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354 UNIT 4 MACROECONOMICS: POLICIES
Succeeding in a
“Man™s” Business:
Linda Alvarado
(1951“)

“There are still too many doors
that need opening for women and
minorities,” Linda Alvarado once
said. “There™s no lack of talent or
ambition out there”just a lack of
well-run company, poised for help others. Because of her own
opportunity for women and
growth. But building the Alvarado arduous personal experience, she is
minorities to try.”
Construction Company proved especially interested in the difficul-
Alvarado knows all about talent
difficult. The problem? Many ties facing Hispanics and women
and ambition”and the obstacles
clients and others in the industry and does what she can to help. She
women and minorities face. She
clung to the notion that a woman regularly meets with other women
herself has become one of the most
could not run a construction firm. in business and mentors women
successful individuals in one of the
“There™s a perception out there who are just starting out. Many
most male-dominated industries in
that buildings are built by guys” civic organizations have lauded her
the country: construction.
big guys, real men,” Alvarado said. for her extensive contributions to
Alvarado™s first-rate work dis- the Hispanic community.
SUCCESS IN BUSINESS
proved this nonsense. Through To many young people, there-
As a young woman, Alvarado
perseverance, she brought fore, Alvarado is a hero: a living
became intrigued by the construc-
Alvarado Construction to a lead- example of how talent and ambi-
tion industry. While still a student,
ing position in the construction tion can open doors that long
she took a part-time job with a
industry. Moreover, many interna- have been closed to women and
development company. Her talent
tional companies, eager for her minorities.
and ambition earned her a steady
insight, have sought her entrepre-
advancement, and she eventually
neurial and management talents.
struck out on her own.
Examining the Profile
Alvarado is also an owner of the
Alvarado knew enough about
Colorado Rockies baseball team. 1. Demonstrating Reasoned Judgment
the construction industry to make
Reread the first paragraph. Explain why
first-rate service and on-time deliv-
SUCCESS IN THE you agree or disagree with Alvarado.
ery the top priorities of her Denver-
COMMUNITY
based Alvarado Construction 2. Evaluating Information Do you
Alvarado shines when it comes
Company. An objective analysis think successful businesspeople like
Alvarado have a moral responsibility
to using her business success to
would have revealed a strong,
to contribute to their communities?
Explain your answer.

CHAPTER 13: ECONOMIC PERFORMANCE 355
GDP and Population
Main Idea Key Terms
Projected population trends can help determine the census, urban population, rural population, center
direction of economic developments. of population, demographer, fertility rate, life
expectancy, net immigration, baby boom,
Reading Strategy population pyramid, dependency ratio
Graphic Organizer As you read the section, complete
Objectives
a graphic organizer similar to the one below by iden-
tifying changes in the United States in the categories After studying this section, you will be able to:
that are listed. 1. Explain how population is estimated in the U.S.
2. Describe the factors affecting future population
growth.
Rate of Size of Regional
growth household change
Applying Economic Concepts
Urban and Rural How do you define the words rural
and urban? Read to find out how rural and urban are
Changes Changes Changes
defined in economic terms.




T
he rate at which population grows influences
Cover Stor y GDP and economic growth in several ways.
First, for an economy to grow, its factors of
rice
anta Pays Environmental P
production must also grow or become more pro-
Atl ductive. One of the factors of production, labor, is
for Fast Growth closely tied to the size of the population.
Second, changes in population can distort some
,
Atlanta (CNN)”Atlanta macroeconomic measures like GDP and GNP”which
ilt in
long known as “a city bu is why they are often expressed on a per capita, or per
con-
a forest,” is becoming a
person, basis. If a nation™s population grows faster
dis-
crete jungle as its trees
than output, per capita output falls and the country
for
appear to make way Busy thoroughfare in
could end up with more mouths than it can feed. Or,
es, and Atlanta
shopping malls, hous
if a nation™s population grows too slowly, there may
highways.
mped from 3 million to
ro Atlanta™s population ju not be enough workers to sustain economic growth.
Met
1996, . . . and the trend
illion between 1990 and Finally, population growth affects the quality of
3.5 m
.
shows no sign of slowing life, especially in fast-growing areas such as Atlanta.
ur of the nation™s top 10
e Atlanta area includes fo The study of population involves more than a sim-
Th
pers are clearing an
growing counties. Develo
fastest- ple total of people.
red land per day, which
e of 50 acres of tree-cove
averag
Manhattan each year.
nts to an area larger than
amou t
rs around 3 percent. Bu
nemployment . . . hove
Population in the United States
U
along with the number
muting times have risen
com
e for the Atlanta area is
bs. The average commut The Constitution of the United States
of jo y
r day!”longer than an
35 miles round-trip pe requires the government to periodically
now
n.
other city™s in the natio take a census, an official count of all people,
19, 1999
”CNNInteractive, March including their place of residence. Because the

