FREE ENTERPRISE Activities

TO THE TEACHER
Free Enterprise Activities relate important economic concepts taught in the text to the market economy. Each activity reinforces an aspect of the American free enterprise system. Many activities challenge students to play the role of an entrepreneur, underscoring the key part played by those who assume the necessary risks to develop a business. Other activities help students understand the roles of government, labor, consumers, and the global economy in American free enterprise.

CREATING A CUSTOMIZED FILE
The individual booklets in the Teacher’s Classroom Resources provide a wide variety of supplemental materials to help make economics meaningful to students. These resources appear as individual booklets in a carryall file box. There are a variety of ways to organize your classroom resources. Three alternatives are given here:
■ Organize by category (all activities, all tests, etc.) ■ Organize by category and chapter (all Chapter 1 activities, all Chapter 1 tests, etc.) ■ Organize sequentially by lesson (activities, quizzes, and other materials for Chapter 1, Section 1; Chapter 1, Section 2, etc.)

Regardless of the organization you choose, you may pull out individual activity sheets from these booklets, or you may photocopy them directly from the booklets and file the photocopies. You will then be able to keep original booklets intact in a safe place.

Copyright © by The McGraw-Hill Companies, Inc., All rights reserved. Permission is granted to reproduce the material contained herein on the condition that such material be reproduced only for classroom use; and be provided to students, teachers, and families without charge; and be used solely in conjunction with Glencoe products. Any other reproduction, for use or sale, is prohibited without prior written permission of the publisher. Send all inquiries to: Glencoe/McGraw-Hill 8787 Orion Place Columbus, OH 43240 0-07-822466-7 0-07-822711-9 Printed in the United States of America 2 3 4 5 6 7 8 9 10 047 06 05 04 03 02 01

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ONTENTS
Productive Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business and Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . Choosing a Business Organization . . . . . . . . . . . . . . . . . . . . . Analyzing Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Needs, Wants, Marketers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Market Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Responsible Consumerism . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1 2 3 4 5 6 7 8 9

Activity 1 Activity 2 Activity 3 Activity 4 Activity 5 Activity 6 Activity 7 Activity 8 Activity 9 Activity 10 Activity 11 Activity 12 Activity 13 Activity 14 Activity 15 Activity 16 Activity 17 Activity 18 Activity 19 Activity 20 Activity 21 Activity 22 Activity 23 Activity 24 Activity 25 Activity 26 Answer Key

Going Into Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Expressed and Implied Warranties . . . . . . . . . . . . . . . . . . . . . . 11 Speculating in Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Using Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Tax Holiday . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 The Federal Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Types, Functions, and Characteristics of Money . . . . . . . . . . . 16 Certificates of Deposit or Mutual Funds? . . . . . . . . . . . . . . . . 17 Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Types of Unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Decision Making at the Federal Reserve Board . . . . . . . . . . . . 20 Policies for Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Free Trade and Jobs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 China’s Bold Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Funding Economic Growth in Developing Nations . . . . . . . . . 24 Foreign Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Cybernomics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

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RODUCTIVE RESOURCES

In a market economy, individuals are free to choose the way they will make a living. The following passage shows how one entrepreneur filled a need and made a profit in a market economy.
Levi’s Jeans In 1850 a 20-year-old immigrant named Levi Strauss sailed for San Francisco. He planned to sell goods to miners who were digging for gold in California. By the time Strauss arrived in San Francisco, however, he had sold most of his goods to other travelers headed for the gold fields. All he had left was canvas, which he planned to sell for making tents. When Strauss reached the gold fields, he found that the miners needed tough pants. So instead of selling tents, he hired tailors to make his canvas into trousers. Word spread quickly that Strauss’ pants were durable, and soon the new pants were in great demand. Convinced that his product would remain popular, Strauss went into business with his brothers, Jonas and Louis. They founded Levi Strauss and Company in 1853. The brothers bought a building and converted it into a factory. They purchased scissors, sewing machines, needles, canvas, thread, and snaps. Finally, they hired workers to cut, sew, and deliver the jeans to stores. Today Levi Strauss & Co. has production plants around the world and sells more than a billion dollars in jeans each year. Directions: Use the information above to complete the following exercises.

1. You have learned about the factors of production, or the resources needed to produce goods and services. List the major resources that the Strauss brothers needed to make canvas trousers, or jeans.

2. All resources fall under these categories: Land includes natural resources that are used to make a product; labor is made up of the workers; capital includes tools, buildings, and equipment; entrepreneurship is the ability to combine the other three resources to make or improve a product or service. Place each resource you listed in Exercise 1 under the correct heading in the chart. Land
Copyright © by The McGraw-Hill Companies, Inc.

Labor

Capital

3. Did the Strauss brothers possess entrepreneurship? Explain.

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USINESS AND GOVERNMENT

You have learned that government plays an important role in regulating business and industry. However, businesses also influence government. For example, national business associations often use lobbyists to impress their ideas on our elected representatives. Businesses also contribute money to the election campaigns of people who agree with their ideas. And government is usually very sensitive to the needs of business, for if businesses are hurt, their employees are also hurt.
Directions: Assume that you own a factory that makes children’s clothes for both the United States market and for export. State whether you would want your elected representative to support the following proposals, and give your reasons.

1. Stricter pollution controls on electric generating stations

2. Higher standards of quality for clothing

3. A tax on imported clothing that will raise its price by 15 percent

4. Government support for day care for single parents with children

5. An import tax on inexpensive foreign fabrics, raising the price by 20 percent

Copyright © by The McGraw-Hill Companies, Inc.

6. Deregulation of the trucking industry designed to increase competition among firms that transport manufactured goods

7. An increase in the business tax to help reduce the federal budget deficit

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HOOSING A BUSINESS ORGANIZATION

The three main types of business organizations are sole proprietorships, partnerships, and corporations. The type of business that entrepreneurs choose depends on their tolerance for risk and appetite for rewards.
Directions: Imagine that you have money to invest in a business. Take the following quiz to determine which kind of business organization best fits you. First name the product or service you will provide.

1. You prefer to a) get all the profits but take all the risks. b) share equally with others in the profits and the losses. c) get only partial profits but have little risk. 2. You want to make a) all business decisions quickly. b) joint decisions with competent people. c) money, not decisions. 3. You plan to a) take out a small loan against your own assets. b) get help to borrow a larger amount. c) borrow a huge sum of money. 4. You prefer paying a) personal income taxes on all profits. b) fewer taxes on less profit. c) a high tax rate rather than having unlimited liability. 5. You would be most satisfied as a) your own boss. b) part of a successful team. c) part owner, but not operator, of a business.
Did you choose: • answer a most often? • answer b most often? • answer c most often? If so, you would probably prefer • a sole proprietorship. • a partnership. • a corporation or to simply buy stock.

