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Standards 16-20

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Content Standard 16

Students will understand that: Students will be able to use this knowledge to:
There is an economic role for government to play in a market economy whenever the benefits of a government policy outweigh its costs. Governments often provide for national defense, address environmental concerns, define and protect property rights, and attempt to make markets more competitive. Most government policies also redistribute income. Identify and evaluate the benefits and costs of alternative public policies, and assess who enjoys the benefits and who bears the costs.

Why does the government pay private construction firms to build roads and highways? Why do the firms that build the roads not own them themselves and charge tolls to users? All kinds of goods and services are produced and distributed through private markets, so why not roads and highways, too? In flipping through the pages of the telephone directory, we observe a vast array of businesses and government agencies. Why do markets work well to supply much of what we want, while failing to produce other things we want?

Citizens should understand the limitations and shortcomings of markets and how some government policies attempt to compensate for market failures. Learning the economic as well as the political and social reasons for public sector services helps citizens make better choices about the appropriate size and scope of markets and government. It is also important that students be able to evaluate redistributive effects of government programs.

Benchmarks

At the completion of Grade 4, students will know that: At the completion of Grade 4, students will use this knowledge to:
1. Governments provide certain kinds of goods and services in a market economy. 1. Brainstorm a list of goods and services not privately produced and explain how these goods and services are paid for.
2. Governments pay for the goods and services they use or provide by taxing or borrowing from people. 2. Apply knowledge of the role of government in the economy in responding to the following questions: Your community wants a new bridge. Who will pay for this bridge and how will they get the money? Why is this the best way to pay for bridges?
At the completion of Grade 8, students will know the Grade 4 benchmarks for this standard and also that: At the completion of Grade 8, students will use this knowledge to:
1. Public goods and services provide benefits to more than one person at the same time, and their use cannot be restricted only to those people who have paid to use them. 1. Explain why tax dollars are used to pay for national defense, elementary school education, and roads. Explain why, without government, these services would be underprovided in the private sector?
2. If a good or service cannot be withheld from those who do not pay for it, providers expect to be unable to sell it and therefore will not produce it. In market economies, governments provide some of these goods and services. 2. Answer the following question: If the national, state, and local governments had no power to tax, what goods and services would we have to do without?
3. In the United States, the federal government enforces antitrust laws and regulations to try to maintain effective levels of competition in as many markets as possible; frequently, however, laws and regulations also have unintended effects–for example, reducing competition. 3. Explain why the Federal Trade Commission might prevent the purchase of one large corporation by its closest competitor and what the effects might be on consumers, producers, and workers if the sale were allowed.
4. Most federal tax revenue comes from personal income and payroll taxes. Payments to social security recipients, the costs of national defense, medical expenditures, and interest payments on the national debt constitute the bulk of federal government spending. 4. Use data from the U.S. federal budget to construct two pie charts–one representing major categories of federal revenue and one representing major categories of federal expenditures.
5. Most state and local government revenues come from sales taxes, grants from the federal government, personal income taxes, and property taxes. The bulk of state and local government revenue is spent for education, public welfare, road construction and repair, and public safety. 5. Compare the various sources of state and local revenues and various categories of state and local expenditures in their state and community with those for the U.S. federal government.
At the completion of Grade 12, students will know the Grade 4 and 8 benchmarks for this standard and also that: At the completion of Grade 12, students will use this knowledge to:
1. Markets do not allocate resources effectively if (1) property rights are not clearly defined or enforced, (2) externalities (spillover effects) affecting large numbers of people are associated with the production or consumption of a product, or (3) markets are not competitive. 1. Identify at least three economic roles of the U.S. federal government and cite a specific example of each.
2. An important role for government in the economy is to define, establish, and enforce property rights. A property right to a good or service includes the right to exclude others from using the good or service and the right to transfer the ownership or use of the resource to others. 2. Predict what would happen to some land they own if they had no right to restrict its use by others or if they found crude oil on this land but had no right to sell the oil.
3. Property rights provide incentives for the owners of resources to weigh the value of present uses against the value of conserving the resources for future use. 3. Analyze the following scenario and predict probable economic and social consequences: To save money, Congress passes, and the President signs into law, a bill that makes it illegal for any government to settle disputes over property rights. From now on, property-related disputes will be settled privately.
4. Externalities exist when some of the costs and benefits associated with production and consumption fall on someone other than the producers or consumers of the product. 4. Explain why there is a role for government in dealing with pollution, vaccinations, and medical research; recommend what this role should be.
5. When a price fails to reflect all the benefits of a product, too little of the product is produced and consumed. When a price fails to reflect all the costs of a product, too much of it is produced and consumed. Government can use subsidies to help correct for insufficient output; it can use taxes to help correct for excessive output; or it can regulate output directly to correct for over- or under-production or consumption of a product. 5. Explain why state and local governments use public money to pay for elementary education and why tobacco and gasoline are heavily taxed.
6. When one producer can supply total output in a market at a cost that is lower than the cost incurred when two or more producers divide production, competition may be impossible. In the absence of competition, government regulations may then be used to try to control price, output, and quality. 6. Explain why there is usually only one local water and sewer supplier.
7. Governments often redistribute income directly when individuals or interest groups are not satisfied with the income distribution resulting from markets; governments also redistribute income indirectly as side-effects of other government actions that affect prices or output levels for various goods and services. 7. Describe three government assistance programs, explain why government provides them, and determine which groups in the economy benefit from them and which groups bear the costs to fund them.
8. Governments provide an alternative method to markets for supplying goods and services when it appears that the benefits to society of doing so outweigh the costs to society. Not all individuals will bear the same costs or share the same benefits of those policies. 8. Discuss the costs and benefits of public education and identify who gains the most and who bears most of these costs.
9. A government policy to correct a market imperfection is not justified economically if its expected costs exceed its expected benefits. 9. Analyze the costs and benefits of a $500 per person state government job-training program to help adults without jobs. Make a recommendation on whether or not implementing this program is a good economic decision.