356
official census occurs every 10 years, it is called the had fallen to 3.33 and then to approximately 2.60
decennial census. The nation™s founders initiated the people today. The figures reflect a worldwide trend
decennial census to apportion the number of rep- toward smaller families in industrial countries
resentatives each state elects to Congress. where couples often view children as a financial
liability. The figures also show that more individu-
als are living alone today than ever before.
Counting the Population
The federal government conducted the first cen-
Regional Change
sus in 1790. Throughout the 1800s, temporary
agencies were created each decade to conduct the An important population shift began in the
counts. In 1902, Congress permanently established 1970s, with a migration to the western and southern
the Census Bureau. Today, the Bureau works year- parts of the country. These regions have grown quite
round, conducting monthly surveys relating to the rapidly, while most of the older, industrial areas in
size and other characteristics of the population. the North and East have grown more slowly or even
When the Census Bureau conducts the decennial lost population. Many people have left the crowded,
census, it uses the household as its primary survey industrial Northeast for warmer, more spacious parts
unit. About five in every six households receive a of the country. States such as Arizona, Nevada, and
“short form,” which takes just a few minutes to fill Florida have grown tremendously.
out. The remaining households receive a “long The Census Bureau also tracks changes in the geo-
form,” which includes more questions and serves to graphic distribution of the population. Figure 13.6
generate a more detailed profile of the population. shows changes in population distribution for nine
Bureau employees use different methods to count regions in 1988 and projected in 2010.
special groups, such as homeless persons, who do The projections show growth in the West and
not normally conform to the household survey unit. South and losses of population in the Northeast
The Census Bureau tabulates and presents its and Central Plains regions.
data in a number of ways. One classification
denotes the size of the urban population”people
Center of Population
living in incorporated villages or towns with 2,500
Another indicator of distribution shifts is the
or more inhabitants. The rural population makes
center of population”the point where the country
up the remainder of the total population, including
would balance if it could be laid flat and all the peo-
those persons who live in sparsely populated areas
ple weighed the same. In 1790, the center was
along the fringes of cities.
23 miles east of Baltimore, Maryland. Since then, it
has moved farther west. By the 1990 decennial cen-
Historical Growth sus, the center of population had reached a point
The population of the United States has grown about 9.7 miles southeast of Steelville, Missouri.
considerably since colonial times. The rate of
growth, however, has steadily declined. Between
1790 and 1860, the population grew at a com-
pounded rate of about 3.0 percent a year. From the
beginning of the Civil War until 1900, the average
fell to 2.2 percent. From 1900 to the beginning of
World War II, the rate dropped to 1.4 percent. It
declined slowly but steadily after that, and by 2000
the rate of population growth had fallen to
Student Web Activity Visit the Economics: Principles
approximately 0.9 percent. and Practices Web site at epp.glencoe.com and click
The census also shows a steady trend toward on Chapter 13”Student Web Activities for an activ-
smaller households. During colonial times, house- ity using international population data.
hold size averaged 5.8 people. By 1960, the average

CHAPTER 13: ECONOMIC PERFORMANCE 357
Projected Population Trends lifetime. A fertility rate of 2,110, for example, trans-
lates to 2.11 births per woman. The Bureau of the
Population trends are important to many Census projects 2,119 as the most likely fertility
groups. Political leaders, for example, closely rate for the United States. That rate is barely above
watch population shifts to see how voting patterns the replacement population rate”the rate at which
may change. Community leaders are interested the number of births in a population just offsets
because increases or decreases in local population the number of deaths.
affect services such as sanitation, education, crime This was not always the case. In the late 1800s
prevention, and fire protection. Businesses use cen- and early 1900s, Americans tended to have large
sus data to help determine new plant locations, families. In the days before modern machines and
markets for products, and sales territories. appliances, the work of maintaining a home and
family and earning a living was difficult and time-
consuming. Children were needed to do household
Factors Affecting Population Growth chores, work on family farms, and bring in addi-
tional money from outside jobs.
According to demographers”people who
As modern life became more automated, and
study growth, density, and other characteristics of
fewer people lived on farms, having large families
population, the three most important factors
became less important. As a result, the nation™s
affecting population growth are fertility, life
birthrate dropped steadily throughout the 1990s.
expectancy, and net immigration levels.
The second factor, life expectancy, is the average
The fertility rate is the number of births that
remaining life span of people who reach a given
1,000 women are expected to undergo in their



ECONOMICS
Figure 13.6
AT A GLANCE
AT A GLANCE

Projected Distribution of Population by Region, 1988“2010
New England
Pacific West North Central
1988 5.3%
1988 15.1% 1988 7.2%
2010 5.0%
2010 17.0% 2010 6.3%


Middle Atlantic
East North Central
1988 15.2%
1988 17.1%
2010 13.6%
2010 14.6%




Mountain
1988 5.5% South Atlantic
West South Central East South Central
2010 6.3% 1988 11.1% 1988 6.3% 1988 17.2%
2010 19.5%
2010 11.7% 2010 6.0%

Using Maps Projections by the Bureau of Census show changes in population in regions as a
proportion of the overall population. Which regions are expected to show a decrease in
proportion of population?


