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Unformatted text preview: R y a n M c V a y / P h o t o d i s c / G e t t y I m a g e s Economic Challenges Facing Contemporary Business 8 7 6 5 4 3 2 1 3 chapter Goals Distinguish between microeconomics and macroeconomics. Explain the factors that drive demand and supply. Describe each of the four different types of market structures in a private enterprise system. Compare the three major types of economic systems. Identify and describe the four stages of the business cycle. Explain how productivity, price level changes, and employment levels affect the stability of a nations economy. Discuss how monetary policy and fiscal policy are used to manage an economys performance. Describe the major global economic challenges of the 21st century. Copyright © 2011 John Wiley & Sons A s Barack Obama took his historic oath of office, the U.S. economy was faltering. Daily news headlined the worst downturn since the Great Depression. All eyes turned to Washington, D.C., for help getting cash and credit flowing into the financial system again. Opinions remained deeply divided about the new presidents $787 billion economic stimulus plan, with some wanting less government spending and more tax cuts, but most people believed that the government had to do something . Reeling from a huge burden of bad debt left over from the bursting of the housing bubble, banks and other lending institutions had essentially withdrawn from the economic playing field, with too little cash or confidence to continue lending. Businesses that depended on short-term loans from these lenders were left without the funds they needed to conduct their everyday operations or expand for the future. As already debt-laden consumers grew wary of spending in an uncertain economy, sales slumped in industries across the board, inventories of unsold goods piled up, and companies like 3M, Home Depot, Starbucks, Microsoft, Nokia, and dozens more announced layoffs of thousands of workers in the wake of unprecedented financial losses. Unemployment was soaring, dampen- ing consumer spending even further. Stock prices fell, sales of new homesa major indicator of the economys healthplunged, cars sat on dealers lots, and retailers reported the worst holiday selling season in decades. The United States cut imports of foreign-made products like televisions and computers. Foreign manufacturers cut back production, and with less money to spend, overseas busi- nesses trimmed demand for U.S. products as well, forcing the countrys exports down. Bad news spread worldwide. In an ominous sign, the U.S. economy began to shrink. An economist at JPMorgan Chase noted, The fact that youre not seeing any evidence that things are turn- ing for the better has added quite a bit to the urgency to get things done and do something substantial. After much debate, Congress adopted President Obamas plan to put government money into the economy, although it was certain to be only a partial solution. What was clear, however, was that only the government had both ...
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