6. You will risk your investment a) and personal assets on your decisions. b) and personal assets on a colleague’s decisions. c) but not your personal assets.

7. In order to expand your business, you are willing to

a) buy a computer, but that’s all. b) agree to a division of duties and profits. c) file articles of incorporation and sell stock. 8. After you leave the business, you think it will a) dissolve. b) operate under a different name. c) continue as long as it earns a profit.

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If your answers show no clear preference, list your priorities. For example, is profit or doing the work your way more important to you? Then decide which kind of business organization serves your priorities best. Write your decision here.

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A NALYZING ADVERTISING
Businesses have some responsibility in advertising, packaging, and product guarantees. However, it is still the consumer who must compare products, read labels, and check out advertising claims. Read the advertisement below and answer the checklist questions.

First in its class!
YOU HAVE THE WHEELS, NOW GET THE NEW SWISHER AUTOSHINE POLISHER. Variable speeds, light weight, durable (1-year warranty), battery or A/C operated. The polisher of choice for the new car owner, the Swisher will bring a new car shine to any vehicle. See yourself in the shine! WHY PAY UP TO $50 FOR SECOND BEST? Get the Swisher on sale at your local hardware.

Now only $39.99!
PLUS! A free can of Swisher Gleem with your new polisher.

Directions: Assume you are in the market for this product and complete the following checklist.

1. Does the ad appeal to my emotions, or are there adequate facts? Explain.
Copyright © by The McGraw-Hill Companies, Inc.

2. What are the product’s special features? Do they meet my needs?

3. What does the ad say about the products’ durability? How would I check this?

4. How does the ad’s price compare with similar products? How would I compare prices?

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N EEDS, WANTS, MARKETERS
When shopping for food and clothing, customers look for the best quality at the lowest price. Store owners are trying to make a good profit by selling more articles or getting higher prices for the articles. Strategies to encourage shoppers to buy more include sales, special promotions, and displays.
Directions: Explain (a.) the effect the store owner hopes the strategy described below will have on the customers and (b.) the benefit to the store owner if the strategy succeeds.

1. Kramer’s Supermarket sells two brands of English muffins. The name brand, which costs $1.79 for a package, is displayed in a special rack in the middle of the bread aisle. The store brand, which costs $1.29, is placed on the far end of the bread shelves.

(a.) (b.) 2. At the end of summer, Chen’s Clothing Store had this sale: Buy two short-sleeve shirts at full price, and get a third shirt free.

(a.) (b.) 3. Sally’s Food Warehouse ran this promotion: With receipts for $100 worth of food bought at the store, you can get $10 off your next purchase of $10 or more.

(a.) (b.) 4. The Upper Crust Dress Shop is the only retail outlet for the new fashions by Vivette, a popular French dress designer. In newspaper and television advertisements, the shop announced that on Saturday afternoon Vivette would be giving advice in person on what to wear in the coming season.

(a.) (b.) 5. In Rolf’s Men’s Store, the clothes are displayed as ensembles. Shirts are matched with ties, sport jackets with sweaters, and suits with overcoats.
Copyright © by The McGraw-Hill Companies, Inc.

(a.) (b.)

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M ARKET CONDITIONS
Four types of market conditions are characterized by different amounts and kinds of competition. They are perfect or pure competition, monopolistic competition, oligopoly, and monopoly.
Directions: In the chart below, the characteristics of perfect or pure competition are given. Fill in the information for the other three types of markets, and then answer the questions that follow. Market Characteristics Market Perfect or pure competition Monopolistic competition Oligopoly Monopoly Number of Firms unlimited Ease of Entry easy Product Difference none Advertising none Influence Over Price none

1. If you owned a business and were concerned only with profits, which market would you like best? Why?

2. If you were starting a business, which market would you like best? Why?

3. As a consumer, which market would you like best? Why?
Copyright © by The McGraw-Hill Companies, Inc.

4. As a business owner, would you rather have oligopoly or monopolistic competition? Explain your answer.

5. If you owned an advertising agency, which market would you like best? Why?

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M ARKETING STRATEGY
A company’s plans to sell a new product are called its marketing strategy. Any good strategy takes into consideration the “four P’s” of marketing: product, price, place, and promotion. Here are some questions the marketing department might ask in each area.
Product: What services are offered with the product? How will it be packaged? What product identification should be used? Price: What price should be charged? Place: Where should the product be sold? Promotion: What type of promotion should be used to inform consumers that this product or service is available? Directions: Examine the following advertisement. Decide what it tells you about the marketing strategy of the company. On the lines following the ad, write a summary of the strategy, remembering to include the four P’s.

NEW!! MASTERY GAMES
Now get the latest in computer games for your home computer library. Mastery Games puts you a key stroke away from all the games you could want! This special software includes video graphics games as well as mystery and chase games. Just call up the master menu and tell Mastery Games which game you want to play. No waiting! No submenus! Mastery Games even remembers what level you reached the last time you played. Best of all, you can use Mastery
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Games with two terminals at the same time! Use the hookup so that your friends can join in too! To get all the special features, you would have to buy more than a dozen regular programs worth hundreds of dollars. But for a limited time, Mastery Games is available for only $79.95. So hurry to your favorite computer store and look for the bright red box. When you get this disk, you will know that you’ve reached – MASTERY!

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ELLING ASSETS

You have learned that companies in need of money raise it in several ways. One way is to sell a part of the company in the form of stocks. The following announcement is an offer to sell stocks in Hollywood Shoes, Inc.
Directions: Use what you have learned to complete the exercises below. NEW ISSUE 990,000 Shares HOLLYWOOD SHOES, INC. Common Stock Price $20.25 per Share Philips, Arnold & Walden, Inc. Bronson, Weill, Labouisse, March LaRosa & Co. Branch, Murphy and Company B. G. Wykosky & Co. Chan Investment, Inc. Fisk Affiliated Securities, Inc. Shultz & Company, Inc. Krantz, Lesser & Ross Jeffrey Adams & Company Brown & Company, Incorporated Craig-Stein, Inc. Jessup & LaRosa Securities Co., Inc. Rosen, Olmstead, Kennedy & Marcus Moore & Kim Corporation Smith, Herman & Co. Schneider, Hall, Sale & Associates, Inc. First Oregon Securities, Inc. R. Myers & Co. Martin, Viner, Gonzalez & Co., Inc. 2000

1. The other company names on the announcement represent investment firms that are underwriting the stock.
That is, they are distributing new shares to the public. These companies guarantee the sale of the entire 990,000 shares. An underwriter will either buy the whole issue itself and sell it to the individual investors, or the firm will form an underwriting syndicate with other dealers, and together they will sell the stock. Do you think underwriting is risky? Explain.

Copyright © by The McGraw-Hill Companies, Inc.

