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Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
Introduction to business 5th ed  Chapter 3
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Introduction to business 5th ed Chapter 3

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Slide show Madura, Introduction to business Chapter 3

Slide show Madura, Introduction to business Chapter 3

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  • 1. Introduction to Business 5thed<br />Jeff Madura<br />8/20/2011<br />1<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 2. Chapter 3 Assessing Economic Conditions<br />Learning Objectives:<br />Impact of Economic Growth on Business Performance<br />Impact of Inflation<br />Impact of Interest Rates<br />How Market Prices Are Determined<br />Government Influence on Economic Conditions<br />8/20/2011<br />2<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 3. Assessing Economic Conditions<br />8/20/2011<br />3<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 4. 1: Impact of Economic Growth on Business Performance 66<br />1.1 Strong Economic Growth 66 <br />1.2 Weak Economic Growth 66<br />1.3 Indicators of Economic Growth 68<br /> <br />8/20/2011<br />4<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 5. 1.1 Strong Economic Growth 66 <br />Economic growth can spread amongst businesses:<br /> <br />Increase spending <br />Hire more employees <br />Expand operations <br />Increase demand in supplies, construction services, materials etc. <br />Increase spending for other firms<br />Investors receive a higher return Increase spending<br />8/20/2011<br />5<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 6. 1.1 Strong Economic Growth 66<br />8/20/2011<br />6<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 7. 1.2 Weak Economic Growth 66<br />Decreasing growth<br />Stagnating growth (no growth)<br />Negative growth<br />Recession: two consecutive quarters with a negative growth<br />8/20/2011<br />7<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 8. 1.2 Weak Economic Growth 66<br />http://www.youtube.com/watch?v=5e1BuKBdi84<br />FEAR!<br />http://www.google.com/finance?q=INDEXDJX:.DJI<br />8/20/2011<br />8<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 9. 1.3 Indicators of Economic Growth 68<br />DEMAND side of the economy<br />Aggregate expenditures: Total amount of spending in the country (not only consumers!).<br />SUPPLY side of the economy<br />Total production level: Total market value of all final products and services produced.<br />GDP: Gross domestic product<br />8/20/2011<br />9<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 10. 1.3 Indicators of Economic Growth 68<br />http://research.stlouisfed.org/fred2/graph/?id=GDP,GDPC1,FGEXPND,<br />8/20/2011<br />10<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 11. 1.3 Indicators of Economic Growth 68<br />Nominal Increase in GDP<br />Actual increase in GDP<br />Inflation adjusted GDP<br />8/20/2011<br />11<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 12. 1.3 Indicators of Economic Growth 68<br />UNEMPLOYMENT<br />Frictional unemployment: Caused by imperfections in the labor market<br />Seasonal unemployment: People who are not needed during certain seasons<br />CYCLICAL UNEMPLOYMENT: Persons who are unemployed because of poor economic conditions<br />Structural unemployment: People who are unemployed because of a missing labor skills, or due to changes in the production process.<br />Cyclical unemployment, best indicator of <br />weak economic growth<br />8/20/2011<br />12<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 13. 1.3 Indicators of Economic Growth 68<br />Sensitivity to Economic Growth<br />High<br />Low<br />8/20/2011<br />13<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 14. 2: Impact of Inflation 69<br />2.1 Types of inflation 70<br /> <br />Cost Push inflation: When higher prices charged by firms are caused by higher costs/purchase prices.<br />Demand pull Inflation: When prices of product and services are pulled up by because of strong consumer demand.<br />8/20/2011<br />14<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 15. 3: Impact of Interest Rates 72<br />3.1 Impact on a Firm's Expenses 72<br />Term of a long term loan is not the same as the interest term of the loan.<br /> <br />3.2 Impact on a Firm's Expansion 73<br />3.3 Impact on a Firm's Revenue 73<br /> <br />Revenues  Consumers<br />8/20/2011<br />15<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 16. 