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Section 2 Promoting Growth and Stability

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Objectives

After studying this section you will be able to:

1. Explain how the government tracks and seeks to influence business cycles.
2. Analyze how the government promotes economic strength.
3. Analyze the effect of technology on productivity.

Section Focus

The government attempts to stabilize business cycles, aids the growth of the economy, and encourages technological innovation.

Key Terms

• macroeconomics
• microeconomics
• gross domestic product (GDP)
• business cycle
• work ethic
• technology

America's economy is big—very big. It consists of roughly 108 million households of about 288 million people who work at some 137 million jobs and earn more than $8 trillion a year. They make savings deposits of $28 billion or so in about 71,000 banks. They buy close to 6.5 million homes and 17 million automobiles a year.

In Washington, armies of economists use the latest computer and other technologies to try to predict whether this massive economy will grow or shrink. Economic policymakers pull in the reins when the economy bolts at breakneck speed, and attempt to kick start it when it gets slow and unproductive.

Tracking Business Cycles

In this section we'll examine how the United States government affects macroeconomic trends. Macroeconomics is the study of the behavior and decision making of entire economies. This branch of economics examines major trends for the economy as a whole. Microeconomics, in contrast, is the study of the economic behavior and decision making of small units, such as individuals, families, households, and businesses. (Macro means “large,” while micro means “small.”)

One way economists measure economic well-being is by calculating the nation's gross domestic product (GDP), the total value of all final goods and services produced in an economy. Economists follow the country's GDP and other key statistics to predict business cycles. A business cycle is a period of macroeconomic expansion followed by a period of contraction, or decline. These economic cycles are major fluctuations, unlike the day-to-day ups and downs of the stock market. We are always at some point in the business cycle. Cycles may last less than a year or continue for many years.

Free enterprise systems are subject to business cycles because economic decisions about factors such as prices, production, and consumption are made by individuals and businesses acting in their own self-interest. In America's free enterprise system, the government plays a role in attempting to prevent wild swings in economic behavior.

Where we are in a given business cycle affects our lives every day. If the economy doesn't create enough jobs, high school graduates have trouble finding work. If prices rise, but incomes don't, our ability to buy what we need declines.

Promoting Economic Strength

Because the market is vulnerable to business cycles, the government creates public policies that aim to stabilize the economy.

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