1 Exploring the World of Business and Economics

1 Exploring the World of Business and Economics Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Tips for Studying Business § § Prepare before you go to class Read the chapter Underline or highlight important concepts Review PP Slides and Take notes • Note: My PP Slides are CUSTOMIZED for this BUS 150 course § Apply the concepts § Practice critical thinking § Prepare for the examinations Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Why Study Business? § For help in choosing a career § To be a successful employee § To improve your management skills § To start your own business § To become a better informed consumer and investor Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Your Future in the Changing World of Business § What does it take to succeed in business? • Have a dream—know what you want • Adapt to changes in the environment—work hard to turn your dreams into reality • Write down your goals Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Understanding Business and Entrepreneurship In free enterprise (or market), individuals are free to: 1. Decide what to produce 2. How to produce it 3. At what price to sell it § Business (description) -- Any activity that seeks to provide goods and services to others while operating at a profit. § Entrepreneur -- A person who risks time and money to start and manage a business. § Success in business is often based on the strategy of finding a need and filling it. A profit is earned when a company’s revenue (the money a business brings in) is greater than its expenses (the money a business pays out). Nick Woodman, Founder/CEO, Go. Pro Nonprofit organizations focus on causes not profit Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

What Is Business? § OFFICIAL DEFINITION: The organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs • Important Components of Business • Organized Effort of Individuals (Buyers, Sellers, and Resources) • Product Elements • Profit Motivation • Customer Satisfaction • Stakeholders • Changing Business Environment Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Organized Effort of Individuals Resources Sellers • Human/Labor (physical • Manufacturers labor and knowledge) (businesses that assemble and make products, i. e. • Land or Natural Apple, Kodak, Stone Materials (raw/natural Container) materials) • Resellers (businesses that • Entrepreneurship resell tangible products to (Willingness to start customers or to the other business) businesses, i. e. Wal-Mart, • Capital (Financial, Real. Target, Lowes, Home physical facilities, Depot) machines, computers) • Service Providers • Knowledge/Intellectual (businesses that provide (information technology, intangible products or business information, perform useful labor on patents, copyrights, behalf of their customers, trademarks) i. e. insurance, banking, haircuts, cleaning service) • May Combination Copyright © 2017 Cengage Learning. All Rights Reserved. not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license Buyers • Consumers (people who buy products for personal consumption) • Business (organizations who buy products for to resell to others, use as part of their product, or help in the operation of their business) • Government (organizations that purchase products for societal purposes, i. e. military, roads, park maintenance, etc. ) • Other (non-profit institutions, churches, libraries, etc. ) distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Resources: AKA Factors of Production Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

What is e-Business? § The organized effort of individuals to produce and sell for a profit, the goods and services that satisfy society’s needs through the facilities available on the Internet § e-business has become: § An accepted method of conducting business § A way for businesses to increase sales and profits and reduce expenses Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Product Elements: Understanding the Difference Between Goods & Services • Goods -- Tangible products such as computers, food, clothing, cars and appliances. • Services -- Intangible products (that can’t be held in your hand) like education, healthcare, insurance, recreation and travel. • PRODUCTS CAN CONSIST OF BOTH GOOD AND SERVICE ELEMENTS! Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Profit Motivation: The Relationship Between Sales Revenue and Profit • • • Profit is what remains after all business expenses have been deducted from sales revenue. Revenue – Expenses = Profit Sales Revenue = the money a business receive from selling its products (product price * number of products sold) Expenses = the money a business spends trying to sell its products and operate A loss (negative profit) results when a firm’s expenses are greater than its revenues. *Profit becomes property of its owners What do you have when? • Revenue > Expenses • Expenses > Revenue Sales Revenue - Business Expenses Profit (Loss)* Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Profit Motivation: Matching Risk with Profit • Risk -- The chance an entrepreneur takes of losing time and money on a business that may not prove profitable • Not all businesses make the same amount of profit. • Businesses take risks, but with great risks could come great profit. • The purposes of profit – To reward business owners for producing goods and services consumers want – Profit compensates for RISK • Non-Payment Risk • Business Failure Risk Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Profit Motivation: Taxes Come From Profit • Taxes are used to provide: • • • Hospitals Schools Libraries Playgrounds Roads Fire Protection Police Protection Environmental Programs Support for People in Need Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Profit Motivation: Profit Enhances Society • Standard of Living -- The amount of goods and services people can buy with the money they have. • The U. S. has one of the highest standards of living in the world. • Workers in other countries may make more money, but prices for products are higher. • Quality of Life -- The general well-being of a society in terms of its political freedom, natural environment, education, healthcare, safety, amount of leisure and rewards that add to personal satisfaction. Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Customer Satisfaction: The Ultimate Objective of Every Firm is… …to satisfy the needs of its customers. • People buy products not just to own them, but to satisfy particular needs • Goal of businesses are to produce products that people need and want at a price they are willing to pay • Businesses that understand customer needs, and work to satisfy those needs, are usually successful • Has a business ever failed or succeeded in satisfying your needs? Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Stakeholders • Stakeholders -- All the people who stand to gain or lose by the policies and activities of a business and whose concerns the businesses need to address. • Who are Stakeholders? - Owners Customers Employees Suppliers Dealers - Community Media Elected Officials Bankers Environmentalists Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

