UNITS OF ECONOMICS

1-Basic Economic Concepts.
2-The World Economy.
3-Economic Systems.
4-The Free Entreprise Economy.
5-The Role of Businesses in the Economy.
6-The Role of Labor in the Economy.
7-The Role of Government in the Economy.
8-Money, Credit, and Banking.
9-Economic Performance.
10-Personal Economics.
11-Today's Economy & Trade.


1-BASIC ECONOMIC CONCEPTS

Objectives

1-Explain how the central problem of scarcity is related to opportunity costs, making choices, and trade-offs (I A).

2-Describe the factors of production and the interrelationship among them : natural resources, human resources, capital, technology, etc. (I A, IV B).

3-Identify the three basic economic questions that all societies must answer and describe how different economic systems answer them: what, how, for whom. (II A, IV A).

4-Explain how economics relates to social issues and problems (IV A).

5-Define and explain the term economic market (IV A).

6-Describe how the laws of supply and demand interact to determine price (IV A).

7-Explain the meaning of “opportunity cost” (IV A).

8-Distinguish between consumer goods and capital goods (IV B)


VOCABULARY

1-ECONOMICS: SOCIAL SCIENCE CONCERNED WITH THE PRODUCTION, DISTRIBUTION, EXCHANGE, AND CONSUMPTION OF GOODS AND SERVICES.
(Macro & Micro)

2-ECONOMY: MANAGEMENT OF A HOUSEHOLD. EFFICIENT USE OF RESOURCES. STRUCTURE OF THE ECONOMIC LIFE OF A NATION.

3-CAPITAL: BODY OF GOODS AND MONIES FROM WHICH FUTURE INCOME CAN BE DERIVED.

4-CREDIT: TRANSFER OF MONEY OR OTHER PROPERTY ON PROMISE OF REPAYMENT. CREDITOR / DEBTOR. INTEREST.

5-INTEREST: PAYMENT FOR THE USE OF SOMEONE ELSE MONEY.

6-PRODUCTION COST: SUM /ADDITION OF THE COSTS OF RAW MATERIALS, LABOR FORCE, FUEL, UTILITIES, AND EQUIPMENTS’ WEAR

7-PRICE: GOODS AND SERVICES’ VALUE ACCORDING TO THE PRODUCTION COST AND THE MARKET COMPETITION.

8-COMPETITION: INTERACTION BETWEEN BUYERS AND SELLERS IN THE MARKET.

9-PROFIT: DIFFERENCE PRODUCTION COST AND PRICE.

10-ENTREPRENEUR: PERSON WHO ASSUME THE RESPONSIBILITY AND RISKS FOR A BUSINESS OPERATION WITH THE EXPECTATION OF MAKING A PROFIT.

11-C.E.O.: CHIEF EXECUTIVE OFFICER IN A CORPORATION.

12-MANAGER: PERSON WHO RECEIVE FROM THE OWNER THE RESPONSIBILITY OF LEADING THE DAY-TO-DAY OPERATIONS OF A BUSINESS.

13-CORPORATION: LEGAL ORGANIZATION THAT ALLOW PEOPLE TO ASSOCIATE TOGETHER FOR A COMMON PURPOSE AND UNDER A COMMON NAME IN A JOINT-STOCK COMPANY. IT NEEDS TO RECEIVE A CHARTER FROM THE GOVERNMENT. KEY ECONOMIC INSTITUTION.

14-STOCKS: CERTIFICATES REPRESENTING SHARES OF OWNERSHIP IN A CORPORATION. WALL STREET / THE STOCK MARKET.

15-INCOME / REVENUE: MONEY OR OTHER GAIN OR RETURN RESULTING FROM GOODS OR SERVICES. Revenue - Expenses = Income or Profit.

16-WAGE / SALARY: PRICE PAID FOR LABOR.

17-SUPPLY & DEMAND: BASIC FACTORS DETERMINING PRICE.