2. Interested investors are urged to send for the company’s prospectus, which gives information about the company and the stock that will be sold. If you owned Hollywood Shoes, Inc., what would you include about plans for the company that might encourage investment?

3. What other methods of raising money might the company use?

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ESPONSIBLE CONSUMERISM

Consumers have a responsibility to take action if they feel their rights are being violated. Part of this responsibility is figuring out which government agency to contact for information or help.
Directions: In the blank before each situation, write the letter of the agency that could probably help the most.

1. While shopping for a certain make and model of car, Ben realizes that the seat belts on all the cars he test drives are difficult to buckle.

2. Irma is planning to buy a home and wants consumer information on everything from mortgage loans to home appliances.

3. Kim wants to know if the government allows cosmetic companies to use live animals to test its products for cancer-causing ingredients.

4. Pedro wants to support a proposed law that will make product labels more informative. 5. Seta is looking for an educational program that will teach employees in her construction company about the safe use of power tools.

6. When Terrence’s grandmother makes dozens of purchases after learning that she is a “million dollar winner,” he wants something done about misleading mailings.

7. Jamal suspects that computer dealers in his area conspire to keep the cost of printers artificially high and wants to report this instance of price fixing to the government.

8. Kayla, the manager of a supermarket meat department, notices that the steaks her wholesaler sells to some clients do not carry a label showing they are government inspected. a. b. c. d. Consumer Information Center Program Federal Trade Commission Consumer Product Safety Commission Postal Service e. f. g. h. Department of Agriculture Office of Consumer Affairs National Highway Traffic Safety Administration Food and Drug Administration

Copyright © by The McGraw-Hill Companies, Inc.

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OING INTO DEBT

One of the most important questions to ask when borrowing money is “Can I afford the payments?”
Directions: With this in mind, read the following case study. Then complete the exercises. Grace has the chance to work as a window dresser at an out-of-town department store for $300 a week, but she needs a car to get to the new job. Grace lives at home and her only fixed expense is $350 per month in rent to her parents. She has just enough savings to pay her tuition at night school for the next two years and, therefore, does not want to use the money as a down payment on a car. The dealer has offered her the purchase options below. • pay $16,000 with no interest over 18 months in monthly payments of (1) or • get a rebate of $1,000 and pay off the balance at 9% interest in monthly payments for 1 to 5 years.

1. Use the amortization table to find the total cost of the car when paying it off in the given number of years.
1 year Monthly payment at 9% Total cost of car $1,311.78 2 years $685.28 3 years $477.00 4 years $373.28 5 years $311.38

(a) ___________

(b) ___________

(c) ___________

(d) ___________

(e) ___________

2. Which option is best for Grace? Explain your choice.

Copyright © by The McGraw-Hill Companies, Inc.

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XPRESSED AND IMPLIED WARRANTIES

An expressed warranty is a seller’s guarantee at the time of purchase that a product will work as promised. In the past, if a product had no expressed warranty, a buyer had no claim under the law if a product worked poorly or failed to work. Over time lawmakers developed implied warranties to protect buyers’ rights. These laws guarantee the buyer’s claim on the seller if the product does not work because of manufacturing defects. In most states, the buyer must examine the product for defects and notify the seller of any. Then the buyer may demand a deduction from the purchase price, reject the goods and demand a total refund, or demand a new product in place of the old. However, the buyer has no rights if he or she knew of the defect when buying the product or, in some states, failed to demand satisfaction within a limited time after buying the product.
Directions: Read the following warranty. Then in the blank for each exercise, write E if the situation is covered by an expressed warranty, I if covered by an implied warranty, or N if not covered at all. One-Year Warranty Mad Mixer, Inc., warrants to the purchaser that the Mad Blender Jr. (except for glass parts) is free from manufacturers’ defects in material and workmanship for a period of one year from the date of original purchase when used according to the manufacturer’s instructions. This warranty does not include damage caused by accident or misuse. Any implied warranty is limited to the one year stipulated in this expressed warranty.

1. Bob got a discount on his Mad Blender Jr. because the “on” switch was cracked. However, he soon discovered that he could not operate the blender with a broken switch.

2. Beth did not use the Mad Blender Jr. she received at her wedding shower until she tried to make dessert for her second anniversary party. The blender would not blend. But Beth wasn’t worried because her state had no time limitations on implied warranties.

3. As soon as Carl returned from the store, he tried to assemble his Mad Blender Jr. and dropped it. The glass container remained intact but the plastic casing around the motor cracked.

4. Right after Jalal bought a Mad Blender Jr., he realized the cap did not fit the glass container. 5. The bottom of the glass container on Perry’s new Mad Blender Jr. had rough threads and did not seal
Copyright © by The McGraw-Hill Companies, Inc.

tightly when screwed into the base. As a result, the blender leaked.

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PECULATING IN STOCKS

One way people make money on a stock is by selling it for more than they paid. Some people buy stock just to speculate–they hope that the price will increase so they can sell it at a profit. The following table shows the most active stocks in the New York Stock Exchange during one day of trading. This means that stockholders bought and sold more shares of these stocks than of any others.
Company CBS CocaCl Hilton s AmOnline s Lucent s NewellRub AT&T s IBM s PhiMor Compaq
1 2 3

Volume1 12,766,000 10,465,800 9,625,000 9,597,000 8,606,000 8,120,500 8,086,300 7,552,000 7,471,100 7,306,400

Close2 50 11/16 54 5/8 11 3/16 93 5/16 67 1/4 31 15/16 47 5/17 132 37 1/4 22 15/16

Change3 1 3/4 2 3/4 5/8 3 1/2 1 1/4 15/16 13/16 3 9/64 2 5/16

Trading volume in numbers of shares Closing price for the day Change in price from the previous day’s close

Directions: Use the information above to complete the exercises.

1. Which company names in the table do you recognize? Name at least one service or product for which each company you recognize is known.

Copyright © by The McGraw-Hill Companies, Inc.

2. Which company’s stock is second-highest in price? Did it cost more or less at the beginning of the day’s trading?

3. Based on the table, which stock had the greatest percent change in value? Is it the same as the stock with the greatest dollar change in value?

4. If you were a speculator that could have invested $1,000 at the beginning of the day, which stock would have given you the greatest gains? Explain your choice.

