chapter 3 assessing economic conditions. portion of graphic from pg 72 will go here learning...
TRANSCRIPT
Chapter 3Assessing Economic Conditions
Assessing Economic Conditions
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Learning Objectives
Assessing EconomicConditions
Growth Inflation
Government Interest Rates
Market Prices
Assessing Economic Conditions
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The Key Decisions in Running a Business
Assessing Economic Conditions
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Economic Growth
GrowthInflationInterest RatesMarket PricesGovernment
Weak
Strong
Recession
Assessing Economic Conditions
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• Can you give an example to express the ripple effect?
Assessing Economic Conditions
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Growth Indicators
GrowthInflationInterest RatesMarket PricesGovernment
G.D.P.
Production
AggregateExpenditures
Spending
• China has been the fastest-growing major nation for the past 30 years with an average annual GDP growth rate above 10%.China's per capita income has likewise grown at an average annual rate of more than 8% over the last three decades drastically reducing poverty, but this rapid growth has been accompanied by rising income inequalities.
Assessing Economic Conditions
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Unemployment
GrowthInflationInterest RatesMarket PricesGovernment
Structural
Frictional
Cyclical
Seasonal
Assessing Economic Conditions
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• Which industry is more sensitive to economic growth than others?
Food industry Real estate industry Pharmaceuticals industry Construction industry Jewelry industry Auto industry
Assessing Economic Conditions
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Inflation
1985
1995
2005
$
$$$$$GrowthInflationInterest RatesMarket PricesGovernment
Assessing Economic Conditions
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• If in 1995, you put RMB150,000, which was enough to pay for an apartment of 100 ㎡ , in the bank. In 2005, you money increased to 150,000+interests. Was it enough to pay for a 100 ㎡apartment which cost 300,000?
Assessing Economic Conditions
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Types of Inflation
GrowthInflationInterest RatesMarket PricesGovernment
Demand-PullCost-Push
Assessing Economic Conditions
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• What’s the ripple effect of the increase of oil/rice/pork price?
• Why do we need to control the over-heated economy?
Assessing Economic Conditions
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Interest Rates
GrowthInflationInterest RatesMarket PricesGovernment
Assessing Economic Conditions
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Interest and Revenue
GrowthInflationInterest RatesMarket PricesGovernment
Interest Rates (%)
Assessing Economic Conditions
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• Explain how interest rate influence the performance of real estate companies.
• If the government is going to increase the interest rate, is it a good news or bad news to the stock market?
Assessing Economic Conditions
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Determining Market Prices
GrowthInflationInterest RatesMarket PricesGovernment
Insert Exhibit 3.4(only top portion)
Assessing Economic Conditions
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Determining Market Prices
GrowthInflationInterest RatesMarket PricesGovernment Insert Exhibit 3.4
(only bottom graph portion)
Assessing Economic Conditions
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Demand Schedule
GrowthInflationInterest RatesMarket PricesGovernment
Pri
ce
Quantity
(S1)
(D1)(D2)
P1 = $ 2,000
P2 = $ 2,500
Assessing Economic Conditions
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• The strong demand for houses due to large population and industrialization pulls up the housing price.
Assessing Economic Conditions
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Supply Schedule
GrowthInflationInterest RatesMarket PricesGovernment
Pri
ce
Quantity
(S1)
(D1)
(S2)
P1 = $ 2,000
P2 = $ 1,500
Assessing Economic Conditions
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• The cars/computers will become cheaper and cheaper. Why?
Assessing Economic Conditions
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Influencing Market Prices
GrowthInflationInterest RatesMarket PricesGovernment
Production Expenses
Consumer Income
Consumer Preferences)))) ) )
Assessing Economic Conditions
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The market price is mainly determined by
demand
supply
Consumer income
Consumer preference
Production expenses
Assessing Economic Conditions
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Monetary Policy
GrowthInflationInterest RatesMarket PricesGovernment
FOMC
The Fed Reserve System
Money supply
Interest Rates
Assessing Economic Conditions
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Fiscal Policy
GrowthInflationInterest RatesMarket PricesGovernment
Excise Tax
Personal Income Tax
Corporate Tax
Budget Deficits
Assessing Economic Conditions
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• Explain the relationship between federal budget deficit and interest rate.
Assessing Economic Conditions
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Government Influence
GrowthInflationInterest RatesMarket PricesGovernment
Insert Exhibit 3.8