358 UNIT 4 MACROECONOMICS: POLICIES
ECONOMICS Figure 13.7
AT A GLANCE
AT A GLANCE

Distribution of the Population by Age and Gender, 2000
United States: 2000

Male Female
85+
80“84
75“79
70“74
65“69
60“64
55“59
50“54
45“49
40“44
35“39
30“34
25“29
20“24
15“19
10“14
5“9
0“4

14 12 10 8 6 4 2 0 0 2 4 6 8 10 12 14
Population (in millions)
Source: U.S. Census Bureau

Using Graphs Population pyramids are one way to show distribution
of population. How many males and females were between the
ages of 15 to 24 in the year 2000?
Visit epp.glencoe.com and click on
Textbook Updates”Chapter 13 for
an update of the data.




age. The Bureau of the Census predicts that life United States to continue to decline. The growth
expectancy at birth will go from about 75.9 years rate is likely to fall to 0.82 percent between 2000
today to 82.1 years by 2050. and 2005 and then continue to decrease until it
The third major factor is net immigration”the reaches 0.49 percent by 2050. At that time, the
net change in population caused by people moving resident United States population should be
into and out of the country. The Bureau estimates a about 380 million people.
constant net immigration of about 880,000 per
year. This figure is based on 1,040,000 immigrants”
Projections by Age and Gender
those entering the country”and 160,000 emigrants”
In making its projections, the Census Bureau
those leaving the country”in the future.
assumed that the aging baby boomer generation
Taking into account these three factors, ana-
will drive many characteristics of the population.
lysts expect the rate of population growth in the

CHAPTER 13: ECONOMIC PERFORMANCE 359
ECONOMICS
Figure 13.8
AT A GLANCE
AT A GLANCE


Projected Change in U.S. Population by Race
and Ethnic Origin, 1990“2050
100
90
Percent of Total Population




80
52.7 White
70
Native
75.7
60
American
50 1.1
African
40 15
American
30 0.7
21.1 Hispanic
20 11.8
10
9 2.8 10.1 Asian
0
1990 1995 2000 2005 2010 2020 2030 2040 2050
Years
Source: Population Projections in the United States, by Age, Sex, Race and Hispanic Origin: 1992“2050,
U.S. Bureau of the Census

Using Graphs The distribution of population by race is projected to change dramatically by the
year 2050. Which ethnic components of the population are expected to make the largest
gains? Which will incur the largest losses?



People born during the baby boom, the high they will place a heavy burden on the younger
birthrate years from 1946 to 1964, make up a size- and relatively smaller working population. The
able portion of the population. As shown in burden becomes evident with changes in the
Figure 13.7 on page 359, people born during those dependency ratio”a ratio based on the number of
years created a pronounced bulge in the population children and elderly for every 100 persons in the
pyramid, a type of bar graph that shows the break- working-age bracket of 18 through 64. The
down of population by age and gender. dependency ratio was 63.9 in 1998, but according
The bulge in the middle of the pyramid repre- to Census Bureau projections, it will rise to 67.5
sents the baby boomers. As years pass, more births by 2020, to 77.5 by 2030, and to 78.0 by the year
add to the bottom of the pyramid and push earlier 2040.
groups upward into higher age brackets. Finally, notice what the population pyramid indi-
Eventually, the baby boomers will reach their cates about gender. If you compare the left sides of
retirement years and want to collect pensions, the pyramid with the right, you will see that women
Social Security, and medicare benefits. Because tend to outlive men. Separate population pyramids
most of these payments are transfer payments, can also be created for any racial or ethnic group.

360 UNIT 4 MACROECONOMICS: POLICIES
Projections by Race and Population
Ethnic Origin
Census Bureau projections
for race and ethnic groups are
shown in Figure 13.8. In
1990, Whites were the largest
component of the total popu-
lation. The numbers of
African Americans, Hispanic
Americans, Asian Americans,
and Native Americans fol-
lowed in that order.
Differences in fertility
rates, life expectancies, and
immigration rates will change
racial statistics dramatically in
the future. By 2050, the Asian
component of the population
will increase nearly five times,
and the Hispanic component
will almost double. The num-
ber of African Americans will Trends The makeup of the United States population by age, gender,
also increase. Whites will and ethnic origin has changed and is expected to continue this trend.
remain a bare majority of What is the Hispanic percentage of the population projected to be in the
the total population at 52.7 year 2050?
percent.




Checking for Understanding as a rural community instead of urban, or
urban instead of rural?
1. Main Idea How does the rate of population
growth affect economic growth?
2. Key Terms Define census, urban population,
rural population, center of population,
demographer, fertility rate, life expectancy,
6. Drawing Conclusions At some point, the
net immigration, baby boom, population
baby boomers will reach their retirement
pyramid, dependency ratio.
years. How will this development affect
3. Describe how U.S. population is estimated.
your generation? How do you think the
4. List the three most important factors that baby boomers will feel about this?
determine future population growth.
7. Understanding Cause and Effect What spe-
cial demands does a high birthrate put on a
Applying Economic Concepts
nation™s economy?
5. Urban and Rural What could happen to your
community that might cause it to be classified Practice and assess key social studies skills with
the Glencoe Skillbuilder Interactive Workbook,
Level 2.