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SING ARBITRATION

Collective bargaining between management and unions is a process of compromise. However, sometimes management and workers are still far apart when a strike deadline is approaching. If that happens, both parties may agree to submit their cases to an impartial arbitrator. The arbitrator considers the merits of each side’s arguments as well as the settlements made by other companies in the industry. The arbitrator then dictates an agreement that both sides must accept.
In a dispute between Big Board, Inc., the state’s largest producer of finished lumber, and its 200 workers represented by Local 14, the arbitrator received the following information: The average industry wage is $11.00 per hour, but Big Board now pays $12.00, although employees have not had a raise in two years. Other companies (and Big Board) have a 40-hour workweek, and most of them (but not Big Board) pay double time for work on the weekends. Big Board has only one 15-minute break but longer lunchtimes than its competitors. Most of the industry provides 7 to 8 paid holidays, complete health insurance, no dental insurance, and a $100 uniform allowance. In general the industry is increasingly profitable. However, Big Board has been losing some of its customers to younger competitors. Directions: Assume that you are the arbitrator in this dispute. Which demands and offers below seem reasonable? Which seem unreasonable? Complete the chart with a compromise agreement. Union Demands Wages Hours Overtime Breaks
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Management Offers 3% raise or $12.36 per hour 40-hour week Time and a half after 40 hours; double time on weekends 15 minutes in the afternoon 8 First $250 paid by employee First $500 paid by employee $50

Agreement

10% raise or $13.20 per hour 36-hour week Double time after 36 hours 15 minutes, morning and afternoon 10 All paid by company All paid by company $200

Paid Holidays Health Insurance Dental Insurance Uniform Allowance

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AX HOLIDAY
Juanita’s School Purchases $ 40.00 45.00 35.00 115.00 39.00 36.00 58.00 25.00 138.00 15.00 159.00 40.00 5.00 4.50 10.00 1.80 Directions: Calculate the amount of tax that would be saved on Juanita’s purchases, shown in the chart, during this tax holiday. Then complete the exercises.

Hooded sweater Jeans Skirt Raincoat Digital watch Slip-on loafers Prescription glasses Long-sleeved shirt Running shoes Perfume Leather jacket Book bag Printer paper Juice boxes Calculator Ballpoint pens Subtotal Tax Total

Almost all states levy sales taxes. Some states try to make sales taxes easier to pay by not taxing food because poorer people spend a higher proportion of their income on this need than do more affluent people. Suppose, in an effort to make sales taxes fairer, that one state’s governor declared a “tax holiday” on its 8.5% sales tax just before school opened. Any article of clothing that could be worn to school with a price of less than $100 would be tax-free for three days.

1. a. How much would the total tax have been on these purchases before the tax holiday?

b. How much is the total tax during the tax holiday? c. How much did the buyer save in sales tax? 2. Why do you think items priced $100 or more were ineligible for the tax break?

3. How do you think people with limited incomes might have benefited from a tax break on more expensive items? Explain.

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4. Choose a taxed item that you think should have been included in the back-to-school tax holiday. Explain your choice. 5. Suppose that critics claimed that the tax holiday did little to help poor people and was merely a gimmick to enhance the image of the governor. Would you agree? Why or why not?

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HE FEDERAL BUDGET

In 1992 deficits in the federal budget peaked at $290 billion. At that time, no one thought the budget could be balanced by the year 2000. Unexpectedly, however, the deficit fell to $23 billion in 1997. In 1998 the federal government issued its first balanced budget since 1960. By 1999 government officials were arguing about how to spend the government’s surplus money. How would you make federal budget decisions?
Directions: Complete the exercises below to show how you would make budget decisions.

1. Suppose Congress gave the Office of Management and Budget the authority to spend the government’s surplus in the following five main budget areas. Other social welfare programs Medicaid Subsidized housing Unemployment insurance Food stamps Veterans’ benefits

Defense MX missiles Spacebased weapons New submarines New attack planes Foreign military aid

Social Security Retirement benefits Cost of living increases Medicare payments

Other domestic programs Education Energy Price supports for farmers Public transportation Public works Health research

The national debt Principal

If you were a member of a committee deciding where the surplus money would go, which areas would you target and why?

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2. Three members of Congress describe their districts in this way: Representative A: In my district, almost half the workers are employed by companies that depend on defense contracts to survive.

Representative B: My district has many old factories, one city that is trying to renew itself, high unemployment, and pollution problems. Representative C: Many voters in my district are either farmers or retired people.
Which programs would Representative A probably want to expand?

Representative B?

Representative C?

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YPES, FUNCTIONS, AND CHARACTERISTICS OF MONEY

Directions: Complete each sentence with vocabulary words relating to money, its types, functions, and characteristics. Then complete the crossword puzzle. For example, the word in blank 8A should be written in as the word at 8 Across.

1 3

2

4 5 6 7

8

9 10 11 12 13 14

15 16 17

• (8A) makes it possible for businesses and customers to obtain the goods and services they want and need. • For two parties to (5A) goods and services, they must have a double (7D) of (9A), which tends to limit this type of activity. • In the United States, the dollar is (2A); that is, it must be accepted as repayment for all debts. • The three functions of money are (6D), (8A), and (14A). • Type of money in use in the United States today is (10D) money. The other two types of money are (4D) and (11A). • To make the dollar (15A), the smaller unit of (12A) is used. • Because money is (16A), it can be kept for a long time. Because it is (6A) it will continue to buy about the same amount of goods and services. • Money retains its value because it is (1D). • The size of money is compact so that it is (17A). • The (13D) is the unit of money (3A) all across the United States.

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ERTIFICATES OF DEPOSIT OR MUTUAL FUNDS?

Banks offer certificates of deposit (CDs) to their customers as a way of earning greater interest on their investments than in regular savings accounts, but with the same security of being federally insured. This means that when you invest in a 1-year CD the bank promises to return to you your full principal plus the interest you have earned. The stock market is another way to invest your savings. The easiest way to invest in stocks is by joining a mutual fund, where professional stock analysts pick the stocks that will be shared by their investors. Earnings in stocks (and good mutual funds), over a long period of time, have historically been better than bank accounts, but they are riskier. That means that on any one day, an investment may have a greater yield than a similar investment in stocks, but on most days, the stock investment will provide the greater yield.
Directions: Compute the value of each account in the tables below. Then answer the questions. To find the value of an account this year, take the value from last year and multiply by this year’s interest rate. This is the interest for the year. Then add this onto last year’s account value. Round your answers to the nearest dollar.

1. Find the value of a $1,000 investment in two 5-year CDs. For example, to find the account value in 1990, find
$1,000 × 0.075 + $1,000. 1989 $1,000 1990 7.5% Year Rate Acc’t value 1991 7.5% 1992 7.5% 1993 7.5% 1994 7.5% 1995 5% 1996 5% 1997 5% 1998 5% 1999 5%

2. Find the value of a $1,000 investment in a typical stock mutual fund for 10 years.
Year Rate Acc’t value
Copyright © by The McGraw-Hill Companies, Inc.

1989 $1,000

1990 9%

1991 –2%

1992 3%

1993 16%

1994 18%

1995 20%

1996 19%

1997 29%

1998 14%

1999 39%

3. In which years was the money invested in a CD worth more?

4. In which years was the money invested in a mutual fund worth more?

5. If you want to use your savings in 2 years to buy a car, why would a CD be a better place for you to put your savings? 6. If you want to save your money for the next 40 years until you retire, why would the stock market be a better place to put your savings?

