government is divided into three branches: the legislative, executive, and judicial. Each branch has an important function: ■ The legislative branch makes laws. ■ The executive branch carries out laws. ■ The judicial branch interprets laws. The U.S. Constitution also allows each branch to place controls or limits on the power of the other two branches, so that no one branch dominates. This frame- work is called the system of checks and balances. For example, the legislature (U.S. Congress) may pass a bill, but before it can become law, the executive (the presi- dent) must sign it. The president can refuse it by vetoing it. However, Congress can still pass the bill into law—in an action called overriding the veto—if two-thirds of its members vote for it. (See table at bottom of this page.) State and Local Governments State governments resemble the framework of the federal government. The governor acts as the chief executive and can veto legislation. Most states have legislatures made of two houses, and each state has its own court system, con- stitution, and a system of checks and balances. Local gov- ernments vary from the state and federal model. There are three basic forms of local government: Mayor-council—in this form, voters elect a mayor as city or town executive and they elect a council member from each specific ward. Council-manager—in this form, voters elect council members, who, in turn, hire a manager to run the day-to-day operations of the city or town. Commission—in this form, voters elect commis- sioners to head a city or county department, like the fire, police, or public works department. State governments must approve and grant power to, or charter, all town and city governments. Political Parties Although the U.S. Constitution does not mention the existence of political parties, they have played an influ- ential role throughout most of the country’s history. A political party is an organization that presents its posi- tions on public issues and promotes candidates that sup- port its point of view. – CIVICS AND GOVERNMENT– 145 STRUCTURE OF FEDERAL GOVERNMENT Executive Branch President ■ A president is elected by the voters for four-year term. Vice President ■ A president cannot serve more than two terms. Agencies ■ Vice president becomes head of state if the president Departments becomes disabled or dies in office. ■ Agencies carry out a president’s policies and provide special services. ■ Department heads advise a president and carry out policies. Legislative Branch U.S. Congress: ■ Number of representatives for each state is based on the House of population of that state. Representatives ■ Representatives serve two-year terms. Senate ■ Each state has two senators. ■ Senators serve six-year terms. Judicial Branch U.S. Supreme Court ■ U.S. Supreme Court is the highest court in the nation. Circuit Courts ■ The president appoints the nine justices of the Supreme Court. of Appeals ■ Term is for life. Federal District Courts Political parties serve several functions: ■ recruit candidates and run election campaigns ■ formulate positions on issues that affect the pub- lic and propose solutions ■ educate the public on issues ■ mobilize their members to vote ■ create voting blocs in Congress Since the mid-nineteenth century, two political parties have dominated in American politics: the Republican and Democratic parties. The two parties differ on social, economic, and domestic policies. They also hold differ- ent beliefs as to the role of government. The Republican Party supports powerful state governments with less involvement on the federal level, while the Democratic Party supports a strong centralized government with less power on the state level. Other current political organi- zations include the Green, Libertarian, Reform, and Socialist parties. EXERCISE 7 Choose the best answer based on the information pro- vided about political parties. The answer is on page 168. 1. Which of the following conclusions can you make about political parties? a. They should be outlawed because they are not mentioned in the Constitution. b. Prior to the nineteenth century, the Green, Libertarian, Reform, and Socialist parties were more influential than they are today. c. Political parties have an influential role in the political process today. d. It’s hard to tell the Democratic and Republi- can parties apart these days. e. Third-party candidates can alter the outcome of an election. Voting and Elections To vote in the United States, a person must be 18 years old and a U.S. citizen. Presidential elections occur every four years, and Congressional elections are held every two years. Most national elections in the United States use a plurality system, which means that a candidate need only receive more votes than his or her opponent to win. In contrast, some European nations have proportional representation. In this system, if a political party earns 15% of the vote, it