CHAPTER 13: ECONOMIC PERFORMANCE 361
AUGUST 31, 1998
Newsclip
Just as crucial,
Without immigrants, economic growth
could decline by the year 2015, when the the array of educa-
U.S. workforce is expected to shrink. tion and skills
Researchers predict that immigrants will immigrants bring
help transform the economy in the could fit neatly
twenty-first century. with the supply of
jobs over the next
decade. According
Immigrants and the to Linda Levine at
the Congressional
Job Market Research Service, a branch of the Library of
Congress, 60% of the jobs created through 2005
will require some post-secondary education. But,
During the next decade, barring a change in
she adds, low-skill jobs will still represent about
government policy, nearly a million immigrants
half of total employment.
are expected to arrive in the U.S. every year.
Compare that job market to the prospective
Most, both legal and illegal, will continue to
immigrant labor force. Of recent arrivals, only
come from Latin America and Southeast Asia,
63% have finished high school. . . . Yet immi-
but every foreign land will be represented. So will
grants also are 50% more likely than Americans to
every level of skill, education, and talent: New
have a graduate degree. . . .
arrivals will make up hotel beds, start their own
Indeed, foreign-born workers have shown an
shops, and pursue pathbreaking medical research.
extraordinary ability to assimilate and flourish.
And they™ll play a critical role in providing
Certainly, some less skilled workers will remain at
the workers needed to keep the economy
the bottom economic rung all their lives. Yet oth-
healthy. As baby boomers age and domestic
ers will catch up quickly. Within a decade of their
birthrates stagnate, only foreign-born workers
arrival, the well-educated go from making barely
will keep the labor pool growing. By 2006, in
half that of native-born Americans in comparable
fact, immigrants will account for half of all new
work to nearly 90%.
U.S. workers; over the next 30 years, their share
will rise to 60%. ”Reprinted from August 31, 1998 issue of Business Week, by special
permission, copyright © 1998 by The McGraw-Hill Companies, Inc.
Economic dynamism, in other words, will
depend on a continuing stream of foreign-
born workers. A limited labor supply “is
Examining the Newsclip
going to affect growth,”
says Carol D™Amico, sen- 1. Analyzing Information What role are immigrant
ior research fellow workers expected to play in the U.S. economy during
at the Hudson the twenty-first century?
Institute; “if you
2. Making Predictions Will immigrants™ skills be needed
fast-forward 10 in the twenty-first century job market? Explain your
years, it will be a answer.
real issue. . . .”

362
Economic Growth
Main Idea Key Terms
The ability of an economy to produce output deter- real GDP per capita, growth triangle, standard of
mines its growth. living, tax base, renewable resources, capital-to-labor
ratio, labor productivity
Reading Strategy
Objectives
Graphic Organizer As you read the section, complete
a graphic organizer like the one below by explaining After studying this section, you will be able to:
how saving influences economic growth. 1. Describe how economists measure the growth of
the United States economy.
2. Explain the importance of economic growth.
3. Outline the factors of economic growth.
4. Relate productivity to economic growth.
Saving
Economic growth
Applying Economic Concepts
Standard of Living Read to find out why the standard
of living is important in a free enterprise economy.




E
conomic growth, one of the seven major
Cover Stor y goals of the United States economy, has the
potential for improving everyone™s lot in life.
t of
omputer Age Gains Respec
Everyone includes not only every American, but also
C people living in other countries.
Economists
philes,
Economic Growth in the
In a nation of techno
ires are
where Internet milliona
United States
heresy to
minted daily, it seems
ic payoff
question the econom One of the first things we need to know
logy. . . .
from information techno about economic growth is how to measure it.
de, most Computers are
But for more than a deca
Two methods are equally important, and both make
onomists having an impact
of the nation™s leading ec
on the marketplace. use of topics covered earlier in this chapter.
have been heretics.
mputer
“You can see the Co
w, a Nobel prizewinner
erywhere,” Robert Solo Measuring Growth
Age ev
te of Technology wrote a
the Massachusetts Institu
from
e productivity statistics.” When we measure economic growth in the
few years ago, “but in th
mputer revolutionized
r years, even as the co short term”a period of one to five years”real
Fo
. . . stagnated, barely
workplace, productivity GDP, or GDP adjusted to remove the distortions
the
r year.
advancing 1 percent pe of inflation, is a fairly satisfactory gauge. Changes
skeptics . . . are having
t today, even renowned in real GDP on a quarterly or annual basis are the
Ye ,
ity growth has picked up
nd thoughts. Productiv statistics we hear about most often in the news.
seco
hing seems fundamen-
ng in 1996, . . . [S]omet
starti When it comes to the long run, however, real
computers (are) finally
different this time . . .
tally GDP does not tell the whole story. Because pop-
paying off. April 14, 1999 ulation also grows, real GDP per capita”the
”The New York Times,


CHAPTER 13: ECONOMIC PERFORMANCE 363
The Historical Record
dollar amount of real GDP produced on a per per-
son basis”is a better measure. Most economists Figure 13.9 compares real GDP with real GDP
agree that it is the single most important measure per capita. The figure shows that the overall rate of
of long-term growth because it adjusts for changes economic growth is somewhat slower when popu-
in both inflation and population. lation growth is taken into account. In addition,
Dividing real GDP by the population yields relatively slow periods of real GDP growth can
real GDP per capita. If the population grows faster actually become negative if population growth is
than real GDP, the average amount of output pro- taken into consideration, as in 1990“91.
duced for each person in the economy falls. If the Another way to examine growth is with a
population grows more slowly than real GDP, growth triangle”a table that shows annual com-
there will be more goods and services available for pound rates of growth between selected periods of
everyone. time. Figure 13.10 shows that there was almost no




Figure 13.9

Real GDP vs. Real GDP Per Capita
$35,000 $8,000
Real GDP
$7,000
$30,000 (right axis)




Real GDP, 1992 Billions of Dollars
Real GDP Per Capita, 1992 Dollars




$6,000
$25,000
$5,000
$20,000
Real GDP per capita $4,000
(left axis)
$15,000 The growth of population
$3,000
during recessions makes
real GDP per capita
$10,000
$2,000
decrease even more.