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E

CONOMIC INDICATORS

Economic indicators help businesses and government determine which way the economy is headed. They also allow businesses to plan their future needs and actions with some degree of accuracy. There are three types of indicators:
Leading indicators are those whose movement predicts the movement of the economy as a whole. Coincident indicators are those that move at about the same time as the rest of the economy. Lagging indicators are those that signal the strength of an upward or downward swing in the economy after the movement has begun. Directions: In the following chart, check whether each headline is good news or bad news for the economy. Then tell the type of indicator that is referred to by the headline. Headline 1. Housing Starts Lowest in Months 2. Fed Lowers Discount Rate: Interest Rates Tumble 3. Retail Sales Up 3% Over Last Month 4. Business Debt Down From Last Year 5. Unemployed Have Average Two-Month Wait Before Finding New Job: Down From Four-Month Wait Last Year 6. Producer Price Index Rises 0.5% 7. Business Buying More Electronic Office Equipment, Hiring More Clerical Staff 8. Industry Jobs Go Unfilled as Area Unemployment Rate Sinks to 5% 9. Consumer Debt Higher Than at Any Time in History
Copyright © by The McGraw-Hill Companies, Inc.

Good News

Bad News

Type of Indicator

10. Telephone Company Reports 30-Day Backlog in Installing Business Systems

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19

T

YPES OF UNEMPLOYMENT

The four types of unemployment are: cyclical unemployment, which is associated with ups and downs of the business cycle; structural unemployment, which is caused by changes in the economy such as new technology; seasonal unemployment, which is related to weather patterns; and frictional unemployment, which is temporary unemployment between jobs. Can you identify these patterns when they occur?
Directions: For each scenario below, write C if the unemployment is cyclical, ST if it is structural, SE if it is seasonal, and F if it is frictional. Underline the key words that support your conclusion.

1. Fifteen hundred workers in Georgia lost their jobs because textile companies have moved their factory operations outside the country.

2. People in a resort area that is busy in the summer and winter try to make enough money during these times of the year to tide them over during the fall and spring.

3. Lumber companies laid off hundreds of workers after reducing their projected output due to a slow-down in housing starts.

4. Hundreds of Mexican immigrants moved to California in the last year, but many remain unemployed because their English is not yet adequate for most jobs.

5. A Broadway musical show had its final run, leaving all the actors unemployed. 6. Hundreds of Texans lost jobs when a jeans manufacturer closed its border town factories and moved its operations to Mexico.

7. Many travel agents have left the field because their former customers now go to the Internet for the lowest fares.

8. National unemployment rose to 6% as the economy slumped for the third straight month. 9. Workers at many nuclear power plants lost their jobs when power companies decided not to replace aging plants.

10. A typewriter company let go all its workers and shut down after one hundred years in business because computers made its product obsolete.
Copyright © by The McGraw-Hill Companies, Inc.

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D ECISION MAKING AT THE FEDERAL RESERVE
BOARD
The Federal Reserve Board uses three major tools to control the nation’s money supply and to keep the economy running smoothly: reserve requirements, discount rate, and open market operations.
Directions: Predict which tool the board would use in each situation below and explain how the board would use it.

1. The Federal Reserve Board wants to decrease the money supply by limiting the amount of money that banks have to loan.

2. The Federal Reserve Board wants to increase the money supply by encouraging banks to borrow money from district Federal Reserve Banks.

3. The Federal Reserve Board wants to decrease the money supply by having banks raise their prime rate to discourage borrowers.

4. The Federal Reserve Board wants to increase the money supply by adding “new” money.

5. The Federal Reserve Board wants to “loosen up” the money supply by encouraging banks to lend more of their money. Copyright © by The McGraw-Hill Companies, Inc.

6. The Federal Reserve Board wants to “tighten“ the money supply by removing money from circulation.

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21

P

OLICIES FOR GROWTH

Economic growth means the expansion of the economy to produce more goods, jobs, and wealth. In a recent year the Federal Reserve Board cut interest rates by 0.75% each month for three months. Meanwhile, the following signs of growth occurred in the U.S. economy.
Directions: For each headline below, explain how the reduction in interest rates probably encouraged each instance of growth.

1. Retail Sales Up 6.3% Over Last Year and Still Rising!

2. Housing Construction Rising at a Rate of 9% a Year

3. Wages and Salaries Increase More Than 4% This Year

4. Unemployment Rate Reaches a 28-Year Low of 4.3%

5. Gross Domestic Product Up Almost 4% From Last Year

Copyright © by The McGraw-Hill Companies, Inc.

6. High Tax Revenues From Rapidly Growing Economy Produces a National Budget Surplus

7. Choose two of the above signs of growth that you think have a cause-and-effect relationship and explain that relationship. Free Enterprise Activities

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F

REE TRADE AND JOBS

When the North American Free Trade Agreement (NAFTA) was signed in 1993, the federal government established the Trade Adjustment Assistance (TAA) Program. Its purpose is to retrain people who lose their jobs as a result of NAFTA. The program also provides a tool for tracking the number of American jobs eliminated because of the agreement. The following table is based on TAA data from January 1994 to January 1999.
TAA Applicants by Region West Alaska Arizona California Colorado Idaho Montana Nevada New Mexico Oregon Utah Washington Wyoming 780 1,960 15,017 2,426 3,001 788 257 669 4,788 1,043 8,330 682 Alabama Arkansas Florida Georgia Kentucky Louisiana Maryland Mississippi N. Carolina Oklahoma S. Carolina Tennessee Texas Virginia W. Virginia TOTALS 39,741 South 6,528 8,156 4,653 12,874 2,855 4,495 390 1,100 24,530 330 5,458 12,699 21,294 5,561 1,343 112,266 46,550 47,880 Illinois Indiana Iowa Kansas Michigan Minnesota Missouri N. Dakota Nebraska Ohio S. Dakota Wisconsin North Central 5,145 9,752 454 1,359 7,293 2,102 5,408 300 263 6,184 566 7,724 Northeast Connecticut Massachusetts Maine New Hampshire New Jersey New York Pennsylvania Vermont 1,131 2,635 1,433 224 7,261 16,634 18,163 399

Directions: Use the table to complete the following exercises.
Copyright © by The McGraw-Hill Companies, Inc.

1. Which region of the country suffered the most job losses due to NAFTA? 2. How many jobless people nationwide applied to TAA for help? 3. Seventy percent of the jobs lost were high-paying manufacturing jobs. The displaced workers probably will have to find work in what the U.S. Department of Labor predicts are the fastest growing jobs: cashiers, waitpersons, janitors, and retail clerks. How might this affect the lives of workers and their families?

