tiny costumes this is mr. Clifford welcome to econ movies today we're gonna look at the economics in the movie Cars study of economics can be broken into two parts first is microeconomics it studies individuals businesses and markets up close the second part is macroeconomics which today is the big picture the entire economy as a whole macro economists look at things like spending unemployment and inflation to find out if we have a healthy economy now the economy is kind of like a car for example some cars can go fast I'm a precision instrument with speed and aerodynamics the economies of the world's developed countries can produce huge amounts of goods and services because they have the world's best engines they've got the capital the factories machines and equipment the result in high productivity now other cars are slow I'm a pre-shave instrument infeed and aromatic less developed countries have slower economies because they have less capital political instability fewer free markets are just a broken economic system in the movie lightning McQueen's goal is to win the Piston Cup what news cup although some countries are in the running to have the world's fastest economy it's not really a race instead the goal of every economy is to do each lap a little faster if an economy is improving and going faster each year then it's experiencing something called economic growth the most important measure of a country's economy is something called GDP or gross domestic product GDP is the dollar value of all the final goods and services produced in the country in one year it includes goods like Rusty's bumper ointment Baidu McQueen here and I use rust-eze medicated bumper ointment new rear-end formula but it also includes services like a paint job remove wood paint you up right just like how a four-cylinder car gives us power from four Pistons each economy gives its power from four components the makeup GDP economists have given each one a letter the first component of GDP is consumer spending this is spending on things like food and clothes and tires garage mr. lightning God consumer spending is the largest and most important part of GDP so customers are a big deal the second part of GDP is investment this is spending by businesses on equipment and machinery or other things to improve their business the next part of GDP is government spending which is spending on things like national defense the police and fire trucks the last part of GDP is called net exports it's the value of all the exports we sell to other countries - the valued all the imports we buy from them Lightning McQueen told me this was the best place in the world to get ties how about setting me my friends up with three four sets each my life Wow Sparrow kill - amicus airplane media no Casey at the fantastic G they're spending by these four groups consumers businesses the government and other countries determines how much we can produce in a year the GDP okay we're not done time has proven that every economy goes through periods when it's either speeding up or it's slowing down the idea that a country's GDP goes up and down and up and down over time is called the business cycle and expansion is the good times when the economy is moving fast there's a lot of consumer spending low unemployment and there's a high standard of living GDP is on the rise and there's economic growth a recession is the bad times when the economy slows down and there's high unemployment remember a huge part of the economy is consumer spending and when consumers stop spending businesses have to close and when these businesses closed the workers are fired and now they have lower incomes and so they spend less this causes other businesses to close and the economy gets even worse if it gets really really bad it becomes a depression that is when the whole economy just crashes now these economic downturns are scary that's why the government often steps in to help speed up the economy they can either increase government spending or they can cut taxes this is called fiscal policy an example of fiscal policy is when the government tries to speed up the economy by increasing Public Works programs like fixing roads this here is Vesey finest road paving machine ever built you're gonna fix the road under my supervision fiscal policy is done by politicians so whether we should cut taxes or increase governor spending is one of the many things that conservatives and liberals fight about [Music] [Music] eventually the good times will return and there'll be an expansion [Music] but eventually there'll be another recession that's just the business cycle so the economy is kind of like a car but it's not on a flat racetrack it's on an endless highway that continually goes up and down and up and down over time [Music]