Economic Activity in a changing world.

An introduction to business.

Considering your options...

Q: I am a drummer in a band. I can’t decide if I should buy a new drum set now, or wait until next year when we go on the road. Should I buy now, or wait until next

year and hope prices don’t go up?

A: A financial risk is always a factor when making major purchasing decisions. You have identified one risk - inflation. Prices may go up, but they also may come down. If you need a loan to buy the drum set, changing interest rates represent another risk. You also have liquidity risk. If the band breaks up, how long will it take you to sell your drums so you can pay off your loan? Some risks can be evaluated mathematically, others cannot.

What’s the main picture?

Main Idea #1Throughout the years, the U.S. economic system has changed. Each change affected what was produced and how people were employed. To gauge the health of our economic system, we use a variety of economic indicators.

Main Idea #2In a market economy, there is an economic cycle, which includes four stages: prosperity, recession, depression, recovery. These are also four stages of the business cycle. In the last few decades, we have experienced the economic cycle a number of times.

Questions, Questions, Questions.....

2) The Four types of economic shifts the United States has experienced are recovery, prosperity, recession, and depression.3) GDP shows the gross domestic product. It is the sums of the goods and services sold to businesses, consumers, the government, and other countries. The unemployment rate measures the number of people who are unable and willing to work but cannot find work during a given period. The rate of inflation shows the rate in which there is a general increase in the prices of goods and services. The national debt shows the total amount of money a government owes.4) Individuals and the government greatly influence the economy. If people aren’t purchasing items, then the economy will suffer along with the businesses. On the other hand, and economy will flourish if people are by using goods and stimulating the local businesses.5) The Four stages of the business cycle are Recovery, prosperity, recession, and recession6) The cars made in this country by a foreign owned company would be included in GPD because the cars are being sold in this country7) Working at a day-care center because it’s a service that has total value for a year has better opportunities than a scattered job.

And More Questions!8) People who are unemployed but not looking for work are not included in the unemployment figures because they’re not looking for a job which in that case doesn’t entitle them for the unemployment figures.

9) Inflation is especially difficult for retired people because with the increased prices many retired people may not be able to afford them.

10) Deflation may be a bad thing because if the prices get too low people’s inventory get smaller.

11) If you go to a store to buy a soda but notice the price is 20 cents higher than it was last week, but other prices are unchanged, this is not an example of inflation because it’s only an increase on one item, not on every item in general.

12) In the depression stage, many businesses are more likely to go bankrupt. In the recovery and prosperity stages, more businesses are more likely to get more business.

But, what does this all mean?!?

1. Gross domestic product- Total value of the goods and services produced in a country in a given year.

2. Standard of living- level of material comfort as measured by the goods and services that are available.

3. Inflation- general increase in the price of goods and services.

4. Deflation- general decrease in the price of goods and services.

5. Budget deficit- When the government spends more on programs than it collects in taxes, this is the difference.

6. National Debt- The total amount of money a government owes. 7. Budget surplus- governments’ revenue exceeds its expenditures during a one year period. 8. Business cycle- rise and fall of economic activity over time.

9. Prosperity- peak of economic activity.

10. Recession- economic activity slows down.

11. Depression- deep recession

12. Recovery- rise in business activity.

Where did this all start?

U.S. Economic History Throughout the years,our economic system has evolved and changed. In colonial times, the United States had begun its service-based economy. The 1700's saw the rise of the agriculture-based economy. The Industrial Revolution in the 1850's brought about the industrial economy, characterized by the large-scale manufacturing of goods. During the latter part of the 20th century, the information technology economy revolutionized the business world. to measure the health of our economic system, we use a variety of economic indicators, including GDP, unemployment rat, rate of inflation, and national debt.

The Cycle of....BUSINESS

The Business Cycle In a global economy, one country's economy can affect the economy of its other trading partners. The Fed adjusts monetary policies to try to level out the ups and downs of the economy. An economic cycle includes four stages: prosperity, recession, depression, and recovery. Prosperity is the peak of economic activity. Recession is a slowdown in economic activity. Depression is a deep recession that affects the entire economy and lasts for several years. A recovery is a rise in business activity after a recession or depression. Fortunately, the United States has not has a depression since the 1930's.