4. For a while the U.S. Department of Commerce documented NAFTA job creation (1,500 documented), but the numbers were so low that the department discontinued its surveys. How would you grade NAFTA, based on its ratio of jobs created to workers displaced? Explain.

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C

HINA’S BOLD REFORMS

You have studied the main characteristics of a socialist economy. Many of these were formerly characteristics of the economy of the People’s Republic of China. However, as the passage below indicates, China has been incorporating capitalist elements into its economy.
Directions: Read the passage below and answer the questions that follow. China, which now has the fastest growing economy in Asia, adopted many principles of a market economy in the 1990s. Two decades ago, the government told high school graduates whether they would be working or going on to higher education. Today graduates have more choices about where they will work and what careers they can pursue. The government also allows individuals to start their own businesses and to adopt capitalist techniques. Unlike state-run cooperatives that guaranteed workers lifelong employment, independent firms hire and fire workers. As a result, 20 to 30 million workers have lost their jobs or had their hours and pay cut. Others enjoy a newfound prosperity; they have larger incomes and more buying power. Recently the Chinese premier announced measures to cut back on government involvement in business. One measure is the elimination or merger of several ministries, including those that control oil, coal, chemicals, and machine building. The government is also paring 4 million jobs from the government bureaucracy and following a three-year plan to privatize or eliminate the large, noncompetitive state-run businesses. However, the government has not relinquished all economic control. State-run and some semiprivate businesses must meet government production quotas. Also, central party members use economic reforms to strengthen the oneparty system rather than to encourage political changes.

1. How have China’s reforms made its economy different from a pure socialist economy?

2. What elements of a command economy are still present in China?

3. What have been the advantages and disadvantages of economic reforms for the Chinese?
Copyright © by The McGraw-Hill Companies, Inc.

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F

UNDING ECONOMIC GROWTH IN DEVELOPING NATIONS

Developing nations may seek investments from foreign companies to finance new enterprises, such as steel mills and mines, to build railroads and highways, and to modernize agriculture. Developing nations may also seek foreign aid from other governments. Such aid may take the following forms:
Economic assistance: loans and grants that add to a nation’s capital resources Humanitarian aid: food, clothing, medical supplies Technical assistance: services of engineers, technicians, teachers, health care professionals, and others to teach skills in developing nations Military assistance: economic and technical assistance given to a nation’s armed forces Directions: Use the information above to complete the following exercises.

1. What is the difference between foreign investment and foreign aid?

2. How might each kind of foreign aid encourage investment in a developing country?

3. Study the following chart. Identify two statistics for each country that indicate that country’s greatest needs.
Then identify the type of aid that would help the most and explain why. Statistic Infant mortality (deaths per 1,000 births) Population per physician Per capita GDP (dollars) Adult literacy rate Percent of labor force in agriculture
Sources: The World Almanac and Book of Facts, 1999

Haiti 99 9,846 1,000 53% 57%

Burkina Faso 109 27,158 740 19% 80%

China 45 628 2,800 82% 54%

Nigeria 71 4,496 1,380 57% 54%
Copyright © by The McGraw-Hill Companies, Inc.

a. Haiti:

b. Burkina Faso:

c. China:

d. Nigeria:

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F

OREIGN INVESTMENT

Directions: Use the following table and the information below to deduce how and why changes in the economic and political policies of the countries or regions listed have affected U.S. investments. Then complete the exercises by describing each statement’s relationship to the chart. U.S. Direct Foreign Investment Country Brazil Canada China Eastern Europe Egypt Hong Kong Indonesia Mexico South Africa United Kingdom
*in millions of dollars

U.S. Direct Foreign Investment* 1990 14,918 67,033 0 0 1,465 6,187 3,226 9,398 956 68,224

U.S. Direct Foreign Investment* 1998 37,802 103,198 6,348 8,143 1,955 20,802 1,480 25,877 2,363 178,648

1. Between 1989 and 1991, Poland, the Czech Republic, Romania, and other Eastern European countries held free elections and ousted their Communist leaders.

2. In 1993 the United States, Canada, and Mexico signed the North American Free Trade Agreement.

Copyright © by The McGraw-Hill Companies, Inc.

3. In 1993 the Chinese began converting state-owned enterprises into joint-stock companies.

4. During the 1990s the continuing harassment and abuse of the East Timorese people in Indonesia destabilized the political situation and led to the granting of independence to East Timor.

5. In the late 1990s, Brazil’s government, which had long controlled the nation’s media and utilities, began selling its holdings in the telecommunications and electrical power industries.

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C

YBERNOMICS

Computer sabotage means breaking into computer systems to steal information or to vandalize a network. Sabotage is the computer crime that grabs the headlines. But pirating software—copying and selling works protected by copyright—is more widespread and costs software companies billions of dollars in lost sales. A recent study showed that 28% of all software sold in North America is pirated, 68% in Latin America, 80% in Eastern Europe, 43% in Western Europe, and 74% in the Middle East.
Directions: Use the data above to complete the pictograph below. ( Then supply a title for the graph. Title: 5%; less than 5%)

North America Western Europe Latin America Middle East Eastern Europe Below are suggestions to end software pirating. For each suggestion, check yes if you think it would be effective or no if you think it would not be. Explain your choice. Yes No

1. A United States law outlawing attempts to bypass electronic anti-copying protection
Copyright © by The McGraw-Hill Companies, Inc.

2. A United States law making Internet service providers liable if their users infringe copyrights

3. International treaties forbidding the pirating of software with copyrights

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ANSWER KEY
Activity 1: Productive Resources
1. The major resources that the Strauss brothers needed were workers, canvas, scissors, sewing machines, needles, thread, snaps, and a factory.

Activity 3: Choosing a Business Organization
Answers to the questions will vary. Check that students choose the type of business organization indicated by their answers.

2.
Land property for factory Labor workers to cut workers to sew workers to deliver Capital canvas needles, thread sewing machines snaps building for factory

Activity 4: Analyzing Advertising
1. Although there are a few facts, the ad appeals primarily to my emotions.

2. Students’ needs will vary but answers should include: The product is “lighter” weight, has variable speeds, and operates with battery or a/c electricity.

3. Yes, because they successfully combined land, labor, and capital to make their product and to build and expand their company.

Activity 2: Business and Government
Students’ opinions on these issues will vary, but here are some reasons for and against each proposal.

3. The ad says it has greater durability, but does not give specifics. I could compare warranties of this and other products.

1. Not support: Students may say that less pollution will help the quality of life, but it will also increase the cost of electricity and thus the cost of doing business.

4. The ad implies that other brands cost about $10 more. I could check out competitors’ prices.

Activity 5: Needs, Wants, Marketers
1. a. By prominently displaying the more expensive product, Kramer’s hopes that customers will buy it on impulse.