18-POVERTY: ECONOMIC CONDITION IN WHICH PEOPLE LACK SUFFICIENT INCOME TO COVER THE BASIC NEEDS (FOOD, HOUSE, CLOTHES, EDUCATION, HEALTH, TRANSPORT).

19-FRANCHISE: SPECIAL RIGHT OR PRIVILEGE GRANTED TO AN INDIVIDUAL OR GROUP TO CARRY ON A PARTICULAR ACTIVITY (AUTO DEALERS, MC DONALD.)

20-RECESSION / DEPRESSION: PERIOD OF LOW PRODUCTION, BUSINESS FAILURE, UNEMPLOYMENT, ETC.

21-BUDGET: FORECAST OF EXPENDITURES AND REVENUES.

22-CARTEL / TRUST: AGREEMENT AMONG BUSINESSES DESIGNED TO REDUCE COMPETITION, FIX PRICES, AND DIVIDE THE MARKET AMONG THEM. A CARTEL CONTROL PRODUCTION AND DISTRIBUTION.

23-OLIGOPOLY / MONOPOLY: ECONOMIC SITUATION IN WHICH ONLY A SINGLE SELLER OR PRODUCER SUPPLIES A GOOD OR SERVICE. NO COMPETITION. CONTROL OF THE MARKET / PRICES.

24-MERGER: THE COMBINING OF TWO OR MORE COMPANIES INTO A SINGLE CORPORATION.

25-MARKET: PLACE WHERE BUYERS AND SELLERS MET. PLACE TO TRADE GOODS AND SERVICES.

26-INFLATION / DEFLATION / STAGFLATION: DECLINE / INCREASE IN THE VALUE OF MONEY IN RELATION TO THE GOODS / SERVICES THAT IT CAN BUY. HIGH / LOW PRICES.

27-MERCANTILISM: ECONOMIC POLICY (16th.-18th. CENTURIES): TAKE OUT AS MUCH RESOURCES AND WEALTH AS POSSIBLE FROM THE COLONIES TO THE METROPOLIS. GOVERNMENT CONTROLS THE TRADE TO ACHIEVE NATIONAL STRENGTH. POSSESSION OF GOLD AND SILVER.

28-CAPITALISM / FREE ENTERPRISE / MARKET SYSTEM: PRIVATE INDIVIDUALS/GROUPS DECIDE WHAT, WHEN, HOW TO PRODUCE AND DISTRIBUTE GOODS AND SERVICES, PRICES, ETC. OBTAIN PROFITS IS THE OBJECTIVE. THE MARKET RULES THE PROCESS. GOVERNMENT INTERFERES THE LESS THE BETTER.

29-COMMUNISM / COMMAND SYSTEM: “SOCIAL OWNERSHIP”, GOVERNMENT CENTRALIZES EVERYTHING.

30-TAXATION: SYTEM OF COMPULSORY CONTRIBUTIONS LEVIED BY THE GOVERNMENT ON PERSONS, CORPORATIONS, AND PROPERTY AS A SOURCE OF REVENUE FOR GOV. EXPENSES.

31-TARIFF: CUSTOMS DUTIES IMPOSED BY THE GOVERNMENT ON IMPORTS. SOURCE OF REVENUES AND PROTECT NATIONAL INDUSTRY. GATT (GENERAL AGREEMENT ON TARIFFS AND TRADE).

32-MORTGAGE: LOAN TO BUY A PROPERTY. INTEREST + SECURITIES.

33-CONSUMER: PERSON WHO BUYS GOODS AND SERVICES FOR PERSONAL USE, NOT FOR RESALE.

34-PRODUCER: PERSON OR COMPANY THAT MAKES / PROVIDE THE GOODS OR SERVICES THAT CONSUMERS USE.

35-RESOURCES: MATERIALS FROM WHICH GOODS ARE MADE.