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Content Standard 17

Students will understand that: Students will be able to use this knowledge to:
Costs of government policies sometimes exceed benefits. This may occur because of incentives facing voters, government officials, and government employees, because of actions by special interest groups that can impose costs on the general public, or because social goals other than economic efficiency are being pursued. Identify some public policies that may cost more than the benefits they generate, and assess who enjoys the benefits and who bears the costs. Explain why the policies exist.

Do government officials try to promote the general welfare of the nation, or are they guided by their own self-interests? Businesses that fail to satisfy consumer wants go bankrupt; but how do we know when government programs fail, and how do we change or eliminate failed government programs? Why do some farmers receive large subsidies from the government, and why are many businesses protected from competition by tariffs or quotas–even when only a small percentage of the U.S. labor force is employed in those industries? Why don’t taxpayers rise up and put a stop to the favoritism accorded to certain industries and special interest groups? And why do so few people participate in the political process, and so many choose not to register or vote?

It is important to realize that governments, like markets, also have shortcomings and imperfections. Citizens should understand the sources of these imperfections, including the distribution of costs and benefits of some programs that lead to special-interest problems, the costs involved in gathering and using information about different candidates and government programs, and the incentives that can induce government leaders and employees to act in ways that do not promote the general national interest. Understanding this allows citizens to compare actual with ideal government performance, and to decide about the appropriate roles for federal, state, and local government.