$5,000 $1,000

$0 $0
40


46


52


58


64


70


76


82


88


94


00
19


19


19


19


19


19


19


19


19


19


20




Years
Source: Economic Report of the President, various years

Using Graphs Real GDP on a per capita basis generally rises slower
than real GDP whenever population is growing. A growing population
also means that periods of little or no growth are more severe than they
appear when measured in terms of real GDP. How do real GDP and Visit epp.glencoe.com and click on
real GDP per capita differ? Textbook Updates”Chapter 13 for
an update of the data.



364 UNIT 4 MACROECONOMICS: POLICIES
Figure 13.10

Annual Growth Rates of Real GDP Per Capita
Ending Ending
Most of the decline during
Year Year
the Great Depression took place
1929 1929
between 1929 and 1933.
“8.3%
1933 1933
0.2%
1939 1939
0.8%
1940 1940
To find the annual
3.7% 10.3%
1945 1945
rate of growth during the 1980s,
2.4% 4.0% “1.9%
1950 1950
start with 1980 on the horizontal
2.4% 3.6% 0.4% 2.6%
1955 1955
axis and read up to the
2.1% 2.9% 0.5% 1.7% 0.8%
1960 1960
Strong economic
1990 row.
growth after 1995
2.3% 3.0% 1.2% 2.3% 2.1% 3.4%
1965 1965
helped generate a
2.3% 2.9% 1.4% 2.3% 2.1% 2.8% 2.2%
1970 1970
federal budget
2.2% 2.7% 1.5% 2.1% 2.0% 2.4% 1.9% 1.6%
1975 1975
surplus.
2.2% 2.1% 2.4% 2.1% 2.0% 2.5%
2.3% 2.6% 1.6%
1980 1980
2.2% 2.6% 1.6% 2.2% 2.1% 2.3% 2.1% 2.0% 2.2% 2.0%
1985 1985
2.3% 2.0% 2.0% 2.1% 1.9% 1.9%
2.2% 2.5% 1.7% 2.1% 2.1%
1990 1990
1.6% 1.6% 1.4% 0.9%
1.6% 2.4% 1.6% 2.0% 1.9% 2.1% 1.7% 1.6%
1995 1995
2.1% 2.0% 2.3% 2.0% 2.0% 2.1% 2.0% 2.0% 2.0% 3.3%
2.2% 2.4% 1.7%
1999 1999
1929 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995
Starting Year
Source: Economic Report of the President, various years


Using Charts Changes in real GDP can be overstated if we do not
take population growth into account. To find the annual rate of growth
between two dates, start with the beginning year on the horizontal
axis and read up to the ending year row on the vertical axis. At what Visit epp.glencoe.com and click on
rate did real GDP per capita grow between 1965 and 1990? Textbook Updates”Chapter 13 for
an update of the data.




growth in real GDP per capita between 1929 and Importance of Economic Growth
1939. From 1940 to 1970, the annual rate was 2.9
Economic growth benefits a country in
percent, but it then fell to 2.0 percent from 1970
many ways. It raises the standard of living,
to 1980. Between 1980 and 1990, the growth rate
eases the burden of government, and helps solve
fell to 1.9 percent. Growth plummeted to an even
domestic problems. It can also boost the
greater extent in the early 1990s, only to rebound
economies of foreign trade partners.
spectacularly by the end of the decade.
These are the types of numbers economists,
Standard of Living
businesspeople, politicians, and even the American
A major feature of a free enterprise economy is
public watch on a regular basis. They are far more
its ability to increase real per capita output enough
noticeable”and even painful”when growth is slow,
to allow people to raise their standard of living.
as President Bush discovered in the early 1990s, but
The standard of living means the quality of life
they are nevertheless always important.

CHAPTER 13: ECONOMIC PERFORMANCE 365
Helping Other Nations
Economic growth increases American demand
Population Centers for foreign-made products, which helps create jobs
Washington, D.C. is becoming a hotbed for and generate income in those countries. These pur-
new high-tech communication and Internet chases, in turn, enable foreign citizens to buy more
companies. Technology workers now outnum- goods and services from the United States, which
ber government employees in Washington, may also create new jobs here. Consumers in the
D.C. and the surrounding area. Companies United States and the countries with which it
have settled in the area for a practical reason:
trades benefit from an increased variety of compet-
they are near the government, which makes it
itively priced goods and services.
easier to get authorizations and licenses for
their services. Washington, D.C., ranks as the
Global Role Model
third-largest high-tech center in the United
States, after Silicon Valley and Boston. A number of emerging nations are forming their
political and economic ideologies. These nations
tend to copy the most successful economic systems
of other nations. Many people in the United States
based on the possession of necessities and luxuries
believe that emerging nations will be best able to
that make life easier. A free enterprise system also
help themselves if they adopt a free market system.
increases people™s free time, allowing them to
In the past, the free world and the communist
devote more attention to families, hobbies, and
world each tried to influence the economic devel-
recreational activities.
opment of emerging countries. The competition
ended with the fall of communism in Europe and
Government Spending the breakup of the Soviet Union. Successful eco-
Economic growth benefits government at all levels nomic growth in the United States may now help
by enlarging the tax base”the incomes and properties the market economies of all nations to grow.
that may be taxed. An enlarged tax base increases
government revenues, which helps finance the num-
Factors Influencing Economic
ber and quality of public services. The economic
growth and resulting budget surpluses of the late
Growth
1990s, for example, gave political leaders the option
A number of factors are important to eco-
of increasing spending on highways, defense, and
nomic growth”especially the quantity and
some social programs. It also gave them the opportu-
quality of the factors of production. Also impor-
nity to think about reducing tax rates on citizens.
tant is how efficiently these resources are used.
Domestic Problems
Land
Like most countries of the world, the United
The United States enjoys an abundance of natu-
States faces varying degrees of poverty, inadequate
ral resources. Unlike island nations such as Great
medical care, inequality of opportunity, and eco-
Britain and Japan, it need not depend heavily on
nomic insecurity. Most of these problems stem
international trade for raw materials. Although some
from economic need. Economic growth creates
minerals must be imported, the United States is rea-
more jobs and income for more people, thus help-
sonably self-sufficient in many natural resources.
ing to alleviate social ills at their source.
Even so, the United States needs to conserve its
Economic growth in the 1990s helped the
natural resources. Many of the natural resources
United States lower its unemployment rate and
most Americans take for granted”clean air and
reduce the number of people on welfare. Also,
water, forests, and fertile land”are dwindling rap-
intense competition among firms for workers drove
idly. Only some of these are renewable resources,
the industrial wage up.