36-SCARCITY OF RESOURCES: WHEN THE DEMAND FOR A RESOURCE OR SERVICE IS GREATER THAN THE SUPPLY = MOST OF THE TIMES. RESOURCES ARE LIMITED WHILE HUMAN WANTS ARE UNLIMITED.

37-RECYCLING: THE PROCESS OF USING MATERIALS MORE THAN ONCE.

38-OPPORTUNITY COST: THE TIME AND/OR MONEY A PERSON OR SOCIETY HAS TO GIVE UP WHEN SHE/HE CHOOSES TO BUY SOME GOOD AND/OR SERVICE.

39-TRADEOFF: WHEN PEOPLE MAKE A CHOICE BETWEEN TWO POSSIBLE USES OF THEIR RESOURCES. WILDERNESS vs. ECONOMIC EXPLOITATION OF RESOURCES

40-ECONOMIC MODEL: SIMPLE PLAN TO ANALYZE PROBLEMS, SEEK SOLUTIONS, AND COMPARE POSSIBILITIES.

41-PRODUCTION POSSIBILITIES MODEL: AN ECONOMIC MODEL USEFUL IN UNDERSTANDING OPPORTUNITY COSTS.

42-PRODUCTION CAPACITY: LESS THAN FULL vs. FULL CAPACITY

 

FACTORS OF PRODUCTION: LAND, LABOR, MANAGEMENT, CAPITAL.

TYPES OF CAPITAL: INDUSTRIAL , PRODUCTIVE, OR FIXED (LAND, BUILDINGS, MACHINERY), FINANCIAL OR CIRCULATING (BANK ACCOUNTS, BONDS, STOCKS), AND HUMAN CAPITAL.

TYPES OF INCOME: WAGES (RETURN FOR LABOR), RENT (RETURN FOR THE USE OF LAND), INTEREST (RENT FOR THE USE OF CAPITAL), PROFIT (RETURN TO THE BUSINESS OWNER)

TYPES OF BUSINESS ORGANIZATION: INDIVIDUAL PROPRIETORSHIP, PARTNERSHIP, CORPORATION

TYPES OF RESOURCES: HUMAN RESOURCES, NATURAL RESOURCES (RAW MATERIALS), CAPITAL RESOURCES (MONEY & PROPERTY, USED TO PRODUCE GOODS & SERVICES)


CAUSES OF SCARCITY:

-POOR DISTRIBUTION OF RESOURCES (WATER)

-PERSONAL PERSPECTIVE (RELATIVE SITUATION)

-RAPID INCREASE IN DEMAND

WAYS TO DEAL WITH SCARCITY:

-GIVE UP SOME WANTS

-CREATE MORE RESOURCES. TECHNOLOGY

-MAKE BETTER USE OF RESOURCES: RECYCLING, REASONABLE CONSUMPTION, ETC.

-REDISTRIBUTE GOODS / SERVICES SO EVERYONE RECEIVE ENOUGH

KEY ECONOMIC QUESTIONS:

1-WHAT GOODS AND SERVICES WILL BE PRODUCED?

-AVAILABLE RESOURCES

-POLICIES AND PRIORITIES (WAR, INFLUENCE OF SOME CORP.)

2-HOW WILL GOODS AND SERVICES BE PRODUCED?

-EACH COUNTRY ECONOMIC SYSTEM

-QUALITY OF THE WORK FORCE

3-WHO WILL GET THEM?

-SOCIAL PROGRAMS

-POLICY ON REDISTRIBUTION OF THE WEALTH

-HELP TO CERTAIN GROUPS

-NEED vs. CONTRIBUTION TO PRODUCTION

4-HOW MUCH WILL BE PRODUCED FOR NOW AND HOW MUCH FOR LATER?