3: Impact of Interest Rates 72<br />Global Business: Capitalizing on Global Economic conditions 75 <br />Fishing out in the ocean instead of in the pond. <br />8/20/2011<br />16<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 17. 3: Impact of Interest Rates 72<br />3.4 How Rising Interest Rates Affected the Housing Crisis 75<br /> <br />& Impact on the economy<br />8/20/2011<br />17<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 18. 4: How Market Prices Are Determined 76<br />4.1 Demand Schedule for a Product 76<br /> Relation between the price of a product and quantity demanded.<br /> <br />4.2 Supply Schedule for a Product 76<br /> Relation between the price of a product and the quantity supplied.<br />8/20/2011<br />18<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 19. 4: How Market Prices Are Determined 76<br />8/20/2011<br />19<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 20. 4: How Market Prices Are Determined 76<br />4.3 Interaction of Demand and Supply 77<br /> - surplus<br /> - shortage<br /> - equilibrium<br />8/20/2011<br />20<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 21. 4: How Market Prices Are Determined 76<br />4.4 Effect of a Change in the Demand Schedule 78<br />8/20/2011<br />21<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 22. 4: How Market Prices Are Determined 76<br />4.4 Effect of a Change in the Demand Schedule 78<br />Curacao North Sea Jazz Fest Snags Sting, Stevie Wonder<br />Posted on Wednesday April 13, 2011 at 05:01 PM1 |<br /> The second annual Curacao North Sea Jazz Festival doesn’t happen until September but it has already nailed down some impressive headliners, including Sting and Stevie Wonder.<br />http://www.pollstar.com/blogs/news/archive/2011/04/13/763575.aspx<br />Beyonce's Concert sells out in 22 seconds! | Celebrities, Music ...<br />terrellvanity.com/beyonces-concert-sells-22-seconds/music-news/ - <br />8/20/2011<br />22<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 23. 4: How Market Prices Are Determined 76<br />4.5 Effect of a Change in the Supply Schedule 79<br />Foxconn<br />Robots don’t complain<br />Or demand higher wages, or kill themselves<br />Aug 6th 2011 | HONG KONG | from the print edition<br />8/20/2011<br />23<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 24. 4: How Market Prices Are Determined 76<br />4.6 Effect of Demand and Supply on the General Price Level 81 <br /> Effect on the average price in the economy<br />4.7 How Consumer Income Affects Market Prices 81<br />4.8 Consumer Preferences 81<br />4.9 Production Expenses 82<br />8/20/2011<br />24<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 25. 5: Government Influence on Economic Conditions 82<br />5.1 Monetary Policy 82<br />5.2 Fiscal Policy 84<br />5.3 Summary of Government Influence on Economic Factors 85<br />5.4 Dilemma of the Federal Government 86<br />8/20/2011<br />25<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 26. 5.1 Monetary Policy 82<br />Money Supply: Demand deposits (checking accounts), currency held by the public, and traveler’s checks.<br /> Funds that financial institutes can lend to borrowers.<br /> U.S. Money Supply is controlled by the Federal Reserve Bank<br /> monetary policy influences the amount of money in the economy<br /> <br />A bigger money supply means that financial institutes have more money to lend to the public, which results in lower interest rates in order to stimulate extra loans to the public.<br /> <br />More loans to the public, results in a higher purchasing power, which can result in an risk for inflation.<br /> <br />Inflation type.<br />8/20/2011<br />26<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 27. 5.2 Fiscal Policy 84<br />Involves decision on how the federal government should set tax ratesand spend money.<br />Warren Buffett Urges Congress to Increase Taxes on ‘Coddled’ Billionaires<br />15 Aug 2011<br />Billionaire Warren Buffett urged Congress to raise taxes on the nation's wealthiest individuals to help cut the U.S. budget deficit, saying it wo...<br />8/20/2011<br />27<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 28. 5.2 Fiscal Policy 84<br /><ul><li>Revision in Personal Income and Tax Rates
  • 29. Revision in Corporate Taxes
  • 30. Revision in Excise Taxes
