Discovery ProjectENGAGE

Visual LiteracyRead the chapter opener photo caption question to students: Why do different countries have their own stock markets? Students may suggest answers such as countries can regulate the markets, people can invest more easily, etc. Ask these guiding questions to activate prior knowledge. Write student generated questions produced during the discussion on the board and return to them throughout the chapter.

Guiding Questions

Explain Why is it important that global companies understand the political system of each foreign country in which they conduct business?

Government goals and regulations can greatly affect a company’s risks and opportunities. For example, new laws regarding imports can affect what a company can sell in a foreign country.

Draw Conclusions Which country will probably have more niche marketing: one with a high standard of living or a low standard of living? Why?

In general, countries with a high standard of living will have more niche marketing because of consumers’ greater discretionary income.

Risks and Rewards Direct students to the Discovery Project Essential Question: How will you invest the money you have saved? Possible answer: I will invest in companies that are doing well in the marketplace and are provide products and services that are popular among people of all age groups. Ask students: Where will you find information on the economy and government policies? government websites Ask students where they will fi nd information on companies that may be successful. Possible answers: companies’ annual reports and websites, search engines Ask students: How will you use this information to help you decide how to invest your money? Possible answer: I will compare information to determine growth patterns. Ask students How they will present investment decisions with supporting rationale. charts, graphs, SWOT analyses

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Discovery Project Resources Send students to the Online Learning Center to download a rubric to evaluate their projects.

58 Unit 2 · Economics

Connection

DECA Event Role PlayConcepts in this chapter are related to DECA competitive events that involve either an interview or role play.

Performance Indicators The performance indicators represent key skills and knowledge. Your key to success in DECA competitive events is relating them to the concepts in this chapter.

• Explain the concept of economic resources.

• Explain the types of economic systems.

• Examine the relationship between government and business.

• Discuss the role government agencies play in the food marketing industry.

• Determine the impact of business cycles on business activities.

DECA PrepRole Play Practice role playing with the DECA Connection competitive-event activity at the end of this chapter. More information about DECA events can be found on DECA’s Web site.

Discovery Project

Risks and RewardsHow will you invest the money you have saved?

Essential Question

Project GoalWork with a partner to study economic indicators, such as unemployment rate, Consumer Price Index, and Gross Domestic Product to determine the current state of the United States economy. Study any pending government actions that may affect the economy in the near future. Then decide how you would invest $100,000. Conduct a SWOT analysis to determine which company or companies you think will be successful. Provide rationale for your decisions.

Ask Yourself…• Where will you find information on the economy and

government policies?

• Where will you find information on companies that may be successful?

• How will you use this information to help you decide how to invest your money?

• How will you present your investment decisions with supporting rationale?

Critical Thinking How does the economy affect government policies and personal financial decisions?

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Activity Get a worksheet activity about economic risks and rewards.

Evaluate Download a rubric you can use to evaluate your project.

Chapter 3 · Political and Economic Analysis 59

Visual Literacy The stock market reacts to changes in economic and political conditions. Investors watch economic indicators and government policies to determine when to buy and when to sell stocks and bonds. Why do different countries have their own stock markets?

Section 3.1 What Is an Economy?

Section 3.2 Understanding the Economy

political and political and ecoe conomic analysis

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Visual SummaryExpress Creativity Ask students to develop their own visual summary of a concept in the chapter. Encourage students to use different formats for their visual summaries, such as a storyboard, a timeline, a table, a tree diagram, or a word web. Visual summaries will vary depending on the concept depicted and the visual manner in which it is depicted. Questions to ask when assessing a visual summary include:

• Is the summary clear, economical, and simple?• Are any important steps left out?• Are steps or concepts arranged in the same order as the

original?• Does the summary reveal a pattern that connects the details?• Does the summary locate and highlight the most important

information?

