether or not this advertising technique will payoff will take time. However, it was seen in the Great Depression that the number of car purchased fell during that time period. On the other hand, non durable goods last a short length and are usually cheaper such as food items, clothes, and balloons. The second category includes both business goods and services, while the third category includes government goods and services. The last category includes the net exports or imports of goods and services. Unfortunately, the United states imports more goods than it exports. However, the total of these four categories will equal the gross domestic product.
Limitations of the Gross Domestic Product
The gross domestic product can never be accurately calculated because of the underground economy that exists in every country. The underground economy includes anything production or income that is not reported to the government. The most infamous type of underground economy is the black market. The black market is known to be highly profitable and illegal. As many United States citizens known the trade of exotic or endangered animals is illegal. However, items such as an elephants tusks are coveted by many people. Therefore many people are willing to risk criminally charges to make a large profit. Oftentimes, ivory is purchased for thousands of dollars, which is never reported to the government. However, this occurs countless times and this revenue adds up to a substantial sum. Also tiger furs are also highly profitable and illegal. These furs also sell for thousands of dollars. The seller of exotic furs or parts often live in developing countries. The poverty is almost omnipresent and many of these individuals sell items on the black market to support their family. This is a frequent problem of the black market. The black market could be greatly reduced if the economic situation in developing countries was improved so that more jobs were available to people so they could make an honest living to support their families. The black market is not the only type of underground economy that also threatens the accuracy of the gross domestic product. Often companies will pay employees under the table to escape extra taxes. Also illegal gambling is largely unreported and many have high stakes in the millions or billions.
Phases of a Business Cycle
Phases of a business cycle are dramatic changes in the economics of a company. The first phase is called expansion. This is a time of economic growth. Often more jobs will be created within the company and the business will dramatically increase its revenue. This usually occurs as a struggling business gains more recognition and gains a large consumer base. For example Starbucks was a small coffee shop for many years. However it soon gain worldwide recognition for their coffee. The coffee shop spread to more cities and new shops were created along with more jobs. The next phase is called the peak. This stage occurs when the company has reached its largest economic expansion. Starbucks grew to the point that several shops were within each town. In the small town of El Segundo four shops can be found. The store became the quintessential hangout spot for kids, teens, adults, and businessmen. However, the store reached its peak a few years back. Since then Starbucks entered in the contraction phase which is a period of economic decline. Starbucks has been forced to close down many stores because fewer consumers frequent the stores due to the economic decline of the United States economy. The next phase is the recession. This occurs when the economic decline of the company occurs for over half a year. Since the United States has been in a recession for over a year, Starbucks has entered this phase. Unless Starbucks can improve its economic situation they will have to go out of business. However, if they can improve their situation, they can enter the first phase of the cycle and revive their business.
Chapter 13
Frictional unemployment
Seasonal Unemployment
Seasonal unemployment occurs when workers are laid off due to off seasons in a business or company. In Big Bear Mountain, the majority of businesses operate from November to February. Many people will be highered to work at ski resorts or at surrounding shops to accommodate the holiday rush. Beach city residents often have vacation homes in Big Bear. They will travel up to the mountains when is snows to go snowboarding or skiing. These industries thrive as a result of this influx of people. More people means that more people will shop at clothing stores, grocery stores, trinket stores, or other types of shops. Also more people will go to the movie theaters or other entertainment faucets found in Big Bear. Most importantly the snow related industries will experience the greatest increase in customers. They will make nearly their entire profit during these months. However, when the snow is gone, so is the business. They must layoff their employs and the whole industry dies for the next few months. Therefore many people in Big Bear will be seasonally unemployed after the snow has melted away. However, when the snow reappears they will have a job. One problem of seasonal unemployment is that many of the workers may face financial hardship during the months they are unemployed. Careful planning is necessary to extend their fiances over the months they are out of work.
Cyclical Unemployment
Cyclical unemployment is the fall in
unemployment during good economic times and rise in unemployment during
poor economic times. Currently the United States is in a recession.
Therefore the unemployment rate has risen higher than it has in
decades. A few years before the recession, the unemployment rate was
very low. The worst time for unemployment, however, occurred during the
Great Depression. In 1929, the stock market crashed and most Americans
were left jobless. However, within several years Franklin D.
Roosevelt's' New Deal was able to provide jobs to the American people.
