RSM100EnviroPart1C - Macroeconomic Environment of Commerce...

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Macroeconomic Environment RSM 100 Macroeconomic Environment of Commerce The Economic Environment of Commerce: Part 1: Lessons from the Past: 1.A The Origins of Money 1.B The Evolution of Capitalism 1.C The World Economy since WW2
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Macroeconomic Environment RSM 100 1.C The World Economy since WW2 . In the 1950s there emerged the idea that there were three „worlds‟ . First World: Industrialized, „capitalist‟ economies – W. Europe, N. America, Japan . Second World: Industrialized centrally- planned (Communist) economies – Soviet Union and its Eastern European satellites
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Macroeconomic Environment RSM 100 . Third World: All „less-developed‟ or non- industrialized economies, no matter what their political or market system. In Part 1.C we examine post-WW2 broad changes in A.) the First World economies B.) the Third World developing economies.
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Macroeconomic Environment RSM 100 A. The Capitalist Industrialized Economies . Two major developments: 1) Stabilization – dealing with inflation as well as depression; and the shift to monetary policy for stabilization 2) Internationalization – lowering trade restrictions and improving international financial flows.
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Macroeconomic Environment RSM 100 Stabilization - Inflation . The industrialized economies have avoided another Great Depression – although there have been economic downturns („Recessions‟) . They have learned the policy lessons of Keynes and his followers . Capitalist economies have gradually become more service based, and less manufacturing based, which adds stability.
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Macroeconomic Environment RSM 100 Stabilization - Inflation . BUT there was an opposite problem to Depression – an economy trying to produce too much – that the industrialized economies blundered into starting in the late 1960s. . An economy that is over-heated or over- stimulated (by government policy) has its prices rise (as demand exceeds supply). . This is Inflation!
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Macroeconomic Environment RSM 100 Stabilization - Inflation . High Inflation as such is not as bad as Depression (unless it is hyperinflation ) . But high and variable inflation is still harmful: . Money is „store of value‟ – you will not save as much if you are not sure what your money will buy in the future
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Macroeconomic Environment RSM 100 Stabilization - Inflation . Likewise, you are more reluctant to borrow if you are not sure what the „real‟ cost
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This note was uploaded on 03/03/2011 for the course RSM 100 taught by Professor Oesch during the Spring '08 term at University of Toronto- Toronto.

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RSM100EnviroPart1C - Macroeconomic Environment of Commerce...

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