-USE OF NATURAL RESOURCES / ENVIRONMENTAL DECISIONS

-CONSUMERISM

-SATISFY IMMEDIATE NEEDS (CONSUMER GOODS) vs. INVEST IN CAPITAL GOODS (SATISFY FUTURE NEEDS)


DEMAND:

-THE DESIRE TO PURCHASE SOMETHING AT A SPECIFIED PRICE AND TIME, ACCOMPANIED BY THE ABILITY AND WILLINGNESS TO PAY.

-THE QUANTITY DEMANDED VARIES WITH THE PRICE OF AN ITEM (DEMAND SCHEDULE / DEMAND CURVE). THE LAW OF DEMAND SAYS THAT THE QUANTITY DEMANDED VARIES INVERSELY WITH CHANGES IN PRICE.

-ELASTICITY OF DEMAND DESCRIBES THE PERCENTAGE CHANGE IN DEMAND THAT FOLLOW A PRICE CHANGE. THE MORE DEMAND EXPANDS OR CONTRACTS AFTER A PRICE CHANGE, THE GREATER THE ELASTICITY.

-FACTORS THAT MAKE DEMAND LESS ELASTIC:

IF THE ITEM IS A LUXURY.

IF THE PRICE REPRESENT A LARGE PORTION OF THE FAMILY INCOME.

IF THE PRODUCT CAN EASILY BE REPLACED FOR A SUBSTITUTE.

IF THE ITEM IS DURABLE AND THE NEW PURCHASE CAN WAIT.

-THE DEMAND CAN ALSO BE ALTERED BY PSYCHOLOGICAL OR EXTERNAL FACTORS (GOOD OR BAD NEWS, STATISTICS, NATURAL DISASTERS, ADVERTISING.)

SUPPLY:

-THE AMOUNT OF GOODS OR SERVICES OFFERED FOR SALE AT A PARTICULAR PRICE. THE LAW OF SUPPLY SAYS THAT THE QUANTITY OF A COMMODITY SUPPLIED VARIES DIRECTLY WITH THE PRICE.

-MANUFACTURED GOODS (FURNITURE) ARE SUBJECT TO GREATER SUPPLY ELASTICITY THAN GOODS PROVIDED BY NATURE (MILK). THE AMOUNT OF NATURAL RESOURCES AVAILABLE IS USUALLY LIMITED.

-THE PRODUCTIVE CAPACITY AND AVAILABILITY OF CAPITAL CAN LIMIT THE POSSIBILITY OF INCREASE THE SUPPLY IN A SHORT PERIOD OF TIME (RESPONSE CAPABILITY).

SUPPLY / DEMAND / PRICE

-AS THE DEMAND INCREASES, THE PRICE INCREASES, THE SUPPLY INCREASES, BUT THEN THE DEMAND DECREASES AND THE PRICE DECREASES WHICH CAUSES THE DEMAND INCREASES AGAIN AND SO ON.

-THERE IS ONE PRICE AT WHICH DEMAND AND SUPPLY ARE EQUAL: THE EQUILIBRIUM PRICE OR THE MARKET PRICE.

UTILITY:

-THE MEASURE OF SATISFACTION ONE GETS FROM THE USE OF A GOOD OR SERVICE. MARGINAL (ADDITIONAL) UTILITY IS THE DEGREE OF SATISFACTION A CONSUMER GETS FROM EACH ADDITIONAL PURCHASE OF A PRODUCT OR SERVICE. PEOPLE BUY SOMETHING WHEN THEY THINK THAT A PRODUCT WILL GIVE THEM MORE SATISFACTION (UTILITY) THAN OTHER.

-THE PRINCIPLE OF DIMINISHING MARGINAL UTILITY STATES THAT EACH ADDITIONAL PURCHASE OF A PRODUCT BY A GIVEN CONSUMER WILL BE LESS SATISFYING THAN THE PREVIOUS PURCHASE.

2-THE WORLD ECONOMY

Objectives

1-Analyze per capita GNP or GDP as a measure of standard of living (I A).

2-Explain how economics relates to social issues and problems (IV A).