This increased job market helped revive the economy. President Elect
Barack Obama has promised to increase the job market as well. If this
is done it could help our current economic situation by giving the
American people more money to spend on more items. This would create
more stores and businesses and create even more jobs. Overall, this
could create a better economy. In order for the federal government to
keep tabs on the unemployment rate, the Bureau of Labor Statistics
polls a sample of 50,000 families on their employment during that
month. After computing the numbers, the B.L.S. can find the estimated
unemployment rate. This gives the news stations the statistics for the
percentage of all Americans that are unemployed. A term known as full
employment is the opposite of cyclical unemployment and it occurs only
when all individuals within a economy are employed which is impossible.
Chapter 14
The Power to Tax
The federal government is given the power to tax through the constitution. In Article 1, Section 4, Clause 1, the constitution states, "To lay and collect taxes, duties, imposts and excises, to pa the debts, and provide for the common defense and general welfare of the United States; but all duties, imposts, and excises shall be uniform throughout the United States." This clause allows the United States to tax its citizens. Before the constitution there was the Articles of Federation which was formed as the first federal laws of our New Union. When the forefathers of our country were witting the Articles of Confederation they had just broken free from Great Britain. They wanted to be a different type of government and they tried to cut out the aspects of Britain's government that they did not like. One that they hated the most was the taxation by Britain's Parliament of American people. For years the Americans cried out "No taxation without representation." Therefore under the Articles of Confederation the federal government was not allowed to tax its people. The only way that could collect taxes would be if it was voluntary. Needless to say the federal government could not collect any substantial money. Therefore within several more years the Constitution was written granting the power to tax to the federal government. However, to separate the United States from Great Britain, elected officials made the taxation decisions. Therefore the citizens of the United States are able to elect people that have similar tax plans as themselves.
Taxes in the United States
The two main political parties have
differing views on taxation. The middle line between the two parties
would be a proportional tax. This would have the percentage of income
paid for taxes be the same for all income levels. While this may seem
fair, both political parties disagree on it. The Democratic party
thinks that a progressive tax would be best. This means that the
percentage of taxes will increase as income increase. This means that
the lower class Americans will pay no taxes while the upper and
middle-upper class have to pay the majority of taxes. This will help to
even the gap between the rich and the poor. The Democratic party also
provides the lower class citizens with government programs that help
them out with their financial hardships. However, the Republican party
has different ideas. They follow the regressive tax idea. This is when
the percentage of taxes decreases as income increases. Still with this
tax plan the upper class pay the large majority of taxes. The idea
surrounding this plan is that if the middle and upper class have more
money they will invest in more projects. These investments can create
new jobs for the lower classes and overall improve the economy.
Statistically, Republicans have given more to charities which is their
equivalent of government programs. Often these charities train people
to get jobs or help them during hard times. Overall, the American
people have shown throughout decades that a Republican is elected for a
few terms and then a Democrat.
Tax Incentive
A tax incentive is when the federal
government gives a citizen a tax break for good behavior. One of the
newest tax breaks is for 'green' behavior. Currently a green movement
is occurring. More people are doing things that help the environment
and many companies are advertising their good deeds. A few years ago,
if a consumer bought a hybrid car, which uses less gasoline and emits
less carbon emission, they could ride in the carpool lane without
having two or more people in the car. Currently though, people that
purchase certain types of hybrid cars will receive tax breaks. Also
people that do other things can also get incentives. Buying solar
panels to receive solar energy also gives the consumer tax breaks.
Investing in different projects also is another way to receive a tax
break. However, another type of tax incentive does not reward its
citizens, it punishes them. It is called a tax sin. It is used as a
deterrent to its citizens. Taxes on cigarettes and alcohol are meant to
discourage their uses. Both of these products have been shown to hurt
the consumer. Cigarettes can cause lung cancer. Adding a tax to
cigarettes may help reduce lung cancer by reducing the consumption of
cigarettes. Alcohol, if consumed in great quantities can cause liver
damage. In the 1920s alcohol was illegal. However, it was reintroduced
later. Now alcohol has a tax to deter its use. Whether the government
uses tax breaks to encourage good behavior or tax sins they are using
their taxation power to force a certain behavior.
Chapter 15
The Federal Budget
The federal budget is the amount of
money that the federal government will receive within the next year.