Review Content Vocabulary and Academic Vocabulary 1. The economy of a country is based on its economic resources,

which are referred to as factors of production. A highly developed infrastructure is found in most industrialized countries. Entrepreneurship involves risk-taking. Scarcity is the principle behind how countries make economic decisions. In a traditional economy, work involves tasks for self-sufficiency. In a market economy consumers determine what will be produced. In a command economy economic decisions are made by the government. The productivity of workers in the United States is high. The United States used gross domestic product (GDP) to measure productivity. Before using GDP, the United States used gross national product (GNP). Sky-rocketing inflation is bad for an economy. The consumer price index (CPI) and producer price index (PPI) are indicators of inflation. The business cycle goes through several phases including: expansion, peak, recession, and recovery. A devastating recession is called a depression. The approach a country takes when making economic decisions depends on its philosophy about government intervention in business. One theory suggests that the government run all important industries. Consumers can invest in a company by buying its stock. One method of helping an economy is to cut taxes so consumers have more money to spend.

78 Unit 2 · Economics

Review and Activities

Assess for Understanding 2. Explain How are two of the factors of production related?

3. Compare and Contrast How are the three basic economic questions answered in a traditional economy, in a market economy, and in a command economy?

4. Provide What are examples of countries that use the three different political and economic philosophies?

5. Explain How are Gross Domestic Product (GDP) and the Consumer Price Index (CPI) used in a market economy for analysis and marketing decisions?

6. Identify What is the current phase of the business cycle? What evidence shows this phase?

7. Describe What are two ways governments influence business cycles?

8. Explain How does the concept of economic resources relate to the economy of your state?

9. Compare and Contrast How is the role of a worker in a traditional economy different from the role of a worker in a command economy?

Content Vocabulary• economy (p. 61)• resources (p. 61)• factors of production (p. 61) • infrastructure (p. 61)• entrepreneurship (p. 62)• scarcity (p. 62)• traditional economy (p. 63)• market economy (p. 63)• command economy (p. 64)• productivity (p. 71)

• gross domestic product (GDP) (p. 72)

• gross national product (GNP) (p. 72)

• inflation (p. 73)• consumer price index (CPI)

(p. 73)• producer price index (PPI)

(p. 73)• business cycle (p. 75)

• expansion (p. 75)• recession (p. 75)• depression (p. 76)• recovery (p. 76)

Academic Vocabulary • approaches (p. 61)• theory (p. 65)• invest (p. 71)• method (p. 71)

Review Content Vocabulary and Academic Vocabulary 1. Create multiple-choice test questions for each content and academic vocabulary term.

Written Summary• An economy is how a nation chooses to use its resources to produce and distribute goods and services to provide

for the needs and wants of its people.

• Due to the possibility of scarcity, all nations must answer three fundamental economic questions: what will be produced, how will it be produced, and who should get what is produced.

• Traditional, market, and command economies answer these economic questions in different ways.

• Capitalism, socialism, and communism encourage different economic philosophies.

• Most economies are mixed because the idealized forms of these economic philosophies do not exist in the real world.

• The characteristics of a healthy economy are high productivity, stable prices, and low unemployment.

• Economic indicators include productivity, gross domestic product (GDP), gross national product (GNP), standard of living, consumer price index (CPI), consumer confidence, and unemployment rates.

• The key phases of the business cycle are expansion, recession, trough, and recovery.

Chapter 3 · Political and Economic Analysis 79

Chapter 3 Visual Summary

Economic indicators such as productivity, gross domestic product (GDP), gross national product (GNP), and unemployment rates can measure an economy.

Economic resources are four factors of production: land, labor, capital, and entrepreneurship.

Visual Summary

ECONOMIC RESOURCES

CapitalLand

TANGIBLE

Labor Enterprenturship

INTANGIBLE

ECONOMIC INDICATORS

output per worker hour measured over a defined

period of time

produced by labor and property located

within a country

goods and services produced by a nation,

including goods and services produced abroad by its citizens

and companies

jobless rate

UNEMPLOYMENT RATES

PRODUCTIVITY

GROSS DOMESTICPRODUCT

GROSS NATIONALPRODUCT

78 Unit 2 · Economics

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Assess for Understanding 2. Answers will vary depending on the factors of production

chosen. Sample answer: Capital and land are related because natural resources (land) are usually necessary to create finished products. Capital is required to build the factories, machinery, etc., required to transform these natural resources.

