business - Chapter 1 How Business and Economies Work...

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Chapter 1 12/09/2006 09:18:00 How Business and Economies Work Economic Concerns What is produced? How much is produced? How is it produced? For whom is it produced? Decisions made by: Marketplace Government Economic Decisions of Business What products to produce How to price them How many people to employ How much to pay employees How much to expand the economy Evolving Global Economic Systems capitalism- private ownership and freedom communism- public ownership and control; no freedom
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socialism- government ownership/control        high taxation- quality in wealth mixed economies- private ownership with regulation and tax           balance freedom and equality in wealth Foundations of Capitalism The right to private property The right to keep all of your business profits or wages The right to freedom of competition The right to freedom of choice Macroeconomics: The big picture Main macroeconomic goals Economic growth Full employment Price stability Economic Growth Economic growth- an increase in a nation’s output of goods and services The more a nation produces the higher its standard of living
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Drawbacks of economic growth Pollution Strain on public facilities GDP- the total market value of final goods and services …? Business Cycles An increase in business activity results in a rise in: Output Income Employment Prices Recession- a decline in GPD over two consecutive quarters Keeping people on the job Types of unemployment Frictional Structural Cyclical seasonal Keeping Prices Steady
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Inflation- the average of all prices of goods and services are rising Demand pull inflation- demand for goods and services is greater than the  supply Cost-push inflation- increases in production costs push up prices How inflation is measured Consumer Price Index (CPI)- index of prices of a “market basket” of  goods/services purchased by consumers Producer Price Index- prices paid by produces for raw materials, partially finished  goods, and finished products Achieving Macroeconomic Goals
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