2. Not support: Higher quality increases the cost of the clothing but makes for a better product and more satisfied customers.

b. The store will benefit from a higher profit. 2. a. Chen’s is offering three shirts for the price of two in order to get rid of inventory before cold weather sets in.

3. Support: With the import tax, competition from abroad will be easier to combat. However, foreign countries may retaliate with import taxes of their own.

4. Support: Government support for day care would free more parents to work, increase the labor pool, and keep wages from increasing rapidly.

b. The store will benefit by getting rid of goods it would not be able to sell later. 3. a. Sally’s Warehouse is encouraging customers to keep buying until they qualify for the discount.

5. Not support: The import tax will raise the price of the raw material needed to make clothes, which will cut into profits. However, the tax may help the United States fabric producers to compete against foreign companies, providing more jobs (and more money) for Americans, who also buy the clothing.

Copyright © by The McGraw-Hill Companies, Inc.

b. The store will benefit from repeat business and may also acquire new customers who want the discount. 4. a. The Upper Crust is using the attraction of meeting the famous designer to draw customers into the store.

6. Support: Competition among the truckers will tend to lower transportation costs, which means higher profits. However, increased competition also will mean greater risks on the road from truckers who have to drive faster with heavier loads in order to make money.

b. Once inside, customers may see things they like and buy them. 5. a. Rolf’s is trying to get its cutomers to see the clothing not as separate items but as part of an ensemble.

7. Not support: Increased taxes will reduce profits, although decreasing the federal budget deficit will help the economy overall.

b. If a customer likes a particular grouping, he will be more likely to buy it.

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ANSWER KEY
Activity 6: Market Conditions
Information that will complete the chart: Monopolistic Competition: many; fairly easy; great deal; great deal; some Oligopoly: few; difficult; identical or slight difference; much; some Monopoly: one; very difficult; none; little or none; total

Activity 8: Selling Assets
1. Answers will vary. A possible answer is that the company will be introducing new styles and opening new stores.

2. Students will probably answer yes because if companies do not sell all the stock, they will take a loss.

3. trade credit, unsecured loans, secured loans, intermediate-term loans, and bonds

1. The best market would be monopoly, since the business would be the only one in the market and could charge whatever price it wanted.

Activity 9: Responsible Consumerism
1. g 2. a 3. h 4. f 5. c 6. d 7. b 8. e

2. The best market would be monopolistic competition because the barriers to entry are not great, there are many products to specialize in, and there is some control of price. Students should see that perfect competition is easiest to get into but does not have the potential of monopolistic competition.

3. The best market for price would be the perfect competition, so the prices would be kept low. The best market for variety would be monopolistic competition, in which each company would try to differentiate its product from those of other companies.

Activity 10: Going Into Debt
1. $888.89 a. $15,741.36 b. 16,446.72 c. 17,172.00 d. 17,917.44 e. 18,682.80 2. Students may answer two or three years, depending on how much they think Grace will need to pay for gas, insurance, car maintenance, and discretionary purposes. The car would cost less after the rebate monthly payments at 9% interest for 1 year, but Grace could not afford the monthly payment.

4. Answers will vary, depending on whether students like the freer atmosphere of monopolistic competition or the stability of oligopoly.

5. The best market would be monopolistic competition, in which there is the most advertising.

Activity 7: Marketing Strategy
The product, Mastery Games, is a new computer software program that runs many computer games. The strategy is to point out the program’s ease of use, range of games, and special features (including a hook-up with other terminals so that more than one person can play simultaneously). The strategy also includes comparing the relatively expensive price of the new program with the even greater amount of money the consumer would have to spend on individual disks for all of the games included in Mastery Games. The marketing department has also decided to sell the program through computer stores and to use bright red packaging with the name Mastery.

Copyright © by The McGraw-Hill Companies, Inc.

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ANSWER KEY
Activity 11: Expressed and Implied Warranties
1. N 2. I 3. N 4. E 5. I

Activity 14: Tax Holiday
Answers for chart: Subtotal: $766.3; Tax: 49.75; Total: 816.05

1. a. 65.14 b. 49.75 c. $15.39 2. Answers will vary. Sample response: The state probably assumed that people on limited incomes would not be paying high prices for single items but would stretch their money by buying many lower-priced items.

Activity 12: Speculating in Stocks
1. Answers will vary. Sample response: CBS, television broadcasting; CocaCl, soft drinks; Hilton s, hotels; AmOnline s, access to the Internet; AT&T, telecommunication technology; IBM s, computers; PhilMor, cigarettes; Compaq, computers

3. Answers will vary. Sample response: Yes, people with limited incomes should get a tax break on expensive items. Sometimes the expensive item is a better value because it lasts longer than a lessexpensive alternative.

4. Answers will vary. A possible choice are the prescription glasses because they are a necessity, especially at work and school.

2. At 93 5/16, America Online has the second-highest closing price, but it cost more at the beginning of the day.

5. Answers will vary. Sample response: No, because, although the governor’s image might well have been enhanced, the tax holiday saved people some money, which serves their needs.

3. PhiMor decreased by 5.7% during the day, a greater percent change than any of the other companies; no, IBM’s increase is a greater amount dollar-wise.

4. CBS, because you could have bought 20 shares of stock and sold it for a profit of $35 at the end of the day. This is more profit than either of the other two stocks would have been.

Activity 15: The Federal Budget
1. Answers will vary. Sample response: increased
Medicare payments because the population is aging and medical costs are rising and increased spending on education because the country’s future success depends on well-educated citizens.

5. Answers will vary. Possible answers: the pride of ownership in a company, the opportunity to support a product or company of which you approve, or the power as a stockholder to influence the policies of a company.

2. Answers should be similar to the following:
To keep the support of voters in their districts, Representative A probably would want to expand defense programs; Representative B would want to increase spending on social welfare programs, public transportation facilities, public works, and health research; and Representative C would probably want to increase spending on Social Security programs and price supports for farmers.

Activity 13: Using Arbitration
Copyright © by The McGraw-Hill Companies, Inc.

