{ The Economy and Marketing Understanding the Economy.

26
{ The Economy and Marketing Understanding the Economy

Transcript of { The Economy and Marketing Understanding the Economy.

Page 1: { The Economy and Marketing Understanding the Economy.

{

The Economy and Marketing

Understanding the Economy

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List the goals of a healthy economy Explain how an economy is measured Analyze the key phases of the business

cycle

Objectives

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Economics Standard 9 – Explain how the following economic indicators are used in a market economy for business analysis and marketing decisions: GDP, standard of living, inflation rates, interest rates, unemployment rate, productivity rates, stock market reports, and CPI.

Standard

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Goals of a Healthy Economy

Increase Productivi

ty

Decrease Unemployme

nt

Maintain Stable Prices

Government &

business analyze labor

productivity, GDP, GNP

Government analyzes

unemployment &

standard of living

Government monitors inflation, CPI, PPI

All nations analyze their economies to keep track of how well they are meeting these goals

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Nations routinely use economic measurements to analyze their economic strength

Economic Measuremen

ts

Labor Productivit

y

Gross Domestic Product (GDP)

Unemployment Rate

Standard of Living

Inflation Rate

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Businesses can increase productivity by: Investing in new equipment/facilities to

increase efficiency Provide additional training to employees Reduce workforce and increase number of

responsibilities of the workers who remain

High productivity improves a company’s profit

Labor Productivity

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Specialization & division of labor are key to increasing productivity

Assembly lines are an example of specialization & division of labor

Each part of a finished product is completed by a different person who specializes in one aspect of manufacturing

Work can be completed faster and more efficiently, it also makes it easier to identify issues with products

Labor Productivity

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The principal way of measuring a nation’s production output in a given year

Made up of private investment, government spending, personal spending, net exports of goods & services, and change in business inventories

Private investment – spending by businesses for equipment & software, also home construction

Government spending – money spent by federal, state, and local gov’ts

Social services & construction projects

Gross Domestic Product (GDP)

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Expanding inventories show that businesses are producing goods/services that are being stored in warehouses – this adds to GDP

Shrinking inventories means people are purchasing more goods/services than what was produced – this is subtracted from GDP

Gross Domestic Product (GDP)

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GDP = C + I + G + (X – M) C = Personal Consumption: all spending

by households I = Gross Investment: money spent on all

purchases of machinery by businesses, construction of capital, & change in inventories

G = Government spending X = Exports M = Imports

Gross Domestic Product (GDP)

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In 1991, the US started using GDP as its primary measurement of productivity

Before 1991, it used GNP (gross national product)

Total dollar value of goods & services produced by a nation including goods and services produced abroad by US citizens and companies

GDP vs GNP

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When comparing GDP and GNP, location of production is important

EX: FORD is a US corporation and has a plant in England

The portion of production that takes place in England is counted in the US GNP but NOT in the GDP

The portion of production that takes place in England is counted in England’s GDP but not the GNP

GDP vs GNP

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Measurement of a country’s amount and quality of goods and services that a nation’s people have

Reflects a quality of life Standard of living = GDP / population OR

GNP / population This gives you an amount of GDP or GNP

per person (per capita) Most industrialized nations have a higher

standard of living because they have a high level of production

Standard of Living

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Some countries provide more social services for their citizens

Free education and health care provided by the government

The number of households per 1,000 inhabitants with durable goods (washing machines, refrigerators, dishwashers, vehicles) can be included in the analysis

High levels of social services & durable goods means a country has a high standard of living

Standard of Living

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Inflation refers to a rise in prices of goods and services

A low inflation rate (1-5% each year) is good because it shows that the economy is stable

Double Digit inflation (10% or higher) hurts an economy

When inflation is this high, money LOSES its value

People who live on a fixed income (ex: Social Security) are hurt by high inflation

Inflation Rate

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Controlling inflation is one of the governments major goals

When inflation rises, the gov’t increases interest rates to discourage borrowing money

The result is slower economic growth, which helps bring inflation down

Two measures of inflation in the US Consumer Price Index (CPI) aka Cost of

Living Index Producer Price Index (PPI)

Inflation Rate

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CPI measures the change in price over a period of time

Examines the price of 400 specific retail goods & services used by the average household (referred to as a basket of goods) and how the price of this basket has changed

Food, housing, utilities, transportation, and medical care are a few components

Inflation Rate

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PPI measures wholesale price levels in the economy

Producer prices generally get passed along to the consumer

When there is a drop in the PPI, it is generally followed by a drop in the CPI

Inflation Rate

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All nations chart the unemployment rate (jobless rate)

The higher the unemployment rate, the greater the chances are of slow economic times

The lower the unemployment rate, the greater the chances are of an economic expansion

When more people work, there are more people spending money and paying taxes

Unemployment Rate

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3 types of unemployment: Frictional

Workers are searching for jobs or waiting to take jobs

Structural Any worker who becomes unemployed due

to a lack of skill with a new technology introduced by his or her employer

Cyclical Results from the normal fluctuations of the

business cycle – caused by a decline in total spending in the economy

Unemployment Rate

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An unemployed person is anyone who is willing and able to work but does not have a job

Not included in the unemployment rate is anyone under the age of 16 and or discouraged workers (those not seeking employment)

Part-time workers are considered EMPLOYED!

4-5% of the labor force can be unemployed and we can still be considered at full employment

Unemployment Rate

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Business Cycle

Exp

ansi

on(R

ecov

ery)

Trough

Peak Peak

Con

traction

Contraction

Exp

ansi

on(R

ecov

ery)

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Business cycles are affected by the actions of businesses, consumers, and the government

In turn, all three of these groups are affected by the business cycle

Factors that Affect Business Cycles

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Businesses: Expansion/Recovery:

Expand their operations Invest in new properties, equipment,

inventories & hire more employees Recession/Depression:

Cut back operations Lay off employees Cut back inventories to match lowered

demand

Factors that Affect Business Cycles

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Consumers: Recession:

Biggest fears are losing jobs and decreased wages

This reduces consumer spending Reduced consumer spending causes

businesses to reduce their operations in response to lower demand

Prosperity & Recovery: Consumers are optimistic

Spend more money on material goods & luxury items

Businesses respond by producing more goods

**Consumer spending accounts for more than two-thirds of the US GDP

Factors that Affect Business Cycles

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Government: Policies & programs

Taxation has a strong effect When the government requires more

money to run programs, higher taxes are needed

When taxes are raised, businesses & consumers have less money to fuel the economy

When the economy needs a boost, the gov’t may cut taxes or lower interest rates

This gives businesses & consumers more money to spend and invest

In 2008, the government issued tax rebates to taxpayers to encourage consumer spending

Factors that Affect Business Cycles