366 UNIT 4 MACROECONOMICS: POLICIES
resources that can be replenished for future use. countries, people are so poor and their incomes so
Reseeding, for example, can restore some”but not low that they must spend everything they earn just
all”forests for use in the foreseeable future. Trees to exist. In these countries, there is very little sav-
such as California redwoods and giant firs require ing and, therefore, low investment in capital goods.
centuries to grow to full size. Without capital goods, overall output remains low.
People are trapped by circumstances. They are too
poor to save, but their incomes can rise only if they
Capital have savings to invest in capital goods.
A growing supply of high-quality capital favors
overall economic growth because it improves the
Labor
capital-to-labor ratio”the total capital stock
divided by the number of workers in the labor For any country™s economy to grow, it needs a
force. A high capital-to-labor ratio encourages eco- skilled and growing labor force. In general, the size of
nomic growth because it enables individual work- the labor force is dependent on the size of the popu-
ers to produce more than they could otherwise. lation. If the rate of population growth declines, the
Because capital goods result from production, it size of the labor force might also decline. One way to
is possible to influence their creation. The key is offset a labor shortage is to hire workers from other
saving, and the key to saving is the consumer. countries. Another is to encourage new additions to
When people cut back on consumption in order to the labor force, such as retirees and people who tra-
save and invest, they free up factors of production ditionally have stayed at home.
to generate new capital. The American labor force is more educated and
Unfortunately, it is not always possible to reduce skilled today than in the past. In 1970, for exam-
consumption so that more can be saved. In some ple, the median number of school years workers




Figure 13.11

Labor Productivity, 1959“2000
Labor Productivity Index




110.0
1959“1973: Productivity
100.0 grew at a compound annual
1992 = 100




rate of 2.9%.
90.0
80.0 1995“2000: Productivity
rose to an annual growth
70.0 1973“1995: Annual rate of 2.8%.
productivity growth rate
60.0
fell to 1.1%.
50.0
59


63


67


71


75


79


83


87


91


95



20 9
00
9
19


19


19


19


19


19


19


19


19


19


19




Years
Source: Economic Report of the President, various years

Visit epp.glencoe.com and click on
Using Graphs Labor productivity is the rate of growth of output per
Textbook Updates”Chapter 13 for
unit of labor input. How did the productivity index change
an update of the data.
between 1959 and 1973?


CHAPTER 13: ECONOMIC PERFORMANCE 367
had completed was 12.1. In 1991, the median productivity is labor productivity”the amount of
number was 12.7. In 2000, it exceeded 13. This output produced per unit of labor input.
means that one-half of the labor force has a high Productivity goes up when this ratio goes up and
school education plus at least one year of college down when it goes down.
or its equivalent. Figure 13.11 on page 367 traces labor productivity
in the U.S. economy since 1959. From 1959 to 1973,
the productivity index increased from 54.3 to 80.8,
Entrepreneurs
for an annual compound growth rate of 2.9 percent.
The entrepreneur™s role as an agent of change qual- From 1973 to 1995, however, the productivity rate
ifies him or her as being a key to economic growth. averaged only 1.1 percent per year.
A country may possess the other growth potentials, Productivity rebounded in 1995, reaching an
but without entrepreneurs who are willing to inno- annual compound growth rate of 2.8 percent. As
vate and take risks, economic growth is apt to lag. noted in the cover story, part of the increase is
As a group, entrepreneurs require little more due to the personal computer™s impact.
than a business climate that allows them to succeed. When productivity falters, the entire economy
Most entrepreneurs would favor a minimum of gov- suffers. Declining labor productivity can even lead
ernment regulation and an economic system that to a rise in the price level, making foreign-made
allows them to keep much of their profits. One of goods cheaper than goods made at home.
the most visible and successful entrepreneurial areas Eventually, unemployment in domestic industries
today is the Internet, which is affecting the way that rises.
virtually every company does business. When productivity grows, the entire economy
benefits. Because people produce relatively more
with the same amount of inputs, the prices of
Productivity and Growth goods and services tend to stay low. Domestically
Productivity refers to the efficient use of produced goods become relatively less expensive
productive inputs to create goods and ser- than foreign-made ones, so employment at home
vices. Without productivity, economic growth is expands to keep up with increased product
difficult to achieve. The official measure of demand.