Benchmarks

At the completion of Grade 12, students will know that: At the Completion of Grade 12, students will use this knowledge to:
1. Citizens, government employees, and elected officials do not always directly bear the costs of their political decisions. This often leads to policies whose costs outweigh their benefits for society. 1. Predict the costs that would be imposed on the public if federal taxes were reduced and the budget were balanced by Congress, and explain how political goals may conflict with economic goals.
2. Incentives exist for political leaders to implement policies that disperse costs widely over large groups of people and benefit relatively small, politically powerful groups of people. 2. Explain why a political leader would support an idea that helps only a few while harming many, such as a tariff on imported luggage or an import quota on sugar.
3. Incentives exist for political leaders to favor programs that entail immediate benefits and deferred costs; few incentives favor programs promising immediate costs and deferred benefits, even though the latter programs are sometimes economically more effective than the former programs. 3. Explain why, although most Americans say they are in favor of reducing the deficit, Congress does not vote to increase taxes.
4. Although barriers to international trade usually impose more costs than benefits, they are often advocated by people and groups who expect to gain substantially from them. Because the costs of these barriers are typically spread over a large number of people who each pay only a little and may not recognize the cost, policies supporting trade barriers are often adopted through the political process. 4. Analyze the following scenario: The United States allows Taiwan to export shirts to this country without placing a tariff on the imports. The Taiwanese can produce shirts at half the cost of shirts produced by American manufacturers. What groups in the United States and Taiwan will be helped, and what groups will be hurt, if the United States continues the present free-trade policy toward Taiwan? Prepare an argument supporting the American shirt manufacturers’ desire for a tariff on Taiwanese shirts.
5. Price controls are often advocated by special interest groups. Price controls reduce the quantity of goods and services consumed, thus depriving consumers of some goods and services whose value would exceed their cost. 5. Explain the following statement: Removing rent controls in New York City is good economics but bad politics. Also, explain who would gain and who would lose as a result of a 10 percent ceiling on credit card interest rates.

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Content Standard 18

Students will understand that: Students will be able to use this knowledge to:
A nation’s overall levels of income, employment, and prices are determined by the interaction of spending and production decisions made by all households, firms, government agencies, and others in the economy. Interpret media reports about current economic conditions and explain how these conditions can influence decisions made by consumers, producers, and government policymakers.

Changes in national levels of spending, production, and income can seem rather abstract and remote to students, because individuals can do little or nothing to change overall levels of economic activity. But these activity levels can have a profound effect on students’ future welfare, their job opportunities, the level of their prospective earnings, and the prices they will pay for things they buy. It is important, therefore, for students to understand possible causes of changes in these levels and how such changes can produce problems (such as unemployment and inflation) or opportunities (such as increased employment). Understanding these macroeconomic forces equips students to anticipate and respond intelligently to economic developments. It also enables students to predict the economic consequences of proposed government policies and to make informed choices among alternative political candidates and public policy proposals.

