* * Chapter Two Understanding How Economics Affects Business Copyright   © 2010 by The McGraw-Hill Companies, Inc. All rig...
The MAJOR BRANCHES of  ECONOMICS * What Is  Economics? <ul><li>Economics –  </li></ul><ul><ul><li>how society employs reso...
RESOURCE DEVELOPMENT * <ul><li>Resource Development –  </li></ul><ul><ul><li>how to increase resources and create conditio...
THOMAS MALTHUS and  the DISMAL SCIENCE * The Secret to Creating a Wealthy Economy <ul><li>Resources would run out if the r...
World Population Growth
ADAM SMITH the  FATHER of ECONOMICS * Adam Smith & the Creation of Wealth <ul><ul><li>Smith believed that:  </li></ul></ul...
ADAM SMITH the  FATHER of ECONOMICS <ul><li>Invisible Hand </li></ul>
Three Economic Systems 2- Communism Socialism Capitalism Mixed High Control Little Control Government
CAPITALISM * * Understanding Free-Market Capitalism <ul><li>Capitalism --  All or most of the land, factories and stores a...
Free-Market  Capitalism Rights 2- <ul><li>Private Property </li></ul><ul><li>Business Ownership/ Profits </li></ul><ul><li...
SOCIALISM * * Understanding Socialism <ul><li>Socialism –  </li></ul><ul><ul><li>based on premise that some basic business...
COMMUNISM * * Understanding Communism <ul><li>Communism –  </li></ul><ul><ul><li>government makes  almost all  economic de...
Where is This? <ul><li>http://images.google.com/imgres?imgurl=http://strangemaps.files.wordpress.com/2007/12/1207koreaelec...
MIXED ECONOMIES * * The Trend  Toward Mixed Economies <ul><li>Mixed Economies –  </li></ul><ul><ul><li>Some allocation of ...
GROSS DOMESTIC PRODUCT * * Gross Domestic Product <ul><li>Gross Domestic Product (GDP) –  </li></ul><ul><ul><li>Total valu...
US GROSS DOMESTIC PRODUCT Recession
PRODUCTIVITY * * Productivity in the United States <ul><li>Productivity in the service sector grows slowly because of less...
BUSINESS CYCLES * * The Business Cycle <ul><li>Business Cycles –  </li></ul><ul><ul><li>Periodic rises and falls that occu...
FISCAL POLICY * * Stabilizing the Economy Through Fiscal Policy <ul><li>Fiscal Policy –  </li></ul><ul><ul><li>federal gov...
MONETARY POLICY * * Using Monetary Policy to Keep the Economy Growing <ul><li>Monetary Policy –  </li></ul><ul><ul><li>man...
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BUS110 Chap 2 - Understanding How Economics Affects Business

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Understanding How Economics Affects Business




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  • See Learning Goal 2: Explain what capitalism is and how free markets work. See text pages: 34-40 See Learning Goal 3: Discuss the major differences between socialism and communism. See text pages: 41-42 See Learning Goal 4: Explain the trend toward mixed economies. See text pages: 43-45
  • See Learning Goal 2: Explain what capitalism is and how free markets work. See text pages: 34-40
  • BUS110 Chap 2 - Understanding How Economics Affects Business