Checking for Understanding Applying Economic Concepts
1. Main Idea Why is real GDP per capita consid- 7. Standard of Living Identify your most valued
ered the best measure of long-term economic material possession. Define the concept
growth? “standard of living” in your own words.
Then, list the ways in which this possession
2. Key Terms Define real GDP per capita,
enhances your standard of living.
growth triangle, standard of living, tax base,
renewable resources, capital-to-labor ratio,
labor productivity.
3. Describe two measures of economic growth. 8. Determining Cause and Effect Why is pro-
4. Explain why economic growth is important. ductivity important to a nation™s standard
of living?
5. Identify the factors influencing economic
9. Finding the Main Idea What does the
growth.
capital-to-labor ratio measure?
6. Explain how productivity relates to economic
growth. Practice and assess key social studies skills with
the Glencoe Skillbuilder Interactive Workbook,
Level 2.



368 UNIT 4 MACROECONOMICS: POLICIES
Section 1 Section 3

Measuring the Nation™s Output GDP and Population (pages 356“361)

(pages 341“348) The annual population growth was more than 3 per-
cent until the Civil War, but it has declined steadily to
• Gross Domestic Product (GDP) is the most com-
the point where it is now about 0.9 percent annually.
plete measure of total output.
• The factors that contribute to changing populations
• GDP excludes intermediate goods and secondhand
are the fertility rate, life expectancy, and net
sales, nonmarket activities, and unreported activities
immigration.
in the underground economy.
• Projections by age and sex show the continuing
• Gross National Product (GNP) is the measure of the
influence of the baby boom, which will ultimately
total income received by American citizens, regard-
increase the dependency ratio.
less of where their productive resources are located.
• The racial and ethnic mix will change with popula-
• Other measures of income are net national product,
tion gains by Asian Americans, Hispanic Americans,
national income, personal income, and disposable
and African
personal income, which appears as the take-home
Americans, so
pay on paychecks.
that the White
• The four sectors of the macro economy are the con- component of
sumer, investment, government, and foreign sectors. the population
will be a bare
• The output-expenditure model, GDP C I G F,
majority by the
is used to show how GDP is consumed by the four
middle of the
sectors of the economy.
next century.


Section 2
Section 4
GDP and Changes in the Economic Growth (pages 363“368)
Price Level (pages 350“354)
• Because of changes in population, long-term eco-
• A price index tracks price changes over time and nomic growth is usually measured in terms of real
can be used to remove the distortions of inflation GDP per capita.
from other statistics.
• Economic growth is important because it raises the
• The price index is computed by dividing the latest standard of living, increases the tax base, increases
prices of the market basket items by the base-year employment, and helps the economies of other
prices and then multiplying by 100. nations.
• •
Three popular indices are the consumer price index, Economic growth requires an ample supply of pro-
the producer price index, and the implicit GDP ductive resources, especially entrepreneurs, to organ-
price deflator. ize production and make the economy grow.
• •
Current GDP is converted to real GDP, or constant When labor productivity is increasing, it helps in
dollar GDP, by dividing the unadjusted number by raising economic growth and improving living
the price index and then multiplying by 100. standards.


CHAPTER 13: ECONOMIC PERFORMANCE 369
7. Explain how the government uses the implicit
GDP price deflator to convert current GDP to
real GDP.

Self-Check Quiz Visit the Economics: Principles
Section 3 (pages 356“361)
and Practices Web site at epp.glencoe.com and
click on Chapter 13”Self-Check Quizzes to pre-
8. Describe the historical growth of population in
pare for the chapter test.
the United States.
9. Describe how the population of the United States
Identifying Key Terms is expected to change by the year 2050.

Examine the pairs of words below. Then write a sentence
explaining what each of the pairs have in common. Section 4 (pages 363“368)
1. base year, market basket 10. Trace the record of real economic growth per
2. Gross National Product, Net National Product capita in the United States.
3. household, unrelated individuals
11. Name the factors that are essential for economic
4. intermediate products, secondhand sales
growth.
5. underground economy, nonmarket transactions
12. Describe the relationship between productivity
6. consumer price index, producer price index
and economic growth.
7. real GDP, GDP in constant dollars
8. demographer, center of population
9. baby boom, population pyramid
Thinking Critically
10. life expectancy, dependency ratio
11. standard of living, labor productivity
1. Expressing Problems Clearly Why is GDP not a
proper measure of the total income earned by
Reviewing the Facts American citizens?
Section 1 (pages 341“348) 2. Predicting Consequences Suppose that politi-
cians wanted to examine the growth of real output
1. Explain why GDP is an important concept.
over the last 10 years. What conclusions would
2. Explain the steps necessary to convert GDP into they reach if they used GDP measured in current
GNP. dollars? How would these conclusions be different
3. Describe the three main sectors that make up the if they examined GDP measured in real dollars?
United States economy. Use a chart like the one below to help you formu-
late your answers.
4. Describe the output-expenditure model.

Conclusions
Section 2 (pages 350“354)
5. Explain why price indices are used. GDP in Current Dollars
6. Identify three of the major price indices the GDP in Real Dollars
federal government calculates.