What is the Business Environment? • The business environment is dynamic and constantly changing • Business have to stay abreast of its environment in order to capitalize on potential opportunities or minimize potential threats to its business • What are some outside factors or influences that impact a business’ activities? • Economic Factors • Legal (laws) • Technology • Competition • Social changes (attitudes, interests, and beliefs) • Global influences Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

What is the Government’s Role in Business? § Government can promote business by… 1. Minimizing spending and keeping taxes and regulations to a minimum. 2. Allowing private ownership of businesses. 3. Minimizing interference with the free exchange of goods and services. 4. Passing laws that enable businesspeople to write enforceable contracts. 5. Establishing a currency that’s tradable in world markets. 6. Minimizing corruption. Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Economics • Economics -- The study of how society employs resources to produce goods and services for consumption among various groups and individuals • Another way to describe Economics is this…It’s the study of how wealth (i. e. Anything of value) is created and distributed. • Macroeconomics -- Concentrates on the operation of a nation’s economy as a whole. • Microeconomics -- Concentrates on the behavior of people and organizations in markets for particular products or services. Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Resource Deployment • Some economists believe economics is the study of the allocation of SCARCE resources, and that resources should be DIVIDED among people with either people, the gov’t or some combination thereof determining: • • Who gets what? What gets produced? When does it get produced? How many gets produced? § However the concept of Resource Development suggests that scarce resources should be increased to the benefit of society as a whole. § Resource Development -- The study of how to increase resources and create conditions that will make better use of them. Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Ways to Increase Resources • New energy sources • Hydrogen fuel • New ways of growing foods • Hydroponics • New ways of creating goods and services • Aquaculture • Nanotechnology Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A Nation’s Economy Economic System aka The Economy – the financial and social system through which a country allocates its resources (factors of production) – aka the system or structure for how resources are used to meet the needs of society (i. e. how society creates and distributes wealth!) Differences in economic systems determined by how they answer the four basic economic questions: 1. What goods and services will be produced? 2. How will they be produced? 3. For whom will they be produced? 4. Who owns and controls the major factors of production? Economic system – the financial and social system through which a country allocated its resources (factors of production) – aka the structure for how resources are used to meet the needs of society Types of economic systems: 1. Free-Market Economy: The market largely determines what goods and services are produced, who gets them, and how the economy grows • Capitalism • Mixed Economy 2. Command Economy: The government largely determines what goods and services are produced, who gets them, and how the economy will grow. • Socialism • Communism Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Capitalism § Capitalism • An economic system in which individuals own and operate the majority of businesses that provide goods and services • Derived from Adam Smith’s laissez-faire capitalism in which a society’s best interests are served by individuals pursuing their own self-interest § Creation of wealth is the concern of private individuals § Resources used to create wealth must be privately owned § Economic freedom ensures the existence of a free market economy - Businesses/individuals decide what to produce and buy - The market determines quantities sold and prices § Limited role of government Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Basic Assumptions for Adam Smith’s Laissez-Faire Capitalism Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Invisible Hand Theory • As people improve their own situation in life, they help the economy prosper through the production of goods, services and ideas. • Invisible Hand -- When self-directed gain leads to social and economic benefits for the whole community. EXAMPLE OF THE INVISIBLE HAND THEORY IN ACTION: • A farmer earns money by selling his crops. • To earn more, the farmer hires farmhands to produce more crops. • When the farmer produces more, there is plenty of food for the community. • The farmer helped his employees and his community while helping himself. Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Capitalism in the United States § The U. S. economy is a mixed economy—one that exhibits elements of both capitalism and socialism § In a mixed economy, the four basic economic questions (what, how, for whom, and who) are answered through the interaction of: • Households (i. e. Consumers) • Businesses • Governments Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Circular Flow in Our Mixed Economy Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Three Groups in a Mixed Economy § Households/Consumers: • Consume goods and services • Own resources of some factors of production • Consumer products—goods and services purchased by individuals for personal consumption § Businesses: • Produce goods and services to exchange for revenues (money) • Use revenues to purchase factors of production § Government: • Provides public services in exchange for taxes Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Benefits and Limitations of a Free Market Economy § Benefits: • It uses resources effectively and efficiently. • Provides FREEDOM of choice. • It allows for open competition among companies. • Provides opportunities for poor people to work their way out of poverty. • Provides incentive and motivation to owners and workers (profit retention, income retention, etc. ) • Provides for LOWER taxes. § Limitations: • People may start to let greed drive them. Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Command Economies: Socialism § Economic systems in which the government decides what will be produced, how it will be produced, who gets what is produced, and who owns and controls the major factors of production § Socialism • Key industries are owned and controlled by the government • Small-scale private businesses may be permitted and workers may choose their own occupations • Production is based on national goals, and distribution is controlled by the state • Intent is the equitable distribution of income, elimination of poverty, social services to all who need them, elimination of the economic waste of capitalistic competition Benefits of Socialism: Drawbacks of Socialism: • Social equality • • Free education Few incentives for businesspeople to take risks. • Free healthcare • • Free childcare • Longer vacations Brain Drain: Some of a country’s best and brightest workers (i. e. doctors, lawyers and business owners) move to capitalistic countries. • Shorter work weeks • • Generous sick leave Fewer inventions and innovations because the reward is not as great as in capitalistic countries. Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Command Economies: Communism § Communism • All factors of production are owned and controlled by the government as proxy for ownership by all citizens • Production is based on centralized state planning to meet the needs of the state and not necessarily the needs of its citizens • The state dictates occupational choices and sets prices and wages • Intent is to create Karl Marx’s concept of a classless society where all contribute according to their ability and receive benefits according to their needs Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Trending Towards Mixed Economies • Communist governments are disappearing. • Socialist governments are cutting back on social programs, lowering taxes and moving toward capitalism. • Capitalist countries are increasing social programs and moving more toward socialism. Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Understanding How Free Markets Work • Free Market/Enterprise -Decisions about what and how much to produce are made by the market. • Consumers send signals about what they like and how they like it. • Price tells companies how much of a product they should produce. • If something is wanted but hard to get, the price will rise until more products are available. • Concept of Supply & Demand The Foundation of the Free Market ü How much can we make/sell? ü How much will consumers buy? ü At what price? Interaction of buyers & sellers ü Impact prices ü Competition Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Understanding Supply and Demand: Pricing • A seller may want to sell shirts for $50, but only a few people may buy them at that price. • If the seller lowers the price to $30, more people buy the shirts. • The seller establishes a price of $30 based on what consumers are willing to pay. Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Understand Supply and Demand: Determining the Market Price & Quantity § Supply -- The quantities of products businesses are willing to sell at different prices. Demand -- The quantities of products consumers are willing to buy at different prices. Market Price (Equilibrium Point) -- Determined by supply and demand, this is the negotiated price. Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Bugs Bug Orange Farmers in Florida and Drove Prices Up • The 2013 Florida orange crop experienced a major disruption because of bugs. • As a result, orange prices rose as much as 16%! • With circumstances out of their control, farmers have to hope that nothing else harms their crops. Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Types of Competition § Competition is rivalry among businesses for sales to potential customers § In a capitalistic society, only businesses that provide consumers with useful products and services at fair prices will survive § Four different degrees of competition: 1. Perfect Competition § A) a market situation in which there are A LOT of buyers along with a relatively large number of sellers; B) Sellers have NO control over price (market determines price, Supply and Demand); C) Identical products with NO differentiation (cotton, wheat? ) 2. Monopolistic Competition § A) a market situation in which there are many buyers along with a relatively large number of sellers; B) Sellers look for a COMPETITIVE ADVANTAGE by promoting PRODUCT DIFFERENTIAION (real or perceived differences by consumers with sellers’ products); C) Seller retains some control over price 3. Oligopoly § A) a market (or industry) situation in which there are FEW sellers; B) Strong barriers to entry (for seller, it’s hard to enter into market); C) Similar products (cereal, cars, airlines); D) relatively higher prices for consumers 4. Monopoly § A) a market (or industry) with only one seller, and there are barriers to keep other firms from entering the industry; B) Seller has complete control over price; C) Illegal; D) Some legal exceptions – NATURAL MONOPOLY and LIMITED MONOPOLY Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Four Types of Competition Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Perfect Competition § The market situation in which there are many buyers and sellers of a product, and no single buyer or seller is powerful enough to affect the price of that product • Supply: The quantity of a product that producers are willing to sell at each of various prices • Demand: The quantity of a product that buyers are willing to purchase at each of various prices • Market Price: The price at which the quantity demanded is exactly equal to the quantity supplied Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Supply Curve and Demand Curve Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Monopolistic Competition § A market situation where there are many buyers along with a relatively larger number of sellers who differentiate their products from the products of competitors § Product differentiation: Sellers try to gain a competitive edge through product differentiation: • • Unique features Attention-getting brand name Unique packaging Special services Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Oligopoly § A market situation (or industry) in which there are few sellers • Examples: automobile manufacturers, car rental agencies, and farm implement industries § Sizable investments are required to enter into the market § Each seller has considerable control over price § The market actions of one seller can have a strong effect on competitors Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Monopoly § A market (or industry) with only one seller § Natural monopoly • An industry requiring huge investments in capital and within which duplication of facilities would be wasteful and thus not in the public interest § Legal monopoly (limited monopoly) • A monopoly created when a government entity issues a franchise, license, copyright, patent, or trademark protecting the owners of written materials, ideas, or product brands from unauthorized use by competitors Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Measuring Economic Performance Gross domestic product (GDP) • The total dollar value of all goods & services produced within a country’s borders during a oneyear period • Real GDP (RGDP) – GDP that adjusts for inflation • Nominal GDP (NGDP) – GDP measured in current year’s prices Inflation • A general rise in the level of prices Productivity • The average level of output per worker per hour Unemployment rate • The percentage of a nation’s labor force unemployed at any time © JELICA VIDENOVIC/SHUTTERSTOCK Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Understanding RGDP and NGDP Year 2012 2013 Product Chips 5 Chips 10 Beer 4 Beer 6 Price Q $1 $2 $3 $4 • NGDP 2012? NGDP 2013? • RGDP 2012? RGDP 2013? Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The United States GDP Source: World Bank , www. worldbank. org, accessed October 2014. Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