Students’ answers will vary. However, they should represent a compromise between the industry averages and the union demands. A possible agreement looks like this:
Union Demands Wages Hours Overtime Breaks Paid Holidays Health Insurance Dental Insurance Uniform Allowance 10% raise or $13.20 / hour 36-hour week Double time after 36 hours 15 minutes, morning and afternoon 10 All paid by company All paid by company $200 Management Offers 3% raise or $12.36 / hour 40-hour week Time and a half after 40 hours; double time on weekends 15 minutes in the afternoon 8 First $250 paid by employee First $500 paid by employee $50 Agreement 5% raise or $12.60/hour 40-hour week Time and a half after 40 hours; double time on weekends 15 minutes in the afternoon 8 All paid by company First $500 paid by employee $100

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ANSWER KEY
Activity 16: Types of Money
1 3

Activity 18: Economic Indicators a l t e
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s c a c e p t
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1. bad news; leading indicator 2. good news; unclassified indicator 3. good news; coincident indicator 4. good news; lagging indicator 5. good news; leading indicator 6. bad news; unclassified indicator 7. good news; leading indicator 8. good news; leading indicator 9. bad news; lagging indicator 10. good news; leading indicator

a

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Activity 17: Certificates of Deposit or Mutual Funds?
1. 1990=$1,075
1991=$1,155.63 1992=$1,242.30 1993=$1,335.47 1994=$1,435.63 1995=$1,543.30 1996=$1,659.05 1997=$1,783.48 1998=$1,917.24 1999=$2,061.03

Activity 19: Types of Unemployment
Some answers may vary. Have students give their reasoning for answers that differ from the following:

1. ST; companies have moved their factory operations outside the country

2. SE; busy in the summer and winter; tide them over during the fall and spring

3. C; reducing their projected output 4. F; many remain unemployed because their English is not yet adequate for most jobs

2. 1990=$1,090
1991=$1,068.20 1992=$1,100.25 1993=$1,276.29 1994=$1,506.02 1995=$1,807.22 1996=$2,150.59 1997=$2,774.26 1998=$3,162.66 1999=$4,396.10

5. F; Broadway show had its final run 6. ST; closed its border town factories and moved its operations to Mexico

7. ST; customers now go to the Internet for the lowest fares 8. C; the economy slumped for the third straight month Copyright © by The McGraw-Hill Companies, Inc.

9. ST; when power companies decided not to replace 3. 1991, 1992, and 1993 4. 1990, 1994-1999 5. CDs are a safer place to invest money, especially for short-term investments. aging plants

10. ST; because computers had made its product obsolete 6. Over the long term, the stock market generally pays a higher return.

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ANSWER KEY
Activity 20: Decision Making at the Federal Reserve Board
1. The board would increase the reserve requirement to limit the amount of money that banks have to loan.

5. Lower interest rates increased employment and consumer spending, which increased the demand for and production of products, or Gross Domestic Product.

6. Because lower interest rates encouraged the increase in employment and production, the tax base was widened and produced increased revenues to cover government expenses.

2. The board would lower the discount rate to encourage banks to borrow money from district Federal Reserve banks.

3. The board would increase the discount rate so that the banks would have to raise the prime rate for loans to their customers.

7. Many answers are possible. Sample response: increased employment fueled consumer demand for products

4. The board would use the open market operation of buying securities such as Treasury Bills to add “new” money to the economy.

Activity 22: Free Trade and Jobs
1. the South 2. 246,437 3. Answers will vary. A possible answer is that workers will probably earn less at low-paying service jobs than they did in manufacturing so their standard of living will be lower.

5. The board would lower the reserve requirement to encourage banks to loan more of their money.

6. The board would use the open market operation of selling securities such as Treasury Bills to remove money from circulation.

4. Answers will vary. A possible answer is that NAFTA should get “a failing grade” because the agreement eliminated more American jobs than it created and lowered the standard of living for thousands of workers and their families.

Activity 21: Policies for Growth
Answers will vary but should be similar to the following responses:

1. Lower interest rates encouraged consumers to buy more on credit.

Activity 23: China’s Bold Reforms
1. Unlike in pure socialist economies, China allows private ownership and decision making in many businesses.

2. Lower interest rates made building materials cheaper for builders, and lower mortgage rates increased consumer demand for housing.

3. Lower interest rates increased company’s profits and ability to raise wages.

2. Unlike in many market economies, the political environment is undemocratic and the government is still setting quotas for some businesses.

4. The lower interest rates that increased demand for
Copyright © by The McGraw-Hill Companies, Inc.

products also increased the demand for workers to make the products. Thus, more jobs were created and fewer people were left jobless.

3. The advantages are more choices and, for some, increased incomes and buying power. The disadvantages for millions of other Chinese are unemployment or underemployment.

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ANSWER KEY
Activity 24: Funding Economic Growth in Developing Nations
Answers may vary. Sample answers are given.

Activity 25: Foreign Investment
Answers will vary. Sample responses are given.

1. United States investors saw opportunities in emerging market systems in Eastern Europe.

1. Foreign investment comes from companies and foreign aid comes from governments or organizations such as the United Nations.

2. NAFTA made U.S. investment in Mexico and in
Canada more attactive.

2. Economic assistance might give the country start-up money for businesses in which foreigners might invest. Humanitarian aid would contribute to a better workforce for businesses in which foreign companies might invest. Technical assistance would give people in developing nations the know-how to begin businesses for investment. Military assistance might create stability so that foreign investors would feel safe investing there.

3. The Chinese decision to privatize its state-owned businesses created opportunities for U.S. investors.

4. Four years after South Africa ended legalized racism, Americans were investing more than twice the money they invested in South Africa in 1990.

5. Once the government showed its willingness to loosen its control over businesses, U.S. investors felt confident enough to put 250% of their 1990 investment in Brazil.

3. a. Haiti: Infant mortality and the number of medical doctors; technical assistance to train doctors and humanitarian assistance in the form of medical supplies

Activity 26: Cybernomics
Titles may vary. Check for accuracy.
Software Sales of Pirated Software as a Percent of Total Sales
North America Western Europe Latin America Middle East Eastern Europe North America Western Europe Latin America ====== [half disk] ======== [half disk] ============== [half disk]

b. Burkina Faso: Per capita GDP and adult literacy; technical assistance to train doctors and teachers and humanitarian assistance in the form of basic food and clothing needs c. China: Infant mortality and adult literacy rates; technical assistance to train health care professionals and educators d. Nigeria: Infant mortality and the number of medical doctors; technical assistance to train doctors and humanitarian assistance in the form of medical supplies

Middle East =============== [half disk] Eastern Europe ==================

Answers for exercises 1–3 will vary. The following are possible responses.

1. No; because the government would have no way to enforce what people do in their own homes without violating basic rights to privacy.

2. No; because most of the pirating is not affected by
U.S. laws.
Copyright © by The McGraw-Hill Companies, Inc.

3. Yes; if countries could regulate copyright infringement without violating citizens’ rights.

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Copyright © by The McGraw-Hill Companies, Inc.

Free Enterprise Activities

Teacher Notes

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Copyright © by The McGraw-Hill Companies, Inc.

Teacher Notes

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Free Enterprise Activities

Copyright © by The McGraw-Hill Companies, Inc.

Free Enterprise Activities

Teacher Notes

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Copyright © by The McGraw-Hill Companies, Inc.

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Free Enterprise Activities