Enu macroecons business cycle 040812

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  • The Learning Objectives for Chapter 1 are To define globalization and international business and show how they affect each other To understand why companies engage in international business and why international business growth has accelerated To discuss globalization’s future and the major criticisms of globalization To become familiar with different ways in which a company can accomplish its global objectives To apply social science disciplines to understanding the differences between international and domestic business
  • Enu macroecons business cycle 040812

    1. 1. Go Global !Global Economic Environment :Macroeconomic Performance & BusinessPerformance By Stephen Ong Edinburgh Napier University Business School chong@mail.tarc.edu.my Visiting Professor, College of Management, Shenzhen University 4 August 2012
    2. 2. Learning Objectives To analyse the key macroeconomic indicators To explain how the business cycle works To critically assess the relationship between the business cycle and company performance
    3. 3. Agenda1. Business Cycles & Business Performance2. Unemployment3. Inflation
    4. 4. The Macroeconomics Environment
    5. 5. 1.1 Components of the Economy1.Firms2.Households3.Government4.Banking sector5.External (overseas) sector
    6. 6. The Circular Flow Model
    7. 7. 1. The Business Cycle
    8. 8. 1.1 Long term Business Cycle
    9. 9. 1.2 Causes of Business Cycles• Shocks and price stickiness• Supply and productivity shocks• Monetary shocks• Financial bursts and bubbles• Unexpected political events• Common link• Unexpected changes in spending
    10. 10. 1.3 Impact of Policy
    11. 11. 1.4 Effects on BusinessPerformance 1.Profitability 2.Share prices and Dividend Policies 3.Investment and Return on Capital Employed 4.Cash Flow
    12. 12. Key Business Performance Indicators& Stage of Business Cycle : Recession Indicator(Rise/Fall) ProfitsShare prices Dividends Investment Return on Capital Cash flowSales revenue CostsBankruptcies
    13. 13. Key Business Performance Indicators& Stage of Business Cycle : BOOM Indicator(Rise/Fall) ProfitsShare prices Dividends Investment Return on Capital Cash flowSales revenue CostsBankruptcies
    14. 14. 2. Unemployment• Twin problems of the business cycle • Unemployment • Inflation• Measurement of unemployment • Who’s in the labour force• Problems with the unemployment rate • Part-time employment • Discouraged workers Unemployed Unemployment Rate = Labour Force x 100
    15. 15. 2.1 Unemployment2007 data Under 16 And/or Institutionalized (71.8 Million) Not in Labor Force (78.7 Million) Total Population (303.6 Million) Employed Labor (146.0 Million) Force (153.1 Million) Unemployed (7.1 Million) Source: Bureau of Labor Statistics
    16. 16. 2.1.1 USA Labour force 2007
    17. 17. 2.2 Unemployment• Types of unemployment • Frictional • Structural • Cyclical• Full employment defined • No cyclical unemployment• Natural rate of unemployment• Full employment rate
    18. 18. 2.3 Unemployment• Natural rate of unemployment • 1980’s 6% • Today 4-5%• Aging labour force• Temp agencies and the internet• New welfare laws and work requirements• Prison population has doubled
    19. 19. 2.4 Cost of Unemployment• Foregone output• Potential output• GDP gap • (Actual output – potential output)• Okun’s Law • Each 1% above NRU creates negative 2% output gap
    20. 20. 2.4.1 Costs of Unemployment
    21. 21. 2.4.2 Okuns Law