3-Explain how internationalization / globalization of economy has blended elements of

various economic systems (VI B).


INDUSTRIAL DEVELOPMENT & POPULATION

STAGE 1 (BEFORE 1750): PRE-INDUSTRIAL, HIGH DEATH RATE, HIGH BIRTH RATE, LITTLE POPULATION GROWTH

STAGE 2 (1750-1900): EARLY INDUSTRIAL SOCIETY, DEATH RATE DECREASING, HIGH BIRTH RATE, HIGH POPULATION GROWTH

STAGE 3 (1900-1980’s): DEVELOPED INDUSTRIAL SOCIETY, LOW DEATH RATE, BIRTH RATE DECREASING, HIGH POPULATION GROWTH

STAGE 4 (1980’s-TODAY): SUSTAINED INDUSTRIAL DEVELOPMENT, INFORMATION REVOLUTION. COMPUTERS / INTERNET, LOW DEATH RATE, LOW BIRTH RATE, STABLE POPULATION

 

ECONOMIC SECTORS

PRIMARY: EXTRACTIVE INDUSTRY. ECONOMY BASED ON NATURAL RESOURCES. RAW GOODS. (MINING, OIL EXTRACTION, FISHING, AGRICULTURE, FORESTRY, LIVESTOCK).

SECONDARY: MANUFACTURING INDUSTRY. FINISHED GOODS. (METALLURGY, OIL REFINERY, CHEMICAL PLANTS, CANNED FOOD INDUSTRY, FURNITURE INDUSTRY, PAPER INDUSTRY, MECHANICAL INDUSTRY).

TERCIARY: DISTRIBUTION AND CONSUMPTION. THE SERVICE SECTOR. (WHOLESALE & RETAIL COMMERCE, TRANSPORT, TOURISM, ENTERTAIMENT INDUSTRY)

QUATERNARY: INFORMATION. (COMPUTERS, FINANCE, COMMUNICATION, MEDIA).

 

ECONOMIC SYSTEMS

1-SUBSISTENCE OR TRADITIONAL: TRIBAL / PRIMITIVE SOCIETY (NO SURPLUS OR PRIVATE PROPERTY).

2-SLAVERY (4000 BC-500 AD): EGYPT - ROME (PROPERTY OF LABOR).

3-FEUDAL (500 AD-1400): MIDDLE AGES (LAND, DEBTS, “PROTECTION”, SERVITUDE)

4-CAPITALISM:

MERCANTILE CAPITALISM (1400-1750): EXPLORATION & CONQUEST.

INDUSTRIAL REVOLUTION (1750-1980’s):

a)-IMPERIALISM (1870-1960): POLITICAL & ECONOMIC COLONIALISM. NEED OF RAW RESOURCES AND MARKETS.

b)-MULTINATIONAL CORPORATIONS (1960-TODAY): FREE MARKET: BUY CHEAP RAW RESOURCES, MARKETS TO SELL MANUFACTURED PRODUCTS, INEXPENSIVE LABOR TO PRODUCE INDUSTRIAL GOODS. NO DIRECT POLITICAL CONTROL.

INFORMATION REVOLUTION (1980’s -TODAY).

5-COMMUNISM (1917-1990): STATE CONTROLLED ECONOMY, “COLLECTIVE” PROPERTY, THE BUREAUCRACY OF THE PARTY, POLITICAL TOTALITARIANISM.

 

ECONOMIC FLUCTUATIONS OF CAPITALISM. THE CYCLES.

EXPANSION = RECESSION = DEPRESSION = EXPANSION

1-EXPANSION: NEW TECHNOLOGIES, INDUSTRIAL REVOLUTION, PRODUCTION GROWTH, CITIES EXPAND, MORE FACTORIES.

2-RECESSION: SLOWING OF SALES & PRODUCTION, SURPLUSES OF LABOR AND PRODUCTIVE CAPACITY.