Each fiscal year the federal government must prepare a new budget. To
the federal government the fiscal year does not run from January 1st to
December 31st, it runs from October 1st to September 30th. Each years
fiscal budget takes over 18 months to prepare. The Congress, President,
and the citizens all debate and discuss the budget and the spending
priorities. First the spending proposals must be written. Each federal
agency must create a written report of the finances that they need.
Then the executive branch reviews these proposals and most of the time
they receive less money than they asked for. Then the congress must
debate the president's planned budget and create their own
Congressional Budget Office. Finally, Congress sends their budget bill
to the President. If the President signs the bill, this will be the
federal budget for the next year. As Obama takes office, he has
promised to change the federal budget. He plans to tax more, giving
more money to the federal government. He also wants to revise the
spending and create universal health care. While the universal health
care may be difficult with America's debt, Obama can easily pass higher
taxes. This is because the Congress is overwhelmingly Democrat, and
therefore are likely to side with their Democratic principles. Obama
has promised to fix the federal debt in order to help the economy.
Hopefully, he pulls this off.
Classical Economics
Classical economics is the theory that the ups and downs in the economy will fix itself on its own in a free market. In a free market the consumer act on their own free will causing the prices to raise or fall. This theory has held for centuries, but in the United States this theories have been challenged. The first major challenged to the free market came with the Great Depression. In 1929, the stock market crashed. With this crash, the economy also crashed. The American people also lost their jobs. The suicide rate jumped because many people could not deal with the financial crisis. Also some people believed that the end of the world had arrived. The depression lasted about a decade. During that time the Franklin D. Roosevelt created the New Deal. This gave jobs to the American people and helped pull them out of the depression. Without this government intervention, it is debatable whether or not the free market could revive itself as is believed in the theory of classical economics. If classical economics pulled through though, it is certain that the amount of time it would have taken to recovered would have been greater. Therefore as American faces yet another recession, will we rely on the theory of classical economics or will we rely on the federal government. With a Democrat as the president to be, it is likely that government intervention will be used.
Balanced Budget
A balanced budget occurs when the amount of money coming into the federal treasury is equalled to that coming out for expenses. However, this rarely happens. Usually the budget either has a surplus or a deficit. A surplus is when the federal budget has excess money. This is optimum because it allows the federal government to invest in new things to create a better future for the American people. This can be a new medical treatment to cure a common disease, or a new invention that would make American life easier. However, many times the federal budget has a deficit. Unfortunately this means that the federal government has debt. Right now, the federal government has a severe debt. This has lead in a decrease in the value of the dollar. This in turn has caused investments and stocks to decrease in value, which has caused the finances of many American families to decrease. It has also caused a loss of jobs, resulting in an alarmingly high unemployment rate. Currently the federal government has borrowed money from China. They sent surplus checks to American citizens in an effort to boost the economy. However, this has seemed to little to help the problem. Obama promises higher taxes, which will hurt the citizens even more, in an effort to help pay back the American debt. Bringing American industries back to America could help raise funds from taxes. Therefore more items would say 'made in the USA' rather than 'made in China.' However, there would also have to be incentives to bring these industries back to America. Unions would probably have to be broken up due to their added expense.
Chapter 16
Check Clearing
For a check to clear the banks must record whose account gives up money and whose amount receives money. Most checks can clear within two days. Each year the federal government must pass over twenty billions checks a year. A major problem that Americans face is that they tend to spend more than they make. Therefore often times when they right checks, there is not enough money in their checking account to cover the expense. When this occurs, the check cannot clear. Therefore, the bank of the uncleared check must cover the cost of check. Because the bank's generosity, the bad check writer must not only pay for they check they wrote but also pay a large fee for the bank to pay the check. This helps make money for the bank in order for them to pay for the interest to the people that loan them money. This money also helps to fund the loans that the bank gives out or the uncleared checks of other people. However, if the person that wrote the uncleared check cannot pay the bank back, their credit score will suffer. A poor credit score will make it difficult or nearly impossible for that person to do any financial things in the future. It will be harder to buy a house, car, or get loans for these items. It will also be difficult to get a credit card with a low rate. Therefore most people pay the banks back plus extra.