Just as thereis a success

cycle..

U.S. Unemployment vs. Other Countries

U.S. initial jobless claims fell last week, the Labor Department reported Thursday Sept. 17.The number of first-time applications for unemployment benefits fell 12,000 to 545,000. Many economists did not expect a drop and the data is being taken as another possible sign that the American economy is pulling out of recession. Recent retail sales and manufacturing prices data have also suggested a U.S. recovery is coming.

What Can We Do About Unemployment?

CNN Money has published reports that the national unemployment rate continues to climb. Currently the figure stands at 6.7%, and there’s no sign of greener pastures in the coming months.

The announced loss of 553,000 jobs in the month of November alone comes along just as America faces the longest recession since the Great Depression of the 1930s, and estimates have this particular recession extending far longer with effects far greater than that of the 1980s. Global Insight has predicted that unemployment will reach 8.6% by the end of 2009.

Job losses are expected to continue until other foundations of the American economic system right themselves. The middle-class has taken the hardest hit in the process, as 70% of the job loss has been reported out of the retail, hotel and restaurant industries.

It’s a prime example of how expendable income is tightening and people are focusing on the necessities rather than frivolous spending. Those that once carried out the roles of big spenders are now forced to hold their assets, and the companies that used to benefit from consistent daily spending are consequently forced to bite the bullet, most notably by cutting back on man power.

Part of the $500 billion stimulus package Barack Obama plans to implement calls for $100 billion to be invested into the redevelopment of roads, bridges, and levees around the country, a decision that he predicts will generate over 2 million new jobs for the unemployed.

Unemployment in America

What are some possible explanations for the drastic increase from 2008 to 2009?

REAL LIFE EXAMPLES!

As of this writing, Go Daddy is a very successful company. We're far and away the leader in the domain name registration market. It's ironic that it is, because when I started Go Daddy, I didn't do it to make money. I started Go Daddy to have something to do. Throughout the process of building the company — as I have always been the only investor — I came creepy close to going broke. But that's another story. Since 1997 when I started Go Daddy, there was only one principle that I used to build the company. It's a simple one. Do the right thing for the customers and provide them with as good a deal as possible. No smoke and mirrors — ever. The whole idea back then, and it continues today, is to make a little money from a lot of people. This differs from many companies who have just the opposite philosophy.

Not long ago, an applicant asked if Go Daddy is an exit strategy for me, or, whether it is a lifestyle. It's certainly not an exit strategy. I'm asked almost on a weekly basis if I want to sell the company. The prices I am offered are incredibly generous. I never really consider any of them. For me, the answer to that applicant's question, is that Go Daddy is a lifestyle. It's what I do, and in many ways it's my hobby.

What does our future hold...?

President Obama’s chief economics forecaster said on Sunday that the nation’s unemployment rate was likely to keep rising until 2010, even if the

economy begins growing later this year.

But Ms. Romer also said that she expected unemployment to rise even after the economy turns, saying that gross domestic product has to grow at a rate

of about 2.5 percent before unemployment will fall. Before that happens, she said, it is “unfortunately pretty realistic” that the unemployment rate could

reach 9.5 percent. It was reasonable to estimate that the G.D.P.’s growth rate in 2010 would be 3 percent, she said.

According to figures released on Friday, the unemployment rate in April was 8.9 percent, its highest level in 25 years. The so-called underemployment

rate, which counts people who are working part time because their hours have been cut and those who have given up looking for jobs, reached 15.8

percent.

Still, the administration seized on the report as an early sign that the economy’s free fall was coming to a halt, because the pace of deterioration had

slowed.

“The chance that consumers are ever going to go back to their high-spending ways is not very plausible, nor do I think they should,” she said. “We were a

country that needed to start saving more.”

Ms. Romer also defended the Obama administration’s budget, which has been criticized by Republicans and some independent analysts for not cutting

spending deeply enough. In details released Thursday, the White House budget director, Peter Orszag, announced cuts to 121 programs that would save

$17 billion. The savings total is about one-half of 1 percent of the $3.5 trillion budget. The White House is expected to provide additional information on

its budget on Monday.