Benchmarks

At the completion of Grade 8, students will know that: At the completion of Grade 8, students will use this knowledge to:
1. Gross Domestic Product (GDP) is a basic measure of a nation’s economic output and income. It is the total market value, measured in dollars, of all final goods and services produced in the economy in one year. 1. Explain what GDP is and how it can be used to describe a country’s economic output over time, comparing outputs from year to year.
2. Per capita GDP is GDP divided by the number of people living in a country. 2. Determine the per capita GDP for several countries, given data on population and GDP for each country. Identify a few other countries whose per capita GDP is similar to that of the United States.
3. When consumers make purchases, goods and services are transferred from businesses to households in exchange for money payments. That money is used in turn by businesses to pay for productive resources (natural, human, and capital) and to pay taxes. 3. Draw and label a circular flow diagram and explain the interrelated roles of households, businesses, and government in the economy.
At the completion of Grade 12, students will know the Grade 8 benchmarks for this standard and also that: At the completion of Grade 12, students will use this knowledge to:
1. Nominal GDP is measured in current dollars; thus, an increase in GDP may reflect not only increases in the production of goods and services, but also increases in prices. GDP adjusted for price changes is called real GDP. Real GDP per capita is a measure that permits comparisons of material living standards over time and among different nations. 1. Gather current and historical data on real GDP per capita for the United States, Japan, Somalia, and South Korea and state a relationship between real GDP and standard of living.
2. The potential level of real GDP for a nation is determined by the quantity and quality of its natural resources, the size and skills of its labor force, and the size and quality of its stock of capital resources. 2. Locate and analyze relevant data from appropriate reference materials to assess the validity of the following statement: It is doubtful that many of the countries of Sub-Saharan Africa will ever have GDPs that approach the value of those of Western European countries.
3. One person’s spending is other people’s income. Consequently, an initial change in spending (consumption, investment, government, or net exports) usually results in a larger change in national levels of income, spending, and output. 3. Read the following scenario and analyze the effects on the economy: A visitor comes into a community and spends $100 on a single purchase at a video store. The video store’s income increases by $100. It spends $80 of the money to pay the telephone bill, which now becomes income to the telephone company, and so forth.
4. When desired expenditures for consumption, investment, government spending, and net exports are greater than the value of a nation’s output of final goods and services, GDP rises and inflation occurs and/or employment rises. 4. Describe the effect on the economy when desired expenditures for consumption, investment, government spending, and net exports exceed the value of a nation’s output of final goods and services.
5. When desired expenditures for consumption, investment, government spending, and net exports are less than the value of a nation’s output of final goods and services, GDP decreases and inflation and/or employment decreases. 5. Describe the effect on the economy when desired expenditures for consumption, investment, government spending, and net exports are less than the value of a nation’s output of final goods and services.

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Content Standard 19

Students will understand that: Students will be able to use this knowledge to:
Unemployment imposes costs on individuals and nations. Unexpected inflation imposes costs on many people and benefits some others because it arbitrarily redistributes purchasing power. Inflation can reduce the rate of growth of national living standards, because individuals and organizations use resources to protect themselves against the uncertainty of future prices. Make informed decisions by anticipating the consequences of inflation and unemployment.

Inflation and unemployment are important because they affect national levels of economic growth and standards of living. Some aspects of inflation and unemployment can be addressed with public policies. Various political leaders and parties often have different ideas about which policies should be followed to deal with inflation and unemployment, however. The controversial policies, and the fact that almost everyone is affected by unemployment or inflation, explain why these two problems and alternative approaches to combat them are so widely reported in the news media, and why understanding them is important to citizens in a democratic political system.