  • 31. Revision in the Budget Deficit</li></ul>8/20/2011<br />28<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 32. Obama Signs Debt Plan to Avoid Default<br />Q<br />By Laura Litvan and Catherine Dodge - Aug 2, 2011 5:59 PM GMT-0400<br />President Barack Obama signed a debt- limit compromise that prevents a U.S. default on the day the Treasury had warned the nation’s borrowing authority would expire, ending a months-long debate that reinforced partisan divisions over federal spending.<br />The Senate voted 74-26 for the measure, which raises the nation’s debt ceiling until 2013 and threatens automatic spending cuts to enforce $2.4 trillion in spending reductions over the next 10 years. It won backing from 45 Democrats, 28 Republicans and one independent. The House passed the plan yesterday.<br />Link to article<br />8/20/2011<br />29<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 33. U.S. Loses AAA Credit Rating as S&P Slams Debt Levels, Political Process<br />Q<br />By John Detrixhe - Aug 6, 2011 1:17 PM GMT-0400<br />Standard & Poor’s downgraded the U.S.’s AAA credit rating for the first time, slamming the nation’s political process and criticizing lawmakers for failing to cut spending or raise revenue enough to reduce record budget deficits.<br />S&P lowered the U.S. one level to AA+ while keeping the outlook at “negative” as it becomes less confident Congress will end Bush-era tax cuts or tackle entitlements. The rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt, the New York-based firm said yesterday.<br />“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” S&P said in a statement late yesterday after markets closed.<br />Lawmakers agreed on Aug. 2 to raise the nation’s $14.3 trillion debt ceiling and put in place a plan to enforce $2.4 trillion in spending reductions over the next 10 years, less than the $4 trillion S&P had said it preferred. Even with the specter of a downgrade, demand for Treasuries surged as investors saw few alternatives amid concern global growth is slowing and Europe’s sovereign debt crisis is spreading.<br />Link to article<br />8/20/2011<br />30<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 34. 5.3 Summary of Government Influence on Economic Factors 85<br />8/20/2011<br />31<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 35. 5.4 Dilemma of the Federal Government 86<br />The federal government faces a dilemma when attempting to influence economic growth. If it can maintain a low rate of economic growth, it can prevent inflationary pressure caused by an excessive demand for products. A restrictive monetary or fiscal policy may be used for this purpose. A restrictive monetary policy leads to low growth in the money supply over time, which tends to place upward pressure on interest rates. This discourages borrowing and therefore can reduce total spending in the economy. A restrictive fiscal policy results in high taxes and low government spending.<br />Although restrictive monetary and fiscal policies may keep inflation low, a critical tradeoff is involved. The unemployment rate may be higher When the economy is stagnant. The federal government can use a more stimulative policy (such as low tax rates or a monetary policy designed to reduce interest rates) to boost economic growth. Although these policies increase economic growth, they may also cause higher inflation.<br />Rarely is a consensus reached on whether the government should use a stimulative or restrictive policy at a given point in time. During the late 1990s, the federal government used stimulative monetary policies because inflation was very low and was not expected to be a serious problem. This monetary policy helped to increase economic growth during that period.<br />As the economy weakened in 2008, stimulative monetary policies were used in an effort to increase economic growth.<br />8/20/2011<br />32<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 36. 8/20/2011<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />33<br />Inflation May Embolden Foes of Fed Stimulus<br />By Shobhana Chandra, Alex Kowalski and David J. Lynch - Aug 19, 2011 12:00 AM GMT-0400<br />
  • 37. 8/20/2011<br />34<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />
  • 38. For Q&A<br />Summary of Learning objectives 88<br />Self-Test of Key Concepts 89<br />Self-Test of Key Terms 91<br /> <br />Class <br />Concept Review Questions 92<br />Class Communication Questions 92<br />Small Business Case 93<br />Web Insight <br />8/20/2011<br />35<br />SEF Comm&Fin - Introduction to Business - Ch3, HGreijmans<br />

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