370 UNIT 4 MACROECONOMICS: POLICIES
3. Synthesizing Information Suppose you were Technology Skill
told that you would earn $75,000 in 2010.
Developing Multimedia Presentations For one week,
Explain why this information would tell you little
clip articles from newspapers that refer to one of the
about the standard of living you might enjoy.
following:
What other information would you need to have
before you could evaluate how well you could live • consumer expenditures • business expenditures
in 2010?
• government expenditures • exports or imports
On a separate sheet of paper, log the expenditures
under one of the four headings. Now imagine you
Applying Economic Concepts must teach a younger class the differences among the
1. Economic Growth Go to the World Wide Web to four sectors that make up our economy. Using a
find a report on GDP. What are the implications of camcorder, videotape examples of consumer expendi-
your report for the future of economic growth? tures, government expenditures, business or invest-
ment expenditures, and foreign expenditures (refer to
2. Nonmarket Transactions Explain what would
pages 346 through 348 for examples). Explain on
happen to GDP if nonmarket transactions were
camera how all four sectors work together.
included.
3. Life Expectancy How would an increase in life
expectancy affect the rate of population growth in
the country?
Using a Spreadsheet Use the following
4. Standard of Living Under what circumstances, if information to create a spreadsheet and
then a bar graph showing real GDP per
any, do you think you might prefer economic secu-
capita in the United States for four years.
rity to a rise in standard of living?
Years Population Real GDP in $Billion
1960 179,323,000 $2,263
Math Practice 1970 203,302,000 $3,398
Your uncle has been telling you how cheap gas was
1980 226,542,000 $4,615
back in 1970 when it was $.35 a gallon. (Assume the
1990 248,710,000 $6,136
price of gas is $1.30 a gallon today.) You know that
the CPI was 38.8 in 1970 and that it is 170.0 today.
Show how you would use this information to deter- Remember to use the following equation to
determine real GDP per capita:
mine when gas was relatively cheaper.
Real GDP
Real GDP per capita
Population
Thinking Like an Economist You may find your calculations will be easier
if you change GDP from billions of dollars to
In your own words, explain why greater life
millions. When you complete your calcula-
expectancies and declining birthrates make some tions, input the information onto a spread-
entitlements like Social Security and medicare more sheet, then convert the numbers to a bar
difficult to fund. graph. Print out your completed graph.
Practice and assess key social studies skills with
the Glencoe Skillbuilder Interactive Workbook,
Level 2.

CHAPTER 13: ECONOMIC PERFORMANCE 371
Setting Up the Workshop
In this workshop, you will experiment with a
process that you design to produce paper bas-
kets. You will produce as many baskets as you
can, decorated as attractively as possible, within
a period of 10 minutes.
Your teacher will provide you with one ruler,
one stapler, three colored markers, and a supply
of paper. These are your capital goods, the tools
and equipment you will use to produce the bas-
kets. Before you begin, decide on the design.
Read the procedures that follow. Your teacher
will tell you when to begin your production
process and when to stop.

Using Factors of You are to work individually. Do not commu-
nicate with other students. The member of your

Production class who makes the most will have the highest
productivity. Only those products that are com-
pleted (finished goods) will be counted. Products
From the classroom of . . . that were started but not yet completed (goods
Linda Morrell in process) will count against your productivity
(one less for each good in process). Your teacher
Rancocas Valley Regional High School
or a student volunteer your teacher selects will
Mount Holly, New Jersey
serve as the quality control inspector, who will
inspect the baskets and reject any that are not
One of the principle goals of an economic
of acceptable quality.
system is efficiency. How do we achieve effi-
ciency in production? One key is opera-
Procedures
tional innovation. This includes improving
the methods of organizing production in
order to reduce costs, improve quality, and STEP 1
meet the demands of the customers. Divide, then cut, each sheet of paper into four
equal strips.

STEP 2
Decorate the strips to make an attractive design
for the basket.

STEP 3
Staple three of the strips so they make a basket.
Use the fourth strip for a basket handle.



372 UNIT 4 MACROECONOMICS: POLICIES
STEP 4 Summary Activity
After time is called, count the number of bas-
1. Why was the total class output higher when
kets you produced and compare your total
everyone worked in groups?
with that of the other students.
2. Discuss your group™s productivity. In what
ways could it be increased?
STEP 5 3. Devise a statistical measure to gauge the
increase in productivity observed in the
Discuss the results. Discuss what problems
activity.
occurred due to a scarcity of resources.
4. Economists use terms like factors of produc-
tion and intermediate products when they
STEP 6 talk about production. Provide examples of
each.
Your teacher will place you in a team. Your
5. What is the role of the entrepreneur in the
task is the same as before”create as many
production process?
baskets as you can. You will have a few min-
6. What happens to a firm™s productivity and
utes to plan your strategy before you begin.
its costs of production when efficiency
improves? How do improvements in produc-
STEP 7 tivity affect the supply of products?
Repeat the 10-minute production period. You
are permitted to communicate with your team
members as you work.


STEP 8
After time is called, do the following:
• Count the number of baskets your group
produced.
• Compare your total with the total of the
other groups.
• Describe to the other groups the production
process you used.




UNIT 4 MACROECONOMICS: POLICIES 373
Do you worry about
the future? If you are
concerned about getting a job,
earning a decent income, or
keeping up with inflation, the
Downturns in the economy result
concept of economic stability is
in some businesses failing.
important to you. To learn more
about the effects of unemploy-
ment and inflation, view the
Chapter 21 video lesson:
Fighting Unemployment,
Inflation, and Poverty




Chapter Overview Visit the Economics: Principles
and Practices Web site at epp.glencoe.com and
click on Chapter 14”Chapter Overviews to pre-
view chapter information.

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