3. The three economic questions are: What goods and services should be produced? How should they be produced? For whom should they be produced and distributed? In a traditional economy, habits, traditions, and rituals answer the basic questions of what, how, and for whom. Traditional economies are generally found in underdeveloped nations. In a pure market economy, the government lets businesses and consumers decide what, how, and for whom. Consumers decide through the purchases they make and businesses respond by producing the items consumers want. To get the goods they want, consumers work to obtain the money to make those purchases. In a command economy, the country’s government makes all economic decisions regarding what, how, and for whom goods and services will be produced and distributed.

4. Capitalist: Japan; Communist: North Korea; Socialist: Canada.

5. Gross Domestic Product (GDP) is used in a market economy to show the output of goods and services produced by labor and property located within a country. It consists of private investment, government spending, personal spending, net exports of goods and services, and changes in business inventories. It is a good indicator of the country’s productivity and the health of its economy. The Consumer Price Index (CPI) measures the change in price over a period of time of some 400 specific retail goods and services used by the average urban household. The CPI provides marketers with information on inflation. Both measures can help the government and economists decide whether policies such as limiting imports or lowering interest rates should be implemented.

6. Answers will vary depending on the current state of the economy. Sample answer: During the past two years, the economy has been in a recession in which unemployment was relatively high and employers were not expanding their businesses. Consumer confidence was low and there was minimal spending. However, economic indicators show that the recession is not worsening, and, in fact, may be slightly lessening. There has been a slight decrease in the unemployment rate in the last few months and the standard of living has been stable. Because of these factors, it appears we may be in a trough and are possibly getting ready to enter a recovery period.

7. Two ways governments influence business cycles are by their policies and programs. When the economy needs a boost, the government might lower taxes, reduce interest rates, or institute federally funded programs to spark a depressed economy. If inflation becomes a problem, interest rates might be increased to discourage buying on credit.

8. Answers will vary depending on the state. Montana has a variety of natural resources such as minerals that attract mining businesses. Large amounts of open grassland make Montana suitable for grazing cattle and sheep. Its mountains, clear streams and lakes, and abundant wildlife attract tourists.

9. In a traditional economy, most workers make their living doing what they need to survive, such as farming, herding animals, and building shelters. Skills are passed on from one generation to the next. In a command economy, the government may tell workers what jobs they will perform and provides any needed training. Workers are provided subsidies for necessities such as food, housing, and medical care.

Chapter 3 · Political and Economic Analysis 79

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Teamwork Skills 10. The students’ written and oral reports should address U.S. govern-

ment’s monetary and fiscal policies and their effect on economic decisions made by businesses and consumers. It should address the relationship between business and government. For example, if the government cut interest rates and provides $8,000 for first time home buyers, those policies would help real estate businesses sell more homes because consumers would more likely to be able to buy a new home.

Communication Skills 11. Pros for labor unions (organized labor) would be job security

and fair wages for a fair day’s work. The ability to negotiate contracts is another positive aspect. Specialization allows work-ers to do their respective jobs well. Cons for organized labor are not all workers perform their best. Employment contracts protect workers who do not perform well. They are costly to employers.

Everyday Ethics 12. Answers will vary. Students should write a paragraph discussing

their opinions about the legal limitations on executive compensation. Sample answer: While people in these industries might say that these executives earn their salaries by their ability to increase company revenues, the compensations have been so out-of-line with what other workers receive that it seems appropriate to place some limits on them. Many workers were deeply hurt by the recession, so it is only fair that executives should also take the consequences of downturns in the economy.

e-Marketing Skills 13. Student’s research from the United States government Web sites

should be cited in their report with regard to U.S. productivity, balance of trade, inflation, and unemployment. If those economic indicators are good, they should suggest that marketers invest in their businesses and in research and development. If those economic indicators are poor, they should suggest decreasing prices and money spent on research and development. If the economic indicators show that the economy is not in the recovery or expansion phase of the business cycle, businesses should cut back on capital spending and possibly lay off workers as production is cut back.