    22. 22. 12,000 12,000 The GDP Gap 11,000 11,000 The Unemployment Rate 10,000 10,000 Potential GDP 9,000 9,000 8,000 8,000 7,000 7,000 Actual GDP 6,000 GDP gap 6,000 (positive)1991 1991 1993 1993 1995 1995 19971997 1999 2001 1999 2003 2001 2005 2003 2005 GDP (billions of 1996 dollars) 5,000 5,000 1985 1985 1987 1987 1989 1989 1991 1993 1995 1997 1999 2001 20 1991 1993 1995 1997 1999 2001 2003 2.5 Unemployment GDP gap (negative) Source: Congressional Budget Office & Bureau of Economic Analysis
    23. 23. 2.6 Unemployment• Unequal burdens • Occupation • Age • Race and ethnicity • Gender • Education • Duration• Noneconomic costs
    24. 24. 2.7 Unemployment RateUnemployment Rates in Five IndustrialNations,1995-2005 Source: Bureau of Labor Statistics
    25. 25. 2.7.1 Unemployment & LabourMarkets
    26. 26. 2.7.2 Vacancy & UnemploymentRates
    27. 27. 2.7.3 Unemployment by Demographics
    28. 28. 2.7.4 Duration of Unemployment
    29. 29. 2.7.5 Unemployment Distribution
    30. 30. 2.7.6 USA vs EU
    31. 31. 3. Inflation• Rise in general level of prices• Consumer price index (CPI) • Market basket • 300 goods and services • Typical urban consumer • 2 year updates Price of the Most Recent Market Basket in the Particular Year CPI = Price estimate of the Market x 100 Basket in 1982-1984
    32. 32. 3.01 Historic UK Inflation
    33. 33. 3.02 USA CPI
    34. 34. 3.03 Recent CPI
    35. 35. 3.04 Hyperinflation Germany
    36. 36. 3.1 Inflation 2000Annual Inflation Rates in the United States,1960-2007 1990 1980 1970 Source: Bureau of Labor Statistics
    37. 37. 3.2 InflationInflation Rates in Five Industrial Nations,1995-2005 Source: Bureau of Labor Statistics
    38. 38. 3.3 Inflation• Types of Inflation • Demand pull • Cost-push• Redistributive Effects • Nominal and real income • Growth in nominal income vs. inflation rate • Anticipated vs. unanticipated inflation
    39. 39. 3.4 Inflation• Who is hurt by inflation? • Fixed-income receivers • Savers • Creditors• Who is unaffected or not hurt by inflation? • Flexible-income receivers • Cost-of-living adjustments (COLAs) • Debtors
    40. 40. 3.5 Anticipated Inflation• Nominal Interest Rate• Real Interest Rate• Inflation Premium 6% 11% = + Inflation Premium 5% Nominal Real Interest Interest Rate Rate
    41. 41. 3.6 Inflation & Economic Growth
    42. 42. 3.7 Other Inflation Issues•Deflation•Mixed effects•Arbitrariness•Cost-push inflation and real•Demand-pull inflation and real•Hyperinflation
    43. 43. 3.7.1 Demand Pull
    44. 44. 3.7.2 Stagflation
    45. 45. 3.7.3 Upward Spiral of Prices & Wages
    46. 46. 3.7.4 Phillips Curve:Inflation vs Unemployment
    47. 47. 3.7.5 Phillip Curve Shifts
    48. 48. 3.7.6 Unemployment & NAIRU
    49. 49. 3.7.7 Costs of Disinflation
    50. 50. 3.7.8 USA Inflation & Unemployment
    51. 51. Conclusion“High unemployment is a central flawin modern capitalism... Unemploymentmust sometimes be kept above itssocially optimal level to ensure pricestability, and the tension between pricestability and low unemployment is oneof the cruelest dilemmas of modernsociety.” Paul Samuelson
    52. 52. Core Reading Juleff, L, Chalmers, A.. and Harte, P. (2008) Business Economics in a Global Environment, Napier University Edinburgh Daniels, J.D., Radebaugh, L.H. and Sullivan, D.P. (2012) International Business: Environments and Operations. 14th edition, Pearson Samuelson, P.A. and Nordhaus, W. D. (2010)“Economics” Irwin/McGraw-Hill, 19th Edition Porter, Michael E. (2004)“Competitive Strategy – Techniques for Analyzing Industries and Competitors” Free Press
    53. 53. Questions?

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