would be awarded 15% of the parlia- mentary seats. In the United States, primary elections are held before general elections. In primaries, voters give their prefer- ence for a political party’s candidate. General elections then decide the ultimate winner. Becoming an American Citizen Immigrants come to the United States for many reasons: Some seek economic opportunity, while others wish to escape political persecution in their native countries. Benefits of U.S. citizenship include enjoying the free- doms and rights outlined by the Constitution. To become a citizen, a person must apply, pass an exam, and appear for a court hearing. This process, also called nat- uralization, is conducted by the Immigration and Natu- ralization Service (INS). The following are some of the requirements for citizenship. Candidates must: ■ be at least 18 years old ■ reside legally in the United States for five years ■ be a person of good moral character ■ understand and be able to communicate in basic English ■ demonstrate a basic knowledge of U.S. history, government, and the Constitution ■ be willing to take an oath of allegiance to the United States – CIVICS AND GOVERNMENT– 146 E CONOMICS is defined as the study of the ways that goods (and services) are bought, sold, distributed, and used. The economics questions on the GED will require that you have a good grasp of the relationship of supply and demand, recession and depression, how economic growth is measured, and how the U.S. government is involved in the nation’s economy. Types of Economic Systems None of the three basic economic systems—capitalism, socialism, and communism—exists in pure form. Each has some characteristics of the others. For example, in the U.S. economy, which is primarily capitalist, the govern- ment does place some controls over private business in order to protect consumers. CHAPTER Economics ON THE GED, questions about economics will include the areas of supply and demand, inflation and deflation, and economic systems. Many economics questions will ask you to interpret and analyze a chart or graph, so practice in working with visual aids will be helpful in your preparation. 16 147 TYPE CHARACTERISTICS EXAMPLES Capitalism ■ Individuals and private organizations own and operate businesses. ■ United States ■ Free market determines production and distribution of goods and services. ■ Prices set by supply and demand. Socialism ■ State owns and operates many businesses and services. ■ Sweden ■ Private ownership is allowed. ■ Citizens pay high taxes to fund state-run social services, including healthcare, food, and housing. Communism ■ State, or the community, owns all businesses. ■ People’s ■ State controls distribution of goods and services. Republic of China ■ State provides social services. ■ Cuba ■ Former Soviet Union – ECONOMICS– 148 The Marketplace In the United States, prices are determined by the “mar- ket,” or the principle of supply and demand. Supply is the amount of goods and services available for purchase. Demand is determined by how many people want to buy those goods and services. Generally, when demand increases, supply increases, and when demand decreases, supply decreases. Industries charge prices that cover the cost of production and make a profit for their company. Industries try to get the highest possible price for their goods. Consumers try to get the lowest possible price. These different goals can affect the price of a product or service. When companies make the exact amount of a prod- uct or service at a price that customers are willing to buy, they have reached a point of equilibrium. If the price is greater than this point, demand drops and there may a surplus, which is when there are more goods produced than customers are willing to buy. If the price falls below the point of equilibrium, demand may increase and cre- ate a shortage in supply. For example, Company X is introducing a new cell phone model, the XLZ. (See the graph on next page.) The business wants to determine the equilibrium point, so that it will not have a surplus or shortage of the prod- uct. To cover its costs and make a profit, Company X can supply ten phones for $1,100. As the price increases, the company can offer more phones for sale. However, few customers are willing to pay high prices for the phones. As the price drops, demand increases. E XERCISE 8 Refer to the graph “Supply and Demand Curves for Cell Phone XLZ” on page 149 to answer the following ques- tions. The answers are on page 169. 