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Economics

LO1 What is economics? LO2 How does fiscal and monetary policy impact the economy? LO3 What is the free market system and the supply and demand relationship? LO4 What are planned market systems? LO5 What are mixed market systems? LO6 What tools are used to evaluate economic performance?.

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Economics

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  1. LO1What is economics? LO2How does fiscal and monetary policy impact the economy? LO3What is the free market system and the supply and demand relationship? LO4 What are planned market systems? LO5What are mixed market systems? LO6What tools are used to evaluate economic performance? Economics The Framework for Business

  2. Global Economic Crisis: How did this happen? Source: TABLE B–1.—Gross domestic product, 1959–2008, Economic Report of the President: 2009 Spreadsheet Tables, updated January 14, 2009, Government Printing Office website, http://www.gpoaccess.gov/eop/tables09.html, accessed January 20, 2009 In late 2008: • The banking system hovered on the edge of collapse • Property values plummeted • Home foreclosures soared • Layoffs put more than a million Americans out of work • The stock market lost more than 1/3 its value

  3. Housing Prices Peaked, and then Plummeted

  4. Economics Macroeconomics Country’s Overall Economy Microeconomics Consumers Families Businesses

  5. Unprecedented Action by the Federal Government • The Federal Reserve (FED) intervened with financial institutions • The FED bailed out insurance giant AIG • Congress passed the Troubled Assets Relief Program (TARP) • The Treasury Department spent money on an auto industry bailout • The American Recovery and Reinvestment Act was signed by congress to turn around the economy • These fiscal and monetary actions slowly began to improve the economy

  6. Federal Reserve • Conduct Monetary Policy: • Changes in the Discount Rate • Changes in Reserve Requirement • Open Market Operations • Check Clearing Process • Banking Services for Government and other banks

  7. Managing the Economy Through Fiscal and Monetary Policy • Fiscal Policy – government efforts to influence the economy: • Taxation • Government Spending • Controlled by Congress/Budget Process • Monetary Policy – Federal Reserve actions to shape the economy: • Supply and Demand of Money • Cost of Credit • Controlled by the Federal Reserve (FED) • Seven Member Board • Chairman

  8. Fiscal Policy The federal government budget outlines revenue and expenses • When revenue is higher than spending, there is a budget surplus • When spending is higher than revenue, the government incurs a budget deficit • The sum of all the money borrowed is the federal debt

  9. Federal Government Revenue and Expenses

  10. Federal Deposit Insurance Corporation (FDIC) Source: Who is the FDIC?, FDIC website, October 27, 2008, http://www.fdic.gov/about/learn/symbol/index.html, accessed January 22, 2009 The FDIC insures deposits in banks and thrift institutions up to $100,000 The amount was increased to $250,000 at the end of 2008 Since 1934, no depositor has lost a single cent of insured funds because of bank failure

  11. The Fundamental Rights of Capitalism 11 The right to own a business and keep after-tax profits The right to private property The right to free choice The right to fair competition

  12. Four Degrees of Competition • Pure Competition • Monopolistic Competition • Oligopoly • Monopoly

  13. Supply and Demand: Fundamental Principles of a Free Market • Supply: the relationship between the price of a good and the quantity sellers are willing/able to offer • Sellers tend to supply a greater quantity as the price rises. • Supply curve: a graph of the supply relationship • The supply curve slopes upward to the right showing that quantity supplied increases as price rises.

  14. Supply and Demand: Fundamental Principles of a Free Market • Demand: the relationship between the price of a good and the quantity buyers are willing and can afford to buy • When price falls, consumers tend to buy more. • Demand curve: a graph of the demand relationship • The demand curve slopes downward showing that quantity demanded increases as price falls.

  15. Supply and Demand: Fundamental Principles of a Free Market • Forces of supply and demand drive equilibrium price • The point where supply and demand intersect • Market price adjusts to the equilibrium price

  16. Putting S&D together!

  17. Planned Economies: Socialism and Communism Communism • Public Ownership of Enterprise • Strong Central Government Socialism • Government Control Key Enterprises • Higher Taxes

  18. Mixed Economies: The Story of the Future Market and Planned Economies don’t meet all needs • Neither planned nor market economies meet all needs • Planned Economies will not create enough value As a market dominant economy, the U.S. government still owns/supports enterprises • Postal Service • Universities • Parks • Libraries

  19. Evaluating Economic Performance: What’s Working? Gross Domestic Product Unemployment Rate Consumer Price Index Producer Price Index Productivity

  20. Inflation The rate of price changes across the economy is an economic measure • Inflation means that prices are rising • Hyperinflation is when average prices increase more than 50% per month • Disinflation is when prices increases slow down • Deflation is when average prices actually decrease. The government measures prices using the Consumer Price Index (CPI) and the Producer Price Index (PPI)

  21. The Business Cycle

  22. LO1 What opportunities exist in the world economy for businesses? LO2 Why do nations trade? LO3 How do we measure trade? LO4 How do companies reach global markets? LO5 What are the barriers to international trade? LO6 What are the benefits and criticisms of the free trade movement? The World Marketplace: Business Without Borders

  23. Global Trade: Taking Measure • Balance of Trade • Trade Deficit • Trade Surplus • Balance of Payments • Balance of Payments Deficit • Balance of Payments Surplus • Exchange Rates • Countertrade

  24. Global Trade: Exchange Rates Source: What is countertrade? By Neha Gupta, Barter News Weekly website, March 11, 2010, http://www.barternewsweekly.com/2010/03/11/what-is-counter-trade-1851/, accessed February 10, 2010

  25. Impact of Exchange Rates on Business Buying Decisions ….Looking to buy European Cars to sell in the US……Today we buy a car in Europe and bring to the US at a cost of 20000 euros. If the Exchange Rate (ER) is 1.10 or 1.10 for every Euro. The cost of the car in US Dollars is $22000. Going Forward….. The ER changes….. Scenario….1. if the Euro ER goes down to .90 for every dollar. The cost of the car in US money goes to $18000. Better to have waited. Scenario….2. if the Euro goes up to 1.30 for every dollar the cost of the car goes up to $26000.00. Buy NOW because it will be much more expensive later.

  26. The Many Names of Money China Yuan England Pound European Union Euro India Rupee Iran Rial Israel Shekel Japan Yen Mexico Peso South Africa Rand South Korea Won

  27. Barriers to International Trade • Sociocultural Differences • http://www.youtube.com/watch?v=ZE2u7GFLglY&playnext=1&list=PL317AABBF87A4BC41&feature=results_mainEconomic Differences • Political & Legal Differences

  28. Veggie Surprise, Anyone? India: Paneer Salsa Wrap: Cottage cheese with Mexican-Cajun coating Australia: Bacon and Egg Roll: “rashers of quality bacon and fried egg” Hong King: Corn Cup: A plastic cup filled with corn off the cob United Kingdom: Five “Toasted Deli” sandwich options Japan: Shrimp burgers and green tea flavored milkshakes

  29. Barriers to International Trade: Sociocultural Differences Social/cultural differences can rapidly undermine business relationships • Nonverbal Communication • Forms of Address • Attitudes toward punctuality • Religious Celebrations • Business Practice/Gifts

  30. GATT and the World Trade Organization (WTO) • General Agreement on Tariffs & Trade (GATT) • Established in 1948 • Now encompasses 125 nations • Slashed tariffs by about 30% • World Trade Organization (WTO) • Promote International Trade • Settle Trade Disputes

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