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Unformatted text preview: CHAPTER FOUR THE U.S. ECONOMY: PRIVATE AND PUBLIC SECTORS CHAPTER OVERVIEW This chapter provides descriptive details about both the private sector (households and businesses) and the public sector (government) in our market economy. The goal is to understand households, businesses, and governmental units as the primary decision makers in our economy. The circular flow diagram has been expanded to show how the public sector interacts with two parts of the private sector. WHATS NEW This was Chapter 5 in the 16 th edition. The basic structure of the chapter is the same, but there have been a number of important additions and revisions, including extensive updating of data. Discussion of the Legal Forms of Businesses has been consolidated to a definition of the three main legal forms and a discussion of why the corporate form dominates sales and profits. Changes here will quicken the pace without significant loss of content. The content on corporate misconduct, including discussion of Enron and WorldCom, has been converted to a new Consider This box titled Unprincipled Agents. Discussions of externalities (here and throughout the text) now emphasize the terms negative externalities, external costs, positive externalities, and external benefits versus spillover costs and spillover benefits in the previous edition. References to spillovers still remain because they are helpful metaphorically. There is a new Last Word on Social Security (moved from Chapter 18: Deficits, Surpluses, and the Public Debt from the 16 th edition). It replaces the Last Word on corporate finance, with this material being moved to within the chapter and to the new macro Web Chapter 14W: Financial Economics. End-of-chapter study questions have undergone minor revisions, including the addition of a new Last Word question. INSTRUCTIONAL OBJECTIVES After completing this chapter, students should be able to: 1. Define, explain, and give relative importance of the five shares in the functional distribution of income and explain what is included in the fifth share proprietors income. 2. Define and explain the personal distribution of income, and state the relative shares going to the top 20 percent compared to the bottom 20 percent (or one-fifth). 3. State the three major categories of household spending or income disposition and relative shares of each. 4. Explain the terms durable goods, nondurable goods, and services. 5. Explain the difference between a plant, a firm, and an industry. 6. Describe the three legal forms of business. 7. Explain the advantages of the corporate form of business. 8. Describe the principal-agent problem....
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This note was uploaded on 02/25/2010 for the course MAT 443 taught by Professor Roberts during the Winter '10 term at University of Arizona- Tucson.

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