1. At what price does the supply of cell phone model XLZ equal that of demand? a. $1,400 b. $1,300 c. $1,250 d. $1,500 e. $1,550 2. If the market price for cell phone model XLZ increased to $1,600, what would be the likely result? a. Stores would quickly run out of product. b. Demand would decrease. c. The manufacturer would not be able to keep up with demand. d. The manufacturer would produce the cell phone model at the same rate. e. The manufacturer would go out of business. – ECONOMICS– 149 Supply and Demand Curves for Cell Phone XLZ 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 10 20 30 40 50 60 70 80 90 100 Price in dollars Number of phones sold Equilibrium Supply Demand 0 Business Cycles Capitalist economies experience business cycles, periods of growth followed by a period of low productivity and income, called a recession. A depression occurs when recession lasts for a long period and is severe. During the Great Depression in the 1930s, the United States experi- enced its worst depression. At that time, large numbers of people suffered unemployment and homelessness. Economic growth is the goal of capitalism. During a boom period, companies are able to produce more goods and services, and consumers are able to buy more goods and services. Inflation occurs when the amount of money in circulation increases and the amount of consumer goods (supply) decreases. The dollar drops in value and prices increase. Deflation happens when the money supply decreases and the amount of consumer goods increases. Prices are lower, but companies lose profit and lay off employees, which results in higher rates of unemployment. Role of the Government To avoid inflation and unemployment, the U.S. Federal Reserve System (“the Fed”) takes measures to keep the economy in balance by controlling the supply of money in the country. One way it does this is by setting the reserve ratio. Every bank that is a member of the Fed must keep a reserve—a ratio of its deposits—that is not used to make loans. To fight inflation, the Fed might set a high reserve ratio, so that less money is available in the economy. During recession or high unemployment, the Fed might set a low reserve ratio, so there is more money available within the economy. The Federal Reserve Board can also affect the nation’s economy by altering the discount rate, which is the inter- est rate that the Fed charges banks to borrow money. To make a profit, banks charge their customers a higher interest rate than the rate they pay to the Fed. When the Fed sets a high discount rate, banks charge more interest on loans, which makes it more difficult for people and businesses to borrow. When the Fed sets a low discount rate, banks charge less, and more people and businesses can afford loans. Measuring Economic Growth Economists use different data to study the health of the economy. They look at stock market trading, the cost of living, unemployment rates, and the gross domestic prod- uct (GDP). The GDP measures the total value of goods and services produced within the United States over the course of a year. The gross national product (GNP) takes into account both the GDP and foreign investments. If the GNP decreases for two consecutive quarters during a year, the economy is considered to be in recession. Source: U.S. Department of Labor, Bureau of Labor Statistics. The Consumer Price Index (CPI) measures changes in the cost of living. To calculate the CPI, the U.S. Bureau of Labor Statistics tracks changes in prices in common goods and services—food, clothing, rent, fuel, and oth- ers—each year. The graph shows the CPI in all U.S. cities between 1990 and 2001. To make comparisons between years, the graph uses the years 1982–1984 as a base period (1982–1984 = 100). For instance, if the average urban consumer spent $100 on living expenses in 1982–1984, he or she spent more than $150 on the same expenses in 1995. EXERCISE 9 Using the graph and passage about the consumer price index, answer the following questions. The answers are on page 169. 1. How much would an urban consumer expect to pay in 2001 for an item that costs $50 in 1982–1984? a. $88 b. $100 c. $176 d. $43 e. $131 2. What conclusion can you make based on the graph? a. The CPI tracks price changes for common household expenses. b. The cost of living has decreased in recent years. c. The rate of increase in the cost of living slowed between 1999 and 2000. d. If the cost of living continues to rise, people will move out of the cities. e. The cost of living for city residents steadily increased between 1990 and 2001. Consumer Price Index—All Urban Consumers 1990 –2004 180 170 160 150 140 130 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Index: 1982–1984 = 100 2002 2003 2004 190 – ECONOMICS– 150 . Price Index—All Urban Consumers 1990 20 04 180 170 160 150 140 130 1990 1991 19 92 1993 1994 1995 1996 1997 1998 1999 20 00 20 01 Index: 19 82 1984 = 100 20 02 2003 20 04 190 – ECONOMICS– 150 . 169. 1. How much would an urban consumer expect to pay in 20 01 for an item that costs $50 in 19 82 1984? a. $88 b. $100 c. $176 d. $43 e. $131 2. What conclusion can you make based on the graph? a shows the CPI in all U.S. cities between 1990 and 20 01. To make comparisons between years, the graph uses the years 19 82 1984 as a base period (19 82 1984 = 100). For instance, if the average urban