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Unformatted text preview: lation to Proﬁt or Loss, continued
Revenue is different from proﬁt in that revenue is the total amount a business takes in, whereas proﬁt is the amount
remaining after business expenditures. Obviously, not all businesses will reap the same level of proﬁt.
There is no single standard for balancing risk and proﬁt when you start a business. How much risk you are willing to
tolerate is a personal decision. You can make an informed decision.
Calculate the risks. Estimate the potential rewards. Be aware that the more risk you endure, the higher the rewards you
may reap. And also remain aware that the more you risk, the more you risk losing if your business venture is
3 Key Economic Indicators:
GDP - Gross Domestic Product (even if company is foreign-owned, its production is included in GDP of the country
where company resides. GDP doesn’t include proﬁts from companies’ overseas operations. Growth of GDP leads to an
increased standards of living. If GDP growth slows or declines, businesses can suffer many negative side effects.
Unemployment rate (number of persons aged 16 and older who are unemployed and tried to ﬁnd a job within the prior
four weeks in US).
Consumer Price index (CPI; it’s important because wages, rents, tax brackets, interest rates, and so on, are based on
these statistics. You should consider them to be successful.
Economics is a central concept in business.
Other Economic Indicators
There are other indicators of the health of the economy.
For example, the budget deﬁcit or national debt shows the relationship between spending and income from taxes.
A budget deﬁcit occurs when a nation spends more than it takes in from taxes. It is similar to a revenue loss in business.
The budget deﬁcit is an important economic indicator because to reduce the debt to a manageable level, the government
either must increase revenues (raise taxes) or reduce spending on defense, legal, or social programs. The effects can be
signiﬁcant on business and society.
Another indicator of the economy’s condition is the producer price index, or PPI, which measures wholesale price levels.
Other indicators include housing starts, retail sales, and changes in personal income.
WHERE GOVERNMENT GETS ITS MONEY WHERE GOVERNMENT SPENDS ITS MONEY individual income 44.2 c human resources 63 c social security, medicare, and other payroll taxes 39.7c national defense 17.5 c corporate income taxes 8.8 c interest 7.9 c excise taxes 3.6 c physical resources 5.9 c other 3.7 other 5.7 c Economic Cycles
Economies are like living organisms. They grow and change, expand and contract.
Economic expansion or boom happens when economy is growing and people are spending more money. This
stimulates the production of more products. This, in turn, stimulates employment. Recession or contraction occurs when there is a decline in spending and business cut back on production and lay off
their employees. It’s 2 or more consecutive quaters of decli...
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- Winter '07