Benchmarks

At the completion of Grade 4, students will know that: At the completion of Grade 4, students will use this knowledge to:
1. Inflation is an increase in most prices; deflation is a decrease in most prices. 1. Determine in which years inflation occurred and in which years deflation occurred, given the prices for a market basket of goods and services for three different years.
2. Unemployment exists when people who are actively looking for work do not have jobs. 2. Apply the standard definition of an unemployed person by explaining why retired people and students are not considered unemployed.
At the completion of Grade 8, students will know the Grade 4 benchmarks for this standard and also that: At the completion of Grade 8, students will use this knowledge to:
1. When unemployment exists, an economy’s production is less than potential GDP and some labor resources are not used. 1. Identify goods or services that could be produced if the local community’s unemployed had jobs. Draw a flow chart that shows a ripple effect resulting from unemployment in a particular industry or community.
2. The labor force consists of people aged 16 and over who are employed or actively seeking work. 2. Determine whether each of the following is counted as a member of the labor force: (1) an elementary school student who has a paper route; (2) an army captain; (3) a retired butcher; (4) an insurance salesperson; (5) a woman who has decided not to work outside the home until her children are in school; and (6) a 42-year old civil engineer who looked for a job for two years, but finally gave up searching when he could not find work in that field.
3. Inflation reduces the value of money. 3. Interview someone 50-59 years old. Ask about grocery prices. Compare the groceries that could be purchased for $10 in 1967 with those that can be purchased for $10 today.
4. When people’s incomes increase more slowly than the inflation rate, their purchasing power declines. 4. Compare the prices of a market basket of goods in l980 with similar prices today. Explain how inflation reduces purchasing power for people whose income is either fixed or increasing slower than the rate of inflation.
At the completion of Grade 12, students will know the Grade 4 and 8 benchmarks for this standard and also that: At the completion of Grade 12, students will use this knowledge to:
1. The unemployment rate is the percentage of the labor force that is willing and able to work, does not currently have a job, and is actively looking for work. 1. Calculate the unemployment rate for the following situation: Berks County has 200,000 people. Of that population, 70,000 are full-time housewives, students, children, retired people, or people not looking for work. Of the remaining residents of Berks County, 110,000 people have jobs.
2. The unemployment rate is an imperfect measure of unemployment because it does not (1) include workers whose job prospects are so poor that they are discouraged from seeking jobs, or (2) reflect part-time workers who are looking for full-time work. 2. Explain why the following may be true: A weekly news magazine reports that the current unemployment statistic does not accurately reflect the true impact of unemployment.
3. Unemployment rates differ for people of different ages, races, and sexes. This reflects differences in work experience, education, training, and skills, as well as discrimination. 3. Locate data pertaining to unemployment rates for young people and minorities, and explain why unemployment rates for these groups differ from the unemployment rates for other groups in the economy.
4. Unemployment can be caused by people changing jobs, by seasonal fluctuations in demand, by changes in the skills needed by employers, or by cyclical fluctuations in the level of national spending. 4. Give examples of each type of unemployment, analyze the differences among them, and identify which types cause more serious problems in the economy.
5. Full employment means that the only unemployed people in the economy are those who are changing jobs. 5. Explain why some people are unemployed when the economy is said to be functioning at full employment.
6. The consumer price index (CPI) is the most commonly used measure of price-level changes. It can be used to compare the price level in one year with price levels in earlier or later periods. 6. Determine the current price for a pair of designer sunglasses that cost $50 in l982, assuming the price has increased at the average rate of inflation.
7. Expectations of increased inflation may lead to higher interest rates. 7. Explain their answer to the following question: If you were going to lend $100 to someone for a year, would you ask for more or less interest if you expected the prices of most things you buy to rise substantially over the year?
8. The costs of inflation are different for different groups of people. Unexpected inflation hurts savers and people on fixed incomes; it helps people who have borrowed money at a fixed rate of interest. 8. For each of the following cases, tell who would be harmed by an unexpected 10 percent inflation rate, who would benefit, and explain why: (1) Mike’s retirement income is $24,000 a year; (2) Bonnie borrowed $5,000 last year and must pay it back at the end of this year; (3) John lent the $5,000 to Bonnie last year and will be paid back at the end of this year; (4) Bob and Mary bought several houses as an investment 10 years ago, and now they plan to sell them; and (5) businesses sell consumer products such as clothing and food
9. Inflation imposes costs on people beyond its effects on wealth distribution because people devote resources to protect themselves from expected inflation. 9. Identify assets people can buy to protect themselves financially against inflation and discuss how much time people spend with this problem in times of high inflation (e.g., 1981) compared to times of low inflation (e.g. 1955).

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Content Standard 20

Students will understand that: Students will be able to use this knowledge to:
Federal government budgetary policy and the Federal Reserve System’s monetary policy influence the overall levels of employment, output, and prices. Anticipate the impact of the federal government’s and the Federal Reserve System’s macroeconomic policy decisions on themselves and others.

The U.S. federal government’s taxation and spending policies and the Federal Reserve System’s monetary policies affect the nation’s overall levels of employment, output, and prices. However, many government taxation and spending activities are undertaken for other reasons, as well. Government expenditures for national defense, human services, and other purposes are made to meet specific objectives and not primarily because of their fiscal policy effects. Other important objectives must be merged with the goals of full employment, price stability, and economic growth. Therefore, government programs may have contradictory effects upon employment and inflation. Understanding these effects is complicated also by the time lags that occur before action taken pursuant to a specific policy begins to affect overall levels of employment, output, and prices.