3-DEPRESSION: THE ECONOMY IS DOWN, HIGH UNEMPLOYMENT, BANKRUPTCY OF BUSINESS.

 

GLOBAL ECONOMY

1-GLOBAL ECONOMIC AGENCIES (UN): WORLD BANK, FAO, GATT, INTERNATIONAL MONETARY FUND.

2-MULTINATIONAL CORPORATIONS.

3-COMMUNICATIONS & INFORMATION (SATELLITE, FAX, INTERNET)

4-INTERNATIONAL ECONOMIC ALLIANCES (OPEC, NAFTA, EUROPEAN COMMON MARKET, MERCOSUR, CARICOM).

5-GLOBAL ENVIRONMENTAL ISSUES.

6-EMIGRATION / IMMIGRATION.

DEVELOPMENT: ECONOMIC AND HUMAN

CORE vs. PERIPHERY

NORTH vs. SOUTH

FIRST, SECOND, & THIRD WORLDS

DEVELOPED vs. DEVELOPING COUNTRIES

Map of World Exporters 1993

World Top Leading Exporters & Importers 2004

Rank

Exporters

Value (Billion$)

World Share %

Rank

Importers

Value
(Billion $)

World Share %

1

 Germany

912.3

10.0

1

 United States                                                                   

1525.5

16.1

2

 United States                                                                   

818.8

8.9

2

 Germany

716.9

7.6

3

 China                                                                           

593.3

6.5

3

 China                                                                           

561.2

5.9

4

 Japan                                                                           

565.8

6.2

4

 France                                                                          

465.5

4.9

5

 France                                                                          

448.7

4.9

5

 United Kingdom                                                                  

463.5

4.9

6

 Netherlands                                                                     

358.2

3.9

6

 Japan                                                                           

454.5

4.8

7

 Italy                                                                           

349.2

3.8

7

 Italy                                                                           

351.0

3.7

8

 United Kingdom                                                                  

346.9

3.8

8

 Netherlands                                                                     

319.3

3.4

9

 Canada                                                                          

316.5

3.5

9

 Belgium                                                                         

285.5

3.0

10

 Belgium                                                                         

306.5

3.3

10

 Canada                                                                          

279.8

2.9

11

 Hong Kong, China                                                                

265.5

2.9

11

 Hong Kong, China                                                                

272.9

2.9

12

 South Korea                               

253.8

2.8

12

 Spain                                                                           

249.3

2.6

13

 Mexico                                                                          

189.1

2.1

13

 South Korea                               

224.5

2.4

14

 Russian Federation                                                              

183.5

2.0

14

 Mexico                                                                          

206.4

2.2

15

 Taipei, Chinese                                                                 

182.4

2.0

15

 Taipei, Chinese                                                                 

168.4

1.8

 

MEASURES OF ECONOMIC & SOCIAL DEVELOPMENT:

WHAT IS DEVELOPMENT?

1-OWNERSHIP OF CONSUMER GOODS: CAR, TV, PHONE, COMPUTER.

2-GROSS DOMESTIC PRODUCT (GDP): TOTAL VALUE OF GOODS AND SERVICES PRODUCED IN A COUNTRY IN A YEAR.

3-GROSS NATIONAL PRODUCT (GNP): GDP + INCOME FROM INVESTMENTS ABROAD.

4-GDP or GNP per capita: AVERAGE ANNUAL INCOME. THE AMOUNT OF THE GDP or GNP DIVIDED BY THE NUMBER OF TOTAL POPULATION.

5-PURSHASING POWER PARITY (PPP): GDP or GNP per capita CONVERTED TO US DOLLARS.

6-HUMAN DEVELOPMENT INDEX (HDI): LIFE EXPECTANCY + ADULT LITERACY + INFANT MORTALITY + GNP.