Ms. Romer said that the reductions announced Thursday were only one part of the Obama administration’s larger plan to cut the deficit in half by the

end of his first term, a goal that she said was still reasonable. She pointed to the president’s announcement last week of his intent to close tax loopholes

for offshore tax havens as another example. But the “big dollars,” she said, would come from fundamental changes in the health care system.

What are some examples of inflation today?

Higher oil prices have driven the rise in manufacturers' raw material costs to its highest rate in more than a year, pushing up inflation at the factory gate.

The data suggests next week's consumer price inflation figure could be higher than many economists are expecting. Inflation in Britain has been stickier than in many other countries during the economic downturn.

Producer input prices jumped by 2.2% in August from the previous month, the biggest increase since June 2008, according to the Office for National Statistics. This was more than twice as big a jump as expected and comes after a 1.1% fall in July.

The ONS said the rise mainly reflected higher crude oil costs.

Examples of Deflation

Examples of deflation include the Great Depression and the economy of Japan during the 1990s. During the 19th century the gold standard was in use and known gold stocks were growing less rapidly than production. As a

result, gold became more expensive in terms of goods, that is, a drop in the price level. This phenomenon ended with the discovery of gold reserves in South Africa and Alaska.

During World War I the British Pound Sterling was removed from the gold standard.

National Debt

The above is the US National Debt Clock. This is a picture of it at 7:53 p.m. on Tuesday, Sept. 22. It is continually growing. The United States government debt, commonly called the "public debt" or the "national debt", is the amount of money owed by the Federal government of the United States to holders of U.S. debt instruments. Gross Debt is the national debt plus intergovernmental debt obligations or debt held by trust funds like the Social Security Trust Fund. Types of securities sold by the government include, but are not limited to, Treasury Bills, Notes, Bonds, TIPS, United States Savings Bonds, and State and Local Government Series securities.

Budget Surplus

A budget deficit occurs when an entity spends more money than it takes in.[1] The opposite of a budget deficit is a budget surplus. Debt is essentially an accumulated flow of deficits. In other words, a deficit is a flow, and debt is a stock.An accumulated governmental deficit over several years (or centuries) is referred to as the government debt. Government debt is usually financed by borrowing, although if a government's debt is denominated in its own currency it can print new currency to pay debts. Monetizing debts, however, can cause rapid inflation if done on a large scale. Governments can also sell assets to pay off debt. Most governments finance their debts by issuing long-term government bonds or shorter term notes and bills. Many governments use auctions to sell government bonds.

Economic Prosperity

After the First World War the United States was in a strong economic position. The economies of her European rivals had been severely disrupted by the war and US companies were able to capture markets which had previously been supplied by countries like Britain and Germany.

Companies in the United States also began to make full use of what became known as mass production. Between 1919 and 1929 output per worker increased by 43%. This increase in output enabled America to produce items that were cheaper than those manufactured by her European competitors. Inflation remained low while incomes increased by an average of 35% during this period.

The United States also pioneered techniques in persuading people to buy the latest products. The development of commercial radio meant that companies could communicate information about the goods to a mass audience. In order to encourage people to purchase expensive goods like motor cars, refrigerators and washing machines, the system of hire-purchase was introduced which allowed customers to pay for these goods by installments.

The American economy appeared to be in such a healthy state that in 1928, Herbert Hoover, the man who was soon to become President of the United States, was able to claim that: "We in America are nearer to the financial triumph over poverty than ever before in the history of our land."

Economic Recovery

The U.S. economy is pulling out of its deepest and longest recession since the Great Depression. Some economists expect a powerful recovery, others a sustained but muted one. Some even say it will be neither: a fleeting rebound quickly followed by a second slump.

Standard of Living

We can compare different standards of living from across the world. Truth be told, America has a much higher standard of living than other third world countries. Our level of material comfort as measured by the amount of goods and services available is much higher than those living with

limited resources.