United States (Economy) INTRODUCTION The U.S. economy is immense. In 1998 it included more than 270 million consumers and 20 million businesses. U.S. consumers purchased more than $5.5 trillion of goods and services annually, and businesses invested over a trillion dollars more for factories and equipment. Over 80 percent of the goods and services purchased by U.S. consumers each year are made in the United States; the rest are imported from other nations. In addition to spending by private households and businesses, government agencies at all levels (federal, state, and local) spend roughly an additional $1.5 trillion a year. In total, the annual value of all goods and services produced in the United States, known as the Gross Domestic Product (GDP), was $9.25 trillion in 1999. Those levels of production, consumption, and spending make the U.S. economy by far the largest economy the world has ever known-despite the fact that some other nations have far more people, land, or other resources. Through most of the 20th century, U.S. citizens also enjoyed the highest material standards of living in the world. Some nations have higher per capita (per person) incomes than the United States. However, these comparisons are based on international exchange rates, which set the value of a country's currency based on a narrow range of goods and services traded between nations. Most economists agree that the United States has a higher per capita income based on the total value of goods and services that households consume. American prosperity has attracted worldwide attention and imitation. There are several key reasons why the U.S. economy has been so successful and other reasons why, in the 21st century, it is possible that some other industrialized nations will surpass the U.S. standard of living. To understand those historical and possible future events, it is important first to understand what an economic system is and how that system affects the way people make decisions about buying, selling, spending, saving, investing, working, and taking time for leisure activities. Capital, savings, and investment are taken up in the fourth section, which explains how the long-term growth of any economy depends upon the relationship between investments in capital goods (inventories and the facilities and equipment used to make products) and the level of saving in that economy. The next section explains the role money and financial markets play in the economy. Labor markets, the topic of section six, are also extremely important in the U.S. economy, because most people earn their incomes by working for wages and salaries. By the same token, for most firms, labor is the most costly input used in producing the things the firms sell. The role of government in the U.S. economy is the subject of section seven. The government performs a number of economic roles that private markets cannot provide. It also offers some public services that elected officials believe will be in the best interests of the public. The relationship between the U.S. economy and the world economy is discussed in section eight. Section nine looks at current trends and issues that the U.S economy faces at the start of the 21st century. The final section provides an overview of the kinds of goods and services produced in the United States. U.S. ECONOMIC SYSTEM An economic system refers to the laws and institutions in a nation that determine who owns economic resources, how people buy and sell those resources, and how the production process makes use of resources in providing goods and services. The U.S. economy is made up of individual people, business and labor organizations, and social institutions. People have many different economic roles-they function as consumers, workers, savers, and investors. In the United States, people also vote on public policies and for the political leaders who set policies that have major economic effects. Some of the most important organizations in the U.S. economy are businesses that produce and distribute goods and services to consumers. Labor unions, which represent some workers in collective bargaining with employers, are another important kind of economic organization. So, too, are cooperatives-organizations formed by producers or consumers who band together to share resources-as well as a wide range of nonprofit organizations, including many charities and educational organizations, that provide services to families or groups with special problems or interests. For the most part, the United States has a market economy in which individual producers and consumers determine the kinds of goods and services produced and the prices of those products. The most basic economic institution in market economies is the system of markets in which goods and services are bought and sold. That is where consumers buy most of the food, clothing, and shelter they use, and any number of things that they simply want to have or that they enjoy doing. Private businesses make and sell most of those goods and services. These markets work by bringing together buyers and sellers who establish market prices and output levels for thousands of different goods and services. A guiding principle of the U.S. economy, dating back to the colonial period, has been that individuals own the goods and services they make for themselves or purchase to consume. Individuals and private businesses also control the factors of production. They own buildings and equipment, and are free to hire workers, and acquire things that businesses use to produce goods and services. Individuals also own the businesses that are established in the United States. In other economic systems, some or all of the factors of production are owned communally or by the government. For the most part, U.S. producers decide which goods and services to make and offer to sell, and what prices to charge for those products. Goods are tangible things-things you can touch-that satisfy wants. ............