7-GENDER DEVELOPMENT INDEX (GDI): SAME AS GNP MEN / WOMEN

HUMAN DEVELOPMENT MAP

World map indicating Human Development Index (2007)
     0.950 and over      0.9000.949      0.8500.899      0.8000.849      0.7500.799      0.7000.749      0.6500.699      0.6000.649      0.5500.599      0.5000.549      0.4500.499      0.4000.449      0.3500.399      under 0.350      not available

UNITED NATIONS’ ECONOMIC & SOCIAL ORGANIZATIONS

-Economic and Social Council

-General Agreement on Tariffs and Trade (GATT)

-World Bank

-International Monetary Fund (I.M.F.)

-International Fund for Agricultural Development

-International Labor Organization

-International Maritime Organization

-United Nations Educational, Scientific and Cultural Organization (UNESCO)

-World Health Organization (WHO)

-United Nations Industrial Development Organization (U.N.I.D.O)

 

SOME ECONOMIC INTERNATIONAL INSTITUTIONS / ALLIANCES

1-NORTH AMERICA FREE TRADE ASSOCIATION (NAFTA)

2-OPEC

3-CARICOM

4-CENTRAL AMERICA COMMON MARKET (CACM)

5-LATIN AMERICA FREE TRADE ASSOCIATION (LAFTA)

4-MERCOSUR

5-EUROPEAN COMMON MARKET / EUROPEAN ECONOMIC COMMUNITY

6-BRITISH COMMONWEALTH

 

WEALTH vs. POVERTY: THE GROWING GAP

The wealthiest nations of the world agreed to donate 0.5% of their GDP, annually, to relieve the hunger and suffering in the poorest nations, but not all of them are complying with that.

A big part of the money dedicated to help poor nations goes to Military Aid. The United States is the world's largest contributor of military aid. The U.S. Budget for Foreign Aid for the year 2007 is the $21.3 billon, from which $2.5 billion is for Israel.

 

3-ECONOMIC SYSTEMS

Objectives

1-Classify countries according to their economic systems (I A).

2-Describe the theories of Adam Smith and Karl Marx as the foundations of Capitalism and Communism (II A).

3-Describe how different economic systems answer the three basic economic questions (II A).

4-Describe the major characteristics of the three economic systems (VI B).

5-Analyze some effects of government regulations on economic activities (II B).

6-Explain how economics relates to social issues and problems (IV A).

7-Describe how the laws of supply and demand interact to determine price (IV A).

8-Identify the major factors influencing supply and demand (IV A).

9-Analyze the role of profit as an incentive in a market economy (IV A).


VOCABULARY

1-CULTURE: A SOCIETY’S ENTIRE WAY OF LIFE: LANGUAGE, RELIGION, HISTORY, TRADITIONS, FOOD, CLOTHING, MORAL, POLITICAL SYSTEM, AND ECONOMIC SYSTEM.

2-TRADITIONAL / SUBSISTENCE SYSTEM: ECONOMIC DECISIONS ARE BASED ON WHAT ALWAYS HAS BEEN DONE IN THE PAST.

3-COMMAND SYSTEM: SOME LEADERS, THE GOVERNMENT, OR CENTRAL AUTHORITY, DECIDE WHAT, HOW, AND HOW MUCH SHOULD BE PRODUCED AS WELL AS WHO WILL GET WHAT. CENTRAL PLANNING IS A KEY ISSUE.

4-MARKET SYSTEM OR CAPITALISM: IT IS BASED ON PRIVATE PROPERTY, EXCHANGE, COMPETITION, AND THE FREE RELATIONSHIP BETWEEN SELLERS AND BUYERS TO OBTAIN A PROFIT. THE DECISIONS ABOUT PRODUCTION AND DISTRIBUTION ARE MADE BY MERCHANTS, CONSUMERS, AND BUSINESSMEN THAT ALL TRY TO GET THE BEST PRODUCTS FOR THE BEST PRICES.