    1. 1. * * Chapter Two Understanding How Economics Affects Business Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
    2. 2. The MAJOR BRANCHES of ECONOMICS * What Is Economics? <ul><li>Economics – </li></ul><ul><ul><li>how society employs resources to produce goods and services for consumption among various groups and individuals. </li></ul></ul><ul><ul><li>Macroeconomics – “Big” </li></ul></ul><ul><ul><ul><li>Concentrates on the operation of a nation’s economy as a whole . </li></ul></ul></ul><ul><ul><li>Microeconomics – “Small” </li></ul></ul><ul><ul><ul><li>Concentrates on behavior of people and organizations in markets for particular products or services. </li></ul></ul></ul>LG1 * 2-
    3. 3. RESOURCE DEVELOPMENT * <ul><li>Resource Development – </li></ul><ul><ul><li>how to increase resources and create conditions that will make better use of them. </li></ul></ul>What Is Economics? LG1 * 2-
    4. 4. THOMAS MALTHUS and the DISMAL SCIENCE * The Secret to Creating a Wealthy Economy <ul><li>Resources would run out if the rich had most of the wealth and the poor had most of the population, </li></ul><ul><li>This belief led the writer Thomas Carlyle to call economics “The Dismal Science.” </li></ul><ul><li>Neo-Malthusians believe there are too many people in the world and believe the answer is radical birth control . </li></ul>LG1 * 2-
    5. 5. World Population Growth
    6. 6. ADAM SMITH the FATHER of ECONOMICS * Adam Smith & the Creation of Wealth <ul><ul><li>Smith believed that: </li></ul></ul><ul><ul><ul><li>Freedom was vital to any economy’s survival. </li></ul></ul></ul><ul><ul><ul><li>Freedom to own land or property and the right to keep the profits of a business is essential. </li></ul></ul></ul><ul><ul><ul><li>People will work hard if they believe they will be rewarded. </li></ul></ul></ul>LG1 * 2-
    7. 7. ADAM SMITH the FATHER of ECONOMICS <ul><li>Invisible Hand </li></ul>
    8. 8. Three Economic Systems 2- Communism Socialism Capitalism Mixed High Control Little Control Government
    9. 9. CAPITALISM * * Understanding Free-Market Capitalism <ul><li>Capitalism -- All or most of the land, factories and stores are owned by individuals, not the government, and operated for profit. </li></ul><ul><li>Countries with capitalist foundations: </li></ul><ul><ul><li>United States </li></ul></ul><ul><ul><li>England </li></ul></ul><ul><ul><li>Australia </li></ul></ul><ul><ul><li>Canada </li></ul></ul>LG2 2-
    10. 10. Free-Market Capitalism Rights 2- <ul><li>Private Property </li></ul><ul><li>Business Ownership/ Profits </li></ul><ul><li>Freedom of Competition </li></ul><ul><li>Freedom of Choice </li></ul>
    11. 11. SOCIALISM * * Understanding Socialism <ul><li>Socialism – </li></ul><ul><ul><li>based on premise that some basic businesses, like utilities, should be owned by the government in order to more evenly distribute profits among the people. </li></ul></ul><ul><li>Entrepreneurs run smaller businesses </li></ul><ul><li>Citizens are highly taxed </li></ul><ul><li>Government is more involved in protecting the environment and the poor </li></ul>LG3 2-
    12. 12. COMMUNISM * * Understanding Communism <ul><li>Communism – </li></ul><ul><ul><li>government makes almost all economic decisions and owns almost all the major factors of production. </li></ul></ul><ul><li>Prices don’t reflect demand which may lead to shortages of items, including food and clothing. </li></ul><ul><li>Most communist countries today suffer severe economic depression and citizens fear the government. </li></ul>LG3 2-
    13. 13. Where is This? <ul><li>http://images.google.com/imgres?imgurl=http://strangemaps.files.wordpress.com/2007/12/1207koreaelectricitygrikf0.jpg&imgrefurl=http://strangemaps.wordpress.com/2007/12/16/218-koreas-dark-half/&usg=__YKejMC75cgXfP689w826Re5jRig=&h=700&w=548&sz=63&hl=en&start=21&sig2=wqr7GrODDT9BLQCikNy2jA&um=1&tbnid=vAaKo6KGi2keSM:&tbnh=140&tbnw=110&prev=/images%3Fq%3DKorea%26ndsp%3D18%26hl%3Den%26rls%3Dcom.microsoft:*:IE-Address%26rlz%3D1I7WZPA_en%26sa%3DN%26start%3D18%26um%3D1& ei=QXieSom9F8LilAeU06jHDQ </li></ul><ul><li>http://www.youtube.com/watch?v=ImAthUIqEfU </li></ul>2-
    14. 14. MIXED ECONOMIES * * The Trend Toward Mixed Economies <ul><li>Mixed Economies – </li></ul><ul><ul><li>Some allocation of resources is made by the market and some by the government. </li></ul></ul><ul><li>Neither free-market nor command economies have created sound economic conditions so countries use a mix of the two economic systems. </li></ul>LG4 2-
    15. 15. GROSS DOMESTIC PRODUCT * * Gross Domestic Product <ul><li>Gross Domestic Product (GDP) – </li></ul><ul><ul><li>Total value of final goods and services produced in a country in a given year. </li></ul></ul><ul><ul><li>As long as a company is within a country’s border, their numbers go into the country’s GDP (even if they are foreign-owned). </li></ul></ul><ul><li>When the GDP changes, businesses feel the effect. </li></ul><ul><li>The high U.S. GDP (about $14 trillion) is what enables us to enjoy a high standard of living. </li></ul>LG5 2-
    16. 16. US GROSS DOMESTIC PRODUCT Recession
    17. 17. PRODUCTIVITY * * Productivity in the United States <ul><li>Productivity in the service sector grows slowly because of less new technology. </li></ul><ul><li>Productivity in the U.S. has risen due to the technological advances that have made production faster and easier. </li></ul>LG5 2-
    18. 18. BUSINESS CYCLES * * The Business Cycle <ul><li>Business Cycles – </li></ul><ul><ul><li>Periodic rises and falls that occur in economies over time. </li></ul></ul><ul><li>Four Phases of Long-Term Business Cycles: </li></ul><ul><ul><li>Economic Boom </li></ul></ul><ul><ul><li>Recession – Two or more consecutive quarters of decline in the GDP. </li></ul></ul><ul><ul><li>Depression – A severe recession. </li></ul></ul><ul><ul><li>Recovery – When the economy stabilizes and starts to grow. This leads to an Economic Boom. </li></ul></ul>LG5 2-
    19. 19. FISCAL POLICY * * Stabilizing the Economy Through Fiscal Policy <ul><li>Fiscal Policy – </li></ul><ul><ul><li>federal government’s efforts to keep economy stable </li></ul></ul><ul><ul><li>increasing or decreasing taxes or government spending. </li></ul></ul><ul><li>Tools of Fiscal Policy: </li></ul><ul><ul><li>Taxation </li></ul></ul><ul><ul><li>Government Spending </li></ul></ul>LG6 2-
    20. 20. MONETARY POLICY * * Using Monetary Policy to Keep the Economy Growing <ul><li>Monetary Policy – </li></ul><ul><ul><li>management of money supply and interest rates by Federal Reserve Bank (the Fed). </li></ul></ul><ul><li>The Fed’s most visible role is increasing and lowering interest rates. </li></ul><ul><ul><ul><li>When the economy is booming, the Fed tends to increase interest rates. </li></ul></ul></ul><ul><ul><ul><li>When the economy is in a recession, the Fed tends to decrease the interest rates. </li></ul></ul></ul>LG6 2-

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