80 Unit 2 · Economics

Connection Role Play

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Download the Competitive Events Workbook for more Role-Play practice.

Retail Store Manager Food Store ChainSituation You are a retail store manager for a food store chain. The corporate office is reviewing all stores due to the current recession. The community serviced by this store has an unemployment rate that is higher than the national rate. Consumer confidence is down. The demographics of the customer base have changed with a greater influx of lower income families, many of whom receive government subsidies. Based on the current measures of the economy and your store’s particular situation, what changes in product selection or store policy do you recommend?

The corporate office is sending a representative (judge) to your store to meet with you regarding your store’s operation.

Activity Prepare a report noting recommendations you believe would be helpful in making your store more profitable during this economic recession. Use that report when meeting with the representative from the corporate office (judge).

Evaluation You will be evaluated on how well you meet these performance indicators:

• Explain the concept of economic resources.

• Explain the types of economic systems.

• Examine the relationship between government and business.

• Discuss the role government agencies play in the food marketing industry.

• Determine the impact of business cycles on business activities.

Test-Taking TipWhen answering multiple-choice questions, ask yourself if each option is true or false.

Standardized Test PracticeDirections Read the following questions. On a separate sheet of paper write the best possible answer for each one.

1. What are recurring changes in economic activity called?

A. expansion

B. recession

C. business cycle

D. depression

2. True or false? Privatization is the same as nationalization.

T

F

3. The output per worker hour defined over a measure of time is __________.

Chapter 3 · Political and Economic Analysis 81

For help, go to the Math Skills Handbook located at the back of this book.

Review and Activities

NCTM Numbers and Operations Understand numbers, ways of presenting numbers, relationship among numbers, and number systems.

NSES F Develop understanding of personal and community health; population growth; natural resources; envir on mental quality; natural and human-induced hazards; science and technology in local, national, and global challenges .

NCSS VII D Production, Distribution, and Consumption Describe relationships among the various economic institutions that comprise economic systems such as households, business firms, banks, government agencies, labor unions, and corporations.NCSS VII G Production, Distribution, and Consumption Compare basic economic systems according to how rules and procedures deal with demand, supply, prices, the role of government, banks, labor and labor unions, savings and investments, and capital.

Teamwork Skills 10. Analyze Government Policies Work with a

team to analyze the impact of the current U.S. government’s monetary and fiscal policies on businesses and consumers. Prepare a written report using a word processing program and an oral report using presentation software.

Communication Skills 11. Specialized and Organized Labor Debate

Research labor unions in the United States. Debate the advantages and disadvantages of specialized and organized labor.

Everyday Ethics 12. Economic Judgments In 2008, three auto

company executives flew to Washington, D.C., to ask for government funding during a recession. These executives were criticized for using company-owned jets instead of the cars their companies manufacture.

When they returned to Washington, D.C., for a second time, all three executives drove in company autos. Other criticism during the recession involved companies that paid excessive executive salaries and bonuses with federal funds. So, in 2009, legal safeguards limited executive salaries and bonuses for companies that received new government funding. Investigate government limits on executive compensation. Write a paragraph on your opinion about that policy.

e-Marketing Skills 13. Government Web Sites Research United States

government Web sites to determine the current phase of the business cycle. Search sites that provide information on U.S. productivity, balance of trade, inflation, and unemployment. Based on your findings, would you suggest that marketers invest more or less money on product expansion; increase or decrease prices; and increase or decrease research and development?

