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AEM1200_1029ToPost - AEM1200 Introduction to Business...

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Unformatted text preview: AEM1200, Introduction to Business Management. AEM1200, Wednesday 10/29 Economics Markets and capitalism Supply, demand and competition The government and economics Economics Economics The close supervision and management necessary The to ensure adequate provisions to a community. to Types of Economies Types Capitalism An economic system in which all or most of the factors of An production and distribution are privately owned and operated for profit; for A global system of social organization based on common global ownership, democratic control, production for use and free access; access; An economic and political system in which the state makes An all economic decisions and owns all the major forms of production; production; Economic systems in which some allocation of resources is Economic made by the market and some is made by the government. made Socialism Communism Mixed economies Three (crazy?) Adam Smith ideas Adam Self-interested efforts result in collective benefit; Uncoordinated markets result in optimal Uncoordinated utilization of resources; utilization Private property is a more powerful incentive Private than public coercion. than Foundations of Capitalism Foundations Right to private property; Right to own a business and to keep all of that Right business’ profits; business’ Right to freedom of competition; Right to freedom of choice; Right to obtain interest. Supply and Demand Supply Types of Competition Types Perfect competition Monopolistic competition Oligopoly Monopoly Key Economic Indicators Key Gross Domestic Product (GDP) Unemployment Rate Price Indexes Consumer Price Index(CPI) Producer Price Index(PPI) Unemployment Unemployment Formal unemployment Frictional Structural Cyclical Seasonal Outsourcing Flexible employment Government’s Role in Economics Government’s Enforces Rules/Regulations Provides Public Goods Transfers Payments Fosters Competition Contributes to Economic Stability U.S. Government Economic Tools U.S. Monetary Policy- management of Monetary money supply money Fiscal Policy- management of taxes Fiscal and government expenditures and National Debt Role of the Federal Reserve Role AEM220, Introduction to Business Management. AEM220, Friday 4/25 Economics (II) The government and economics The banking system Comments American Banking System American Depository Commercial Banks Savings and Loan Associations/ Thrifts Credit Unions Life Insurance Companies Pension Funds Brokerage Firms Finance Companies Non-depository Services Available at Most Commercial Banks The International Monetary System The International Monetary Fund An organization of 185 countries, working to foster An global monetary cooperation, secure financial stability, facilitate international trade, promote high stability facilitate employment and sustainable economic growth, and reduce poverty; reduce A vital source of financial and technical assistance to vital developing countries around the world; developing The WTO deals with the rules of trade between The nations at a global or near-global level. World Bank World Trade Organization World’s Largest Banks (Assets) World’s 1/31/08 1/31/08 Mkt cap ($bln) 1/31/07 4 2 3 7 6 5 1 11 12 9 1/31/03 1/31/03 NA 2 3 NA NA 9 1 4 23 22 1 ICBC 277.514 ICBC 2 Bank of America 195.933 3 HSBC Holdings 176.788 4 China Construction 165.234 5 Bank of China 165.087 6 JPMorgan Chase 159.615 7 Citigroup 140.698 8 Wells Fargo 112.365 9 Banco Santander 109.862 10 Mitsubishi UFJ Financial 105.412 “Not So Current” News - 2007 US national debt $5 trillion $1 trillion $1 trillion Cost of the Iraq war $2 trillion Japan national surplus China national surplus TWIN DEFICITS Government spending deficit Foreign trade deficit “The market has come to the correct conclusion that The (US) interest rates can only stay up for a limited period as rising inflation is not supported by economic growth rates”, Forbes April 11th, 2007 growth Since Then (March 2008) Since Prime Rate From 6.25% to 2.5% From $1.35/euro to $1.58/euro Added $500 billion to become $9.3 trillion $5.1 trillion owed to “individuals” $.5 trillion to Japan $.5 trillion to China $.5 trillion to oil exporting countries Exchange rates U.S. debt Additional expense on Iraq war - $600 billion The US Middle Class is Spent The (Robert Reich, NYT 2/13/08) The percentage of American working mothers with The school-age children has almost doubled since 1970 — to more than 70 percent; more The typical American now works more each year than he The or she did three decades ago. Americans became veritable workaholics, putting in 350 more hours a year than the average European, more even than the notoriously industrious Japanese; notoriously Refinancing home mortgages and taking out homeequity loans. Something has got to give? Something US consumers buy Japanese and Chinese products, US outsource to India, and buy petroleum from OPEC; outsource These countries therefore grow (especially China and India) Japan, China and OPEC lend the dollars they have Japan, obtained from the aforementioned transactions to the USA; obtained USA spend dollars on the Iraq war; Result: stagflation??? Three Trends and a Train Wreck (NYT 10/18/08) Three An enormous growth in wealth that needed to be moved into An investments. “global savings glut,” (Ben Bernanke). global Greater willingness of both individuals and financial institutions to take on risk. real estate, real derivatives markets, derivatives loans to companies like the American International Group, overpriced equities, Heavy debt, particularly in financial institutions, created a low margin Heavy of error for many of these calculations Weak governance and oversight, including inadequate control and monitoring by shareholders, regulators, creditors, accounting systems and ratings agencies, among others. Most people, including informed insiders, simply did not understand Most the systematic risk that financial institutions were accepting Emilio Botin, CEO Banco de Santander (largest bank in capitalization in Europe) (largest Never buy an instrument that you do not Never understand; understand; Never sell a product or instrument that you Never would not buy; would Never lend to someone you do not know. “Saved by the Deficit?” Robert Reich, NYT 10/9/08 Relatively manageable deficit (3.3% of GDP, as Relatively opposed to 5% in 1993); opposed The rescue package is an investment, not an outlay. Economy needs money. Infrastructure Education Health care Climate change, the environment and sustainability Rebuilding the middle class Beginning of a recession Need for investment Take-aways Take-aways The liberal democratic mixed economy is the most powerful The engine of economic growth devised by humankind; engine Supply and demand determine the long-term prices of goods, Supply services and ideas, therefore determining the incentive to produce more or less of any one; produce Governments play a major role in ensuring the viability of an Governments economy and in “safeguarding” it. economy The stability of the markets depends on the interlocking activity The of the financial system, including of Global institutions, including IMF, World Bank, WTO, and “Global” banks National monetary systems Government regulatory policies Monetary policy, fiscal policy and national debt Central Banks National commercial banking systems ...
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