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1、Economic Growth, the Financial System, and Business Cycles 181CHAPTER 21Economic Growth, the Financial System, and Business Cycles1. Chapter Summary2. Learning Objectives3. Chapter OutlineTeaching Tips/Topics for Discussion4. Solved Problems5. Solutions to Review Questions and Problems and Applicati
2、ons1. Chapter Summary Long-run economic growth is the process by which rising productivity increases the standard of living of the typical person. Because of economic growth, the typical American today can buy more than eight times as much as the typical American of 1900. Long-run growth is measured
3、 by increases in real GDP per capita. Increases in real GDP per capita depend on increases in labor productivity. Labor productivity is the quantity of goods and services that can be produced by one worker or by one hour of work. Economists believe two key factors determine labor productivity. One k
4、ey factor is the quantity of capital per hour worked and the other key factor is the level of technology. Therefore, economic growth occurs if the quantity of capital per hour worked increases and if technological change occurs. Financial markets and financial intermediaries together comprise the fi
5、nancial system. A well-functioning financial system is an important determinant of economic growth. Firms acquire funds from households, either directly through financial marketssuch as the stock and bond marketsor indirectly through financial intermediariessuch as banks. The funds available to firm
6、s come from saving. There are two categories of saving in the economy: private saving by households and public saving by the government. The value of total saving in the economy is always equal to the value of total investment spending. In the model of the market for loanable funds, the interaction
7、of borrowers and lenders determines the market interest rate and the quantity of loanable funds exchanged.A business cycle consists of alternating periods of economic expansion and contraction. During the expansion phase of a business cycle, production, employment, and income are increasing. The per
8、iod of expansion ends with a business cycle peak. Following the business cycle peak, production, employment, and income decline during the recession phase of the cycle. The recession comes to an end with a business cycle trough, after which another period of expansion begins. The inflation rate usua
9、lly rises near the end of a business cycle expansion and then falls during a recession. The unemployment rate declines during the latter part of an expansion and increases during a recession. The unemployment rate often continues to increase even after an expansion has begun. Economists have not fou
10、nd a method to predict when recessions will begin and end. Recessions are difficult to predict because they have more than one cause. Recessions have been milder and the economy has been more stable since 1950.2. Learning ObjectivesStudents should be able to: Discuss the importance of long-run econo
11、mic growth. Discuss the role of the financial system in facilitating long-run economic growth. Explain what happens during a business cycle.3. Chapter OutlineGrowth and the Business Cycle at the Ford Motor Company1.The U.S. economy has experienced economic growth in the long-run. In the short-run, t
12、he U.S. economy has experienced a series of business cycles. The Ford Motor Company has often mirrored those experiences of the U.S. economy. Although Ford is a major force in the U.S. economy, it experienced difficulties in 2005 due to higher gasoline prices and due to the business cycles. Teaching
13、 tips: At the end of this chapter, An Inside Look describes the fast-growing Chinese automobile industry, which until recently manufactured relatively low-quality vehicles for local Chinese markets. Chery, a Chinese auto company, plans to sell 250,000 entry-level vehicles in the United States by 200
14、7. Ford and General Motors plan to counter this credible Chinese threat with similarly priced entry-level vehicles of their own. These readings can be used as the basis for classroom discussion, homework assignments or examination questions regarding the significance of inflation and unemployment as
15、 key macroeconomic problems.Long-Run Economic Growth Is the Key to Rising Living Standards1.A key measure of success of any economy is its ability to increase production of goods and services faster than the growth in population. The U.S. economy has experienced periods of expanding production and e
16、mployment followed by periods of recession, during which production and employment decline. These alternating periods of economic expansion and economic recession are called the business cycle. The business cycle is not uniform: Each period of expansion is not the same length, nor is each period of recession. Most people of the advanced nations such as the United States, Western Europe, and Japan, expect that over time their s