Build Academic SkillsSocial Studies 14. Economic Analysis Use the U.S. Bureau of Economic Analysis Web site to find infor-

mation on the GDP. Chart the percentage of GDP attributed to government spend ing over the past ten years in the United States. Use your chart to make a state ment about how government spending has changed in this period. Explain your statement to demonstrate your understanding of different political and economic systems.

Science 15. Natural Resources Explore the natural resources in a developing country to

determine how those resources are being used for its population. Discuss your findings with a partner.

Mathematics 16. Inflation and Deflation During inflationary periods the cost of living is higher than

during a deflationary period. During a stable price period, assume the weekly food bill was $125. If inflation goes up to 15 percent, what would be the weekly food bill? If deflation occurred by the same 15 percent what would be the weekly food bill?

Math Concept Understanding Percentages Multiply the $125 food bill by 115 percent to determine the weekly food bill during an inflationary period.

Chapter 3

80 Unit 2 · Economics

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Build Academic SkillsSocial Studies 14. Answers depend on the current GDP in relation to past GDP

percentages of government spending. From 2004 to 2007 the percentage was 18.7 percent to 18.8 percent. In 2008 and 2009, the percentage increased to around 20 percent. Students should go to the Bureau of Economic Analysis (BEA) Web site and view the tables for GDP. They should then divide the figure for government spending by total GDP to get the actual percentage for each year and use the results to generate a chart. Students should conclude with a statement indicating their understanding of different political and economic systems. Sample statement: An increase in government spending in relation to GDP indicates increasing socialist tendencies in the government.

Science 15. Accept all reasonable answers. For example, Zambia’s natural

resources include soil for farming maize, sorghum, groundnuts, as well as mining minerals such as copper, cobalt, zinc, and lead. Copper mining was successful in Zambia once the country privatized the mines in 2000. Capital investments and high copper prices helped increase copper production. Domestic food supplies have improved with education and capital investments.

Mathematics 16. During inflation the $125 weekly food bill would be $143.75

($125 × 1.15). During deflation the $125 weekly food bill would be $106.25 ($125 × .85).

Standardized Test PracticeDirections Read the following questions. On a separate sheet of paper write the best possible answer for each one.

1. C business cycle

2. False (Privatization is selling off government-owned properties while nationalization is when a government takes over privately-held companies.)

3. Gross Domestic Product–GDP

Evaluations will be based on these performance indicators:

1. Explain the concept of economic resources. Tangible economic resources are land, labor, and capital, while an intangible resource is entrepreneurship. Resources from the earth include coal, crude oil, and trees. The geography and climate of a region are economic resources. A well-trained labor force is an asset to a company, because it may increase production. Capitalism includes the goods used in the production process such as machinery and tools as well as the raw materials. Entrepreneurship refers to the skills to organize materials.

2. Explain the types of economic systems. In a traditional economy, culture plays a part in the type of goods produced and who receives them. In a market economy, individuals and companies make decisions and compete for consumers. In command economies, the government controls all production matters. The United States is considered a mixed economy.

3. Examine the relationship between government and business. Capitalism is private ownership and competition. Businesses and the government are concerned with individuals. In a communist society, the government assigns jobs, there is no private ownership, and citizens are given goods from the government. Socialist countries have increased government involvement in business but they also provide opportunities for private ownership.

4. Discuss the role that government agencies play in the food marketing industry. Businesses must com-ply with laws governing the sale and production of food. The Food and Drug Administration (FDA) and the United States Department of Agriculture (USDA) oversee food safety. There are laws regarding labeling of food products and advertising claims. The FDA can order businesses to recall tainted or dangerous food and medicine.

5. Determine the impact of business cycles on business activities. An expansion features high production and profits along with low unemployment. A recession is an economic slowdown in which unemployment increases. A depression occurs when a recession does not end for an extensive period. Recovery involves renewed growth and renewed employment opportunities.

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Role Plays For more DECA Role Plays, send students to the Online Learning Center to download the Competitive Events Workbook.

Chapter 3 · Political and Economic Analysis 81