Policy Lags
An inside lag is a delay in the implementation of the policy. They occur due to the amount of time it takes to identify the problem and the time it takes to enact the policy. When President Elect Barack Obama takes office in January 20th, 2009, he plans to avoid these policy lags as much as possible. He plans to use executive privilege to avoid the policy lag associated with our democratic government. If he had to implement the policies that he wanted to do, in the way that our forefathers had envisioned, he would have to convinced Congress to create the bill. Then Congress would need to vote and pass the bill. Then it would have to go to the Senate and be approved by them too. Then, Obama could sign it and it would become law. It would also take more time to implement this into our laws. Barack Obama, however, would not face the long time that these bills usually take. The average bill is never implemented into a law. It is usually disregarded. If the bill does ever become a law, it takes weeks if not months. Usually this is due to the regulations that must be followed and disagreements between political parties. Barack Obama, however will not face the political adversity faced by the current president George W. Bush. Obama comes into the office with a overwhelming majority of Democrats in the House of Representatives and the Senate. Therefore it is unlikely that he will face any trouble in getting his agendas passed. However while these will take less time then usually due to the party's advantage, it will also take longer than the executive privileged.
Can the Economy Self-Correct Itself?
One major question that most Americans are asking themselves is if the economy will self-correct itself. Even economists disagree on this. Many people think that the bailouts were unnecessary because we have a free market that it will self correct itself. The consumers will determine their wages and the prices of items through the prices they are willing to pay and work for. Also the businesses that the consumers believe have low quality products will go bankrupt due to low revenues. In this way the people can shape their economy. They can also revive or destroy the economy. Economists think that the United States economy fluctuates every two to six years. However these fluctuations are moderate and therefore can not be used to determine when we will get out of the recession. We have however endured recession before and a recession earlier this century. Many people think that the government intervention was necessary for Americans to get out of the depression. However others still think that the economy would have fixed itself over time. In the 1970s the their was a recession that was similar to the one that we are currently experiencing. Gas at that time was also troublesome and siphoning caused many deaths. The United States did get out of the economy and therefore there is hope for us today. With a democrat as our president, it is probable that their will be government intervention to improve our economic situation.
Chapter 17
Resource Distribution
The resources of the world include both the natural resources and the human capital. Natural resources are the resources that we used to make products. Human capital is the work that humans put in to create products or services. With these resources, the goods of the world are produce. However, they are not evenly distributed. For example the middle east has a large supply of oil. They have sold their oil to many different countries. The United States may also have a large supply of oil as well, but with our current environmental laws our drilling is minimal. Recently the oil prices caused a large amount of controversy with the American people. Many people who usually were against drilling supported it. The Democrats and even the Sierra Club began supporting the idea to drilling in Alaska. It is estimated that there is a substantial amount of oil in Alaska. However, the extreme liberals are against the drilling because they want to preserve the biodiversity found in Alaska. Also Alaska has over three fourths of all the national reserves and it is illegal to drill in most of the areas. While drilling seemed highly probable when gas was extremely high, the price of gas has gone down and may not be as probable. Because the middle east has a great amount of oil and they saw that the Americans would drill for themselves, they probably lowered their prices to keep us as customers so they could continue to make money. However, if we drilled, we could create more American jobs and enrich our economy. This could be one faucet to help our economy.
Tariff
Tariffs are taxes on goods that are
imported into a country. Often tariffs are used as a deterrent to the
consumer to buy goods from foreign country and from domestic
businesses. Not only is this used to direct consumers on which products
to buy but to encourage businesses to sell in their country and not in
others. Overall tariffs are used to create a better economy. However if
the tariffs are too high it can create poor global relations and
civilian unrest. When the British brought items over to their American
settlement they charged a tax. This was paid by many citizens for years
without a problem. Great Britain had invested money in their settlement
and these taxes helped reimburse them for their investment. However,
the Britain's got selfish and raised the tax and included more items.
This created unrest in the colonies. The colonists began to hate their
mother country. They tried not to pay the taxes and began buying items
on the black market. Revolutionary groups sprung up and revolted
against the British. Tax collectors that came were tarred and feathered
by the colonists. Therefore it became difficult to find tax collectors.
The revolutionary groups also began attacking the British in other
aspects as well. A famous event was the Boston Tea Party. The Sons of
Liberty dressed up like Indians. They overtook the British ships and
throw the tea boxes overboard. The harbor was filled with tea for
months and the colonists had made their feeling clear on the taxation
of tea and other products.
