Chapter 4: the U.

S economy
Main points to remember:
Adam Smith: (1723 1790) the Scottish philosopher whose economic ideas of laissez faire (leave it alone) had a strong influence on the development of capitalism. Smith argued that when individuals, motivated by self interest, are allowed to pursue profit freely, the result is good for all of society. The role of government: in 19th century, market in America operated with a minimum of government intervention. From 1930s, government regulation exists in product safety and labor condition. Generally, however, the idea of free private enterprise is strongly supported. Family income: the United States is one of the most affluent nations in the world. The average annual income for American families in 1985 was 27.700$ and 60% of all families and individuals are in the middle-income or high-income ranks. However, in the same year, about 14% of the population (the white, black and Hispanics) lived below the official poverty level. The US favorable conditions: Natural resources: - Rich in mineral resources and fertile farm soil - A moderate climate - Extensive coastlines on both the Atlantic and Pacific Oceans, as well as on the Gulf of Mexico - Rivers flow from far within the continent and the Great Lakes provide additional shipping access. Labor: - The promise of high wages brings many highly skilled workers from around the world to the US - The number of available workers and, more importantly, their productivity help determine the health of an economy. Manufacturing and investment: - The emerge of corporations: an association of owners = stockholders - American investor and corporations have influence all over the world. Achievements and problems: Achievements: - The worlds most powerful economy: High living standard: the richer have become a great deal richer while the poor have become significantly poorer Kruman 1996 Enormous industrial and agricultural productivity Worlds leading producer of goods and services

High industrial and technological production (aluminum, copper, paper, automobiles, ) Farming is highly merchandized and commercialized produce much of the worlds food needs (15%) - Leading industrial power: Main industries: petroleum, steel, motor vehicles, aerospace, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, mining. Main products: machinery, automotive, aircraft and chemicals. Problems: - Trade deficit: Import $1.948 trillion (2010) > export $1.280 trillion (2010) barriers to imports of manufactured goods by quotas and high taxes (or tariffs) reduce the efficiency of world economy - Budget deficit: Richest but also most debted High interest rate: an increase in interest rate will make saving more attractive and borrowing less reduce current spending by both consumers and investment. Inflation: decrease in the real value of money; erode their future purchasing power; discourage investment and savings; shortages of goods is consumers begin hoarding out of concern that prices will increase in the future; encouraging investment in non-monetary capital projects. Deflation: wages to fall; less goods to be produced; prices to fall; decreases in unemployment Low, steady inflation rate is more preferable - Agriculture: Too productivity to be profitable Decline of agriculture exports Increase debts for expensive farm, equipment and high interest rate. - 2008 crisis High oil price High food price Global inflation Credit crisis Unemployment