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BUS 100 Introduction to Business

by: Autumn Ratliff

BUS 100 Introduction to Business BUS 100

Marketplace > Western Kentucky University > Business > BUS 100 > BUS 100 Introduction to Business
Autumn Ratliff
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About this Document

These are the updated notes for Chapter 2.
Introduction to Business
Trish Steelman
Class Notes
business, business management, Intro to Business, Introduction to Business, BUS 100




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This 5 page Class Notes was uploaded by Autumn Ratliff on Thursday February 11, 2016. The Class Notes belongs to BUS 100 at Western Kentucky University taught by Trish Steelman in Spring 2016. Since its upload, it has received 49 views. For similar materials see Introduction to Business in Business at Western Kentucky University.


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Date Created: 02/11/16
Chapter 2 Notes  Business Cycle o Periodic contraction and expansion that occur over time in every economy o Contraction: Period of economic downturn  Recession: Decrease in the Gross Domestic Product for two consecutive quarters  Depression: Long and deep recession  Low GDP for two consecutive quarters (6 months) = Recession  When a recession goes on past 6 months = Trough o Recovery: Period of rising economic growth and employment o Expansion: Period of robust economic growth and high employment  Economics o What is economics? The study of the choices that people, companies, and governments make in allocating societies resources.  Guide decision making  Help understand broad forces that affect business and personal life  Macroeconomics: The study of a country’s economic dynamics  Employment rate, gross domestic product, and taxation policies  Microeconomics: Study of smaller economic units  Individual consumers, families, and individual businesses o Managing the economy  Fiscal and monetary policies help achieve the goal of sustained economic growth.  Fiscal Policy: Use of taxes and spending by the government. Influences by the government to promote taxation and spending  Monetary Policy: Shaping of the economy by the Federal Reserve by influencing interest rates and supply of money.  Disposable income: What you have to spend after taxes on your necessities; rent, food, utilities. Use for needs.  Discretionary income: The money left over after paying for your needs. You can either spend it or save it. Can use for wants. o A budget outlines the expected revenue from taxes and fees, and expected spending. o Budget surplus means that the revenue is higher than expenses over a given period of time o Budget deficit means that expenses are higher than revenue over a given period of time. o Federal debt: The sum of all the money borrowed and not yet repaid by the federal government (Currently around $446,000,000,000 and counting) o Expansionary: Government spending  Infrastructure  Making the surrounding area safe and presentable o Contractionary: Raise taxes o Monetary: Chapter 2 Notes  Federal Reserve System/Banks  Monitors money supply o Money Supply: Total amount of money within the overall economy  When economy contracts, Fed reduces the money supply  When prices rise, Fed reduces the money supply  M1: All currency + checking accounts and traveler’s checks  M2: M1 money supply + most savings accounts, money market accounts, and certificates of deposit  When economy slows, Fed increases the money supply  When prices rise, Fed reduces money supply  Execute federal policies  Perform banking services for commercial banks in their districts o Commercial banks: Privately owned financial institutions  Interest rates: Cost of borrowing money  Lowering IR makes people spend more  Reserve requirement (% of banks deposits): Rule set by the Fed which specifies the minimum amount of reserves a bank must hold.  Economy: Financial and social system of how resources flow through society  Gross Domestic Product (GDP) o Total value of all goods and services produced within a nation’s physical boundaries over a given period of time o Used to:  Measure the economic performance of individual nations  Compares the growths among nations  Evaluating Economic Performance: o GDP o Employment level  Tracked through unemployment rate o Business cycle o Inflation rate o Productivity  Test question. o Percent of people in the labor force age 16 years and older who do not have a job but are actively seeking work = unemployment rate o Nation: 4.9 % Unemployment Rate o KY: 5.0% Unemployment Rate since April 2015 Chapter 2 Notes o Doesn’t take account of the discouraged workers = people who have given up looking for a job.  Categories of unemployment o Frictional - Temporary unemployment  Unemployed but looking to start a new job soon o Structural - Long term unemployment  Machines taking jobs, people no longer needed o Cyclical - Layoffs during recessions  GDP drops and layoffs happen until GDP rises and people get their job back o Seasonal - Job loss related to the time of year  Open market operations o Federal Reserve function of buying and selling government securities  Treasury bonds, notes and bills o Federal Deposit Insurance Corporation (FDIC) is a federal agency that insures deposits in banks and thrift institutions up to $250,000 per customer, per bank.  Discount Rate o Discount rate: interest rate that the Federal Reserve charges when it loans funds to banks  Debt Ceiling and Fiscal Cliff o Debt Ceiling: Max amount Congress lets the government borrow o Fiscal Cliff: Package of across the board spending cuts and sharp tax hikes  Meant to decrease the U.S. budget deficit  Capitalism: Free Market System o Economic system based on private ownership, economic freedom, and fair competition  i.e. Private enterprise or free market system o Fundamental Rights of Capitalism  Right to own a business and keep after-tax profits  Right to private property  Right to free choice  Right to fair competition  Socialism: Government owns and operates key enterprises that affect public welfare o Higher taxes  Communism: Public ownership of all enterprises, under strong central government  Mixed Economies: has elements of planned and market-based economic systems o Federal government partly owns a number of financial institutions o Privatization: Converting government-owned businesses to private ownership Chapter 2 Notes Degrees of Competition  Pure/Perfect Competition: Have your own example for the test o Market structure with many competitors selling virtually identical products o Barriers to entry are very low (Low cost start up) o Advantages of Pure Competition  Often smaller businesses  Generally startup costs are low  Similar products  Ex: Yard sales, bakeries, florists, dentists o Disadvantages of Pure Competition  Unlimited liability  Lack of expertise in all areas of business  Monopolistic competition Have your own example for the test o Market structure with many competitors selling differentiated products o Barriers to entry are low o Advantages of Monopolistic Competition  Many competitors selling similar products/services  Decisions of one do not affect the whole o Disadvantages of Monopolistic Competition  Many marketing competitors  Unlimited liability  Ex: Convenience stores, Restaurants  Oligopoly: Market structure with only a handful of competitors selling products that can be the same or different Have your own example for the test o Barriers to entry are high o Advantages of Oligopoly  Potential to make large profits  Well known  Decision of one affects all  Ex: Airlines, Movie theaters o Disadvantages of Oligopoly  Barriers to entry  High entry costs  Large number of employees  Monopoly: One producer dominates the industry Have your own example for the test o Natural Monopoly: Market structure with one company as the supplier of a product  Consumer price index (CPI) o Evaluates the weighted average price of goods and services consumers buy each month Chapter 2 Notes o $$ Groceries, haircuts, gas. If people do the same thing in the next month but the total price is higher, then the CPI has risen from that last month.  Price levels o Inflation: Rising of average prices o Hyperinflation: Average monthly inflation rate of more than 50% o Disinflation: Slowing average price increases o Deflation: Falling average prices  Productivity o Output: Production of goods and services o Input: Resources required to produce goods or services  Productivity = Output/Input


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