Exchange Rates
The exchange rate determines the value of a nation's currency in relation to other nations. When a consumer wants to convert their currency to the currency of another nation, an exchange rate is used. For example if an American tourist wanted to convert their money, the American dollar into another currency they would have to use the current exchange rates to determine the amount. A while ago, the American dollar had a high value. However, currently the value of the dollar has plummeted. This has caused the exchange rate of the dollar to decrease as well. Therefore tourists are getting less foreign currency for their dollar. This is one reason why tourism in other countries has decreased as well as the purchase of foreign goods. In addition, the poor economy has further reduced the value of the dollar and has left people less money to spend. With less money at a lower value the United States is in serious trouble. Barack Obama has promised to fix the situation and make it his number one priority. He was elected on the promise that he would change the economy. Hopefully he can get America out of the recession, so that we do not experience a depression. Recessions have happened in the past and in a few years we are able to recover.
Chapter 18
Developed Nations
Developed nations are nations with above average living standards. Due to this higher standard of living developed countries also suffer less from problems in developing countries and suffer more from other problems. The United States of American is one example of a developed country. The average American lives far better then people south of the border in Mexico or people in Africa. This has created an immigration problem in which many Mexican citizens are illegally coming into the United States in order to better their lives. Currently, the United States is doing little to combat this problem. American people suffer little from starvation and malnutrition which is widespread in developing countries due to a lack of food. Instead, most American suffer from diseases due to over consumption of food like heart disease and cancer. The United States is a relatively young nation considering its premium global standing. The United States is one of the most influential countries in the world. Many nations have adapted many practices from the United States, both good and bad. One bad one has been the rise in fast food restaurants in other countries. Nevertheless, the American value of working hard to better one's economic standing has stayed with Americans through centuries and has been passed on to other countries as well. Many businesses have sprung up do the excess money possessed by countless Americans. Luxury cars offer extras to wealthy Americans and spas provide relaxation. Most Americans get their food from grocery stores and do not have to deal with the hassle of growing their own food, if they do it is usually a hobby. Also, many Americans start up their own business or go to college to get a degree in the field of their choice despite their socioeconomic standing. This allows anyone to work nearly any job and change their class, which is not an option in many places.
Developing Nations
Africa is commonly known as a developing country. A developing country is a country with below average standards of living. The average citizen in a developing country is struggling to survive. Usually they grow much of the food they consume and are malnourished. This leads to vitamin and often protein deficiencies because meat is expensive as well as other produce. A severe lack of vitamin A leads to blindness, which kills many children in developing countries each year. These problems are also nonexistent in developed countries. Despite nutritional problems, Africa is most renown for their AIDS epidemic. Many children are forced to survive on their own after one or more parents have died from AIDS. Medicine is not widely available to the population to help slow the affects of the HIV virus and more effort needs to be made to reduce the spread of AIDS through education. Mexico is another developing country that hits closer to home. Mexico also suffers from starvation and a low standard of living. Many Mexicans can never escape the poverty they face unless they emigrate from the country. Running water is a luxury that many Mexicans must do without and elderly parents must live with their families to survive because Mexico does not has social security. When Mexicans immigrate to America they find jobs, although poor ones, and can afford apartments that are better than in their country. There is also a large majority of Mexicans in states such as California and many stores support Mexicans through bilingual speakers and signs.
Rapid Population Growth
Rapid Population Growth has become an epidemic around the globe. In developing countries the population growth is occurring at higher rates, but even in developing countries the population may be increasing rapidly. The United States of America is one of the few developed countries with a high population growth rate. Other developed countries in Europe have a negative population growth rate, however the population growth rate of the developing countries overwhelmingly makes up for this. The population is expected to reach over nine billion by the mid century and further increase poverty. A greater population will require more food. Considering that much of the world is already going without this increase in population will only amplify the problem. Also as more people are born into the world they will require more space. This will cause cities and houses to be built in new places which will destroy the natural wildlife. This will decrease biodiversity, which is currently occurring at an alarming rate. Also with the influx in population more people will be producing more waste and more carbon emissions. More people will also be using earth's water supply which will result in shortages. Therefore, without careful planning, the world will be facing serious problem with the greater population. New measures are being taken to reduce the effects of the population increase. Countries are giving incentives to families that have one or none children. They are also rewarding 'good' environmental behaviors such as reducing water or energy usage and buying hybrid cars.
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