In spite of these difficulties, policymakers and the general public continue to examine and debate the overall stabilization effects of public policy actions, because the consequences are so important. Citizens should understand the role of conflicting objectives and the limitations on the effectiveness of economic stabilization policies in order to develop realistic expectations about what can be accomplished with taxation, spending, and monetary policies.

Benchmarks

At the completion of Grade 12, students will know that: At the completion of Grade 12, students will use this knowledge to:
1. Fiscal policies are decisions to change spending and tax levels by the federal government. These decisions are adopted to influence national levels of output, employment, and prices. 1. Identify historical examples of fiscal policies and explain whether these policies were adopted to influence levels of output, employment, prices, or all three.
2. In the short run, increasing federal spending and/or reducing taxes can promote more employment and output, but these policies also put upward pressure on the price level and interest rates. Decreased federal spending and/or increased taxes tend to lower price levels and interest rates, but they reduce employment and output levels in the short run. 2. Outline the fiscal policies they would recommend to correct each of the following: (1) rising unemployment, and (2) rising inflation. Explain each recommendation.
3. In the long run, the interest-rate effects of fiscal policies lead to changes in private investment spending by businesses and individuals that partially, if not entirely, offset the output and employment effects of fiscal policy. 3. Explain why an additional $2 billion of federal spending on highways, financed by federal government borrowing, can reduce private investment spending in the economy in the long run.
4. The federal government’s annual budget is balanced when its revenues from taxes and user fees equal its expenditures. The government runs a budget deficit when its expenditures exceed its revenues. The government runs a surplus when its revenues exceed its expenditures. 4. Determine whether the budget is in surplus, in deficit, or balanced, and whether the effect upon the economy is contractionary, expansionary, or neutral if the government receives $800 billion in taxes and (1) government spending is $800 billion; (2) government spending is $900 billion; (3) government spending is $700 billion.
5. When the government runs a budget deficit, it must borrow from individuals, corporations, or financial institutions to finance that deficit. 5. Explain that the federal debt is financed through the sale of government securities and identify the percentage of debt owed to foreigners.
6. The national debt is the total amount of money the federal government owes. This is the accumulated net sum of its annual deficits and surpluses. The government pays interest on the money it borrows to finance the national debt. 6. Explain the difference between the budget deficit and the national debt. Then determine how long it would take to pay off all of the national debt at the current rate of GDP if all GDP were devoted to that purpose.
7. In the long run, inflation results from increases in a nation’s money supply that exceed increases in its output of goods and services. 7. Explain why inflation occurs after participating in two rounds of an auction where the number of goods available remains constant, but the money in circulation increases in round two.
8. Monetary policies are decisions by the Federal Reserve System that lead to changes in the supply of money and the availability of credit. Changes in the money supply can influence overall levels of spending, employment, and prices in the economy by inducing changes in interest rates charged for credit and by affecting the levels of personal and business investment spending. 8. Write an article for the business section of the local newspaper explaining what monetary policy is and how changes in monetary policy affect the money supply and interest rates. Using this information, advise a teenager about taking out a car loan and his/her opportunities for obtaining summer employment in the construction trade when the Federal Reserve is contracting the money supply.
9. The major monetary policy tool that the Federal Reserve System uses is open market purchases or sales of government securities. Other policy tools used by the Federal Reserve System include increasing or decreasing the discount rate charged on loans it makes to commercial banks and raising or lowering reserve requirements for commercial banks. 9. Play the roles of members of the Federal Open Market Committee and decide for each of the headlines below whether they would recommend an expansionary policy or a contractionary policy and whether government securities should be purchased or sold.
Newspaper headlines:Unemployment Rate Soars

New Housing Starts Rise

CPI Rises for Third Consecutive Month

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