5-PLANNED ECONOMY: THE CENTRAL GOVERNMENT ESTABLISHES A PLAN OR SCHEDULE AS WELL AS SPECIFIC RULES AND METHODS DEFINING WHAT, HOW, AND HOW MUCH SHOULD BE PRODUCED BY EACH PROVINCE / STATE, CITY, FACTORY, AND WORKER.

6-DEMAND: THE QUANTITY OF A PRODUCT CONSUMERS WANT AND CAN BUY. IT MIGHT OR NOT COINCIDE WITH THE REAL NEEDS.

7-SUPPLY: THE QUANTITY OF A GOOD OR SERVICE THAT A PRODUCER PROVIDES.

8-“THE INVISIBLE HAND”: THE BELIEF THAT THE BEST INTERESTS OF SOCIETY ARE MET WHEN PEOPLE COMPETE TO ACHIEVE INDIVIDUAL INTERESTS: PROFITS. THE MARKET REGULATES ITSELF.

9-PROFIT: THE DIFFERENCE BETWEEN COST AND PRICE.

10-PROFIT MOTIVE: THE DESIRE TO MAKE MONEY. THE “ENGINE” OF CAPITALISM.

11-PRIVATE PROPERTY: RESOURCES OWNED BY INDIVIDUALS AND COMPANIES.

12-FREEDOM OF EXCHANGE: BUYERS AND SELLERS ARE ALLOWED TO TRADE OR SELL THEIR GOODS OR SERVICES AT WHATEVER TERMS THEY CAN AGREE ON.

13-SUBSIDIZE: WHEN THE GOVERNMENT PAYS FOR PART OF THE PRICE OF SOME GOODS OR SERVICES TO MAKE THEM ATTAINABLE TO SOME PEOPLE OR GIVES MONEY, SPECIAL TREATMENT, OR ECONOMIC SUPPORT IN ANY OTHER WAY TO SOME COMPANY / INDUSTRY TO AVOID ITS BANKRUPTCY.

14-LAISSEZ-FAIRE: CLASSIC ECONOMIC PHILOSOPHY WHICH HOLDS THAT OWNERS OF BUSINESSES SHOULD BE ALLOWED TO MAKE THEIR OWN PRODUCTION AND DISTRIBUTION DECISIONS WITHOUT GOVERNMENT REGULATION.

 

ECONOMIC SYSTEMS

EVERY ECONOMY TODAY IS A MIXTURE OF THE THREE MAJOR SYSTEMS. HOWEVER, THE MARKET SYSTEM IS PREDOMINANT IN MOST OF THE WORLD SINCE 1990. EVEN THE FEW COMMUNIST COUNTRIES STILL PRESENT IN THE WORLD STAGE ARE INTRODUCING MORE AND MORE MARKET ELEMENTS AND RULES IN THEIR ECONOMIES.

TRADITIONAL ECONOMY

PEOPLE PRODUCE THE SAME GOODS AND USE THE SAME METHODS AS THEY ANCESTORS DID.

JOBS AND PRODUCTIVE SKILLS ARE HANDED DOWN FROM PARENTS TO CHILDREN.

PEOPLE SHARE EXPENSIVE / HARD TO GET TOOLS AND OTHER MEANS OF PRODUCTION, WORK TOGETHER WHEN NEEDED, SHARE THE RISKS AS WELL AS THE RESULTS OF THE PRODUCTIVE PROCESS.

KEY DECISIONS ARE MADE IN A COLLECTIVE WAY. THE ADVICE OF THE ELDERS IS TAKEN IN CONSIDERATION.

CHANGES OCCUR SLOWLY AND MANY TIMES ARE OPPOSED AT THE BEGINNING.

PEOPLE LIVE AND ACT LIKE FAMILY. HONOR, TRUST, RESPECT, AND MUTUAL HELP ARE KEY ELEMENTS FOR THE SURVIVAL OF THE GROUP.

TAKING CARE OF THE ENVIRONMENT IS A VITAL ISSUE.

ESKIMOS, NATIVE AMERICANS IN