American Business

Leslie Lum

Bellevue Community College

What is the economy?

Brainstorming

• What is a business?

• What is the context of a business? What environment does it operate in?

• Form a group– Brainstorm what a business is– Draw a picture of your ideas– Report back to the class

Part of the U.S. economy?

• Building a house in New Mexico

• Toyota cars assembled in Kentucky

• Hair salon in South Dakota

• Seattle SuperSonics

• Coca Cola plant in China

Who wants to be a millionaire--

http://www.worldbank.org/data/quickreference/quickref.html

What is the size of the US economy?

How does it compare to the rest of the world?

Year Current Dollars (B) 1996 Dollars (B)1991 5,986.2 6,676.41992 6,318.9 6,880.01993 6,642.3 7,062.61994 7,054.3 7,347.71995 7,400.5 7,543.81996 7,813.2 7,813.21997 8,318.4 8,159.51998 8,781.5 8,508.91999 9,274.3 8,859.02000 9,824.6 9,191.42001 10,082.2 9,214.52002 10,446.2 9,439.9

Measuring the economy

GDP Growth Rate (1990s)

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

GDP in billions of

current dollars

GDP in billions of chained

1996 dollars Growth1990 5,803.2 6,707.91991 5,986.2 6,676.4 -0.47%1992 6,318.9 6,880.0 3.05%1993 6,642.3 7,062.6 2.65%1994 7,054.3 7,347.7 4.04%1995 7,400.5 7,543.8 2.67%1996 7,813.2 7,813.2 3.57%1997 8,318.4 8,159.5 4.43%1998 8,781.5 8,508.9 4.28%1999 9,268.6 8,856.5 4.09%2000 9,872.9 9,224.0 4.15%

GDP adjusted for inflation.

Growth is graphed.

Value of goods and servicesare totaled.

The rate of change of GDP

• Growth• Period of Expansion

• Contraction• Recession

Growth in GDP (Chained 2000 Dollars)

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

1931 1941 1951 1961 1971 1981 1991 2001

2004/5 data

http://www.whitehouse.gov/fsbr/esbr.html

Inflation

• Increase in the price of goods and services

• How do we measure it?

• Is it good or bad?

• What has been the inflation rate for the past 30 years?

Consumer Price Index

CPI1986 109.61987 113.61988 118.31989 1241990 130.7

1991 136.21992 140.31993 144.51994 148.21995 152.4

1996 156.91997 160.51998 1631999 166.62000 172.2

2001 177.12002 179.9

http://www.bls.gov/cpi/home.htm#tables

Inflation

CPI DEC-DEC AVERAGE1986 109.6 1.1 1.91987 113.6 4.4 3.61988 118.3 4.4 4.11989 124 4.6 4.81990 130.7 6.1 5.4

1991 136.2 3.1 4.21992 140.3 2.9 31993 144.5 2.7 31994 148.2 2.7 2.61995 152.4 2.5 2.8

1996 156.9 3.3 31997 160.5 1.7 2.31998 163 1.6 1.61999 166.6 2.7 2.22000 172.2 3.4 3.4

2001 177.1 1.6 2.82002 179.9 2.4 1.6

Inflation Rate

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Source: Department of Labor

How does the US compare?

http://www.nationmaster.com/graph-T/eco_inf_rat_con_pri

Inflation Up - Interest Rates Up

0%

2%

4%

6%

8%

10%

12%

14%

16%19

71

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Inflation

T-Bill Return

Source: Bureau of Economic Affairs and Global Financial Data

Inflation Up - Economy Down Inflation Down - Economy Up

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Real GDP Growth

Inflation

Source: Bureau of Economic Affairs, U.S. Government

Growth in the EconomyReal GDP Growth - Chained 1996 Dollars

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Source: Bureau of Economic Affairs, U.S. Government

Role of Government

• Monetary Policy - Federal Reserve sets interest rates

• Fiscal Policy - Spending to stimulate economy

Can the Government afford to help? Deficits or surplus ($billion)

Annual Federal Deficit

-500

-400

-300

-200

-100

0

100

200

300

1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002

($ B

illio

ns

)

Source: Congressional Budget Office http://www.cbo.gov

Monetary Policy - How it works

The Whole Picture

• The Business Cycle is crucial to business planning

How to avoid finding yourself in the middle of a recession

• Important to look ahead

• Predict upturns and downturns

Economic indicators

• Construction

• Manufacturers’ shipments, inventories, orders

• Employment

• Consumer credit

• Wholesale trade

• Capacity

Shifts in the American Economy

• The American Economy consists of many industries

• Not all industries are growing or contracting at the same rate

• Where should you be?