4. Recovery – When the economy stabilizes and starts to grow. This leads to an Economic Boom. y Depression (Trough) – A severe recession. er 3. n Recession – Two or more consecutive quarters of decline in the GDP. sio es 2. Peak ov Four Phases of Long-Term Business Cycles: 1. Economic Boom (Peak) ec • R Business Cycles -- Periodic rises and falls that occur in economies over time. c Re • Output (GDP) Four Phases of The Business Cycle Trough Time Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Managing the Economy and Business Cycles Fiscal Policy – Government efforts to influence the economy: ü Taxation ü Taxes, Economy ü Government Spending ü Gov’t Spending, Economy ü Controlled by Congress/Budget Process Monetary Policy – Federal Reserve actions to shape the economy: ü Supply of Money ü Money Supply, Economy ü Influencing Interest Rates ü Interest Rates, Economy ü Controlled by Fed Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

NATIONAL DEFICITS, DEBT and SURPLUS • National Deficit -- The amount of money the federal government spends beyond what it gathers in taxes. • Gov’t Spending > Tax Revenues • National Debt -- The sum of government deficits over time. • National Surplus -- When government takes in more than it spends. • Tax Revenues > Gov’t Spending Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

What is our National Debt? • The National Debt has reached nearly $18 trillion. • If $1 bills were stacked, the National Debt would stretch over 1, 000 miles. The moon is only 238, 857 miles away. • Follow the U. S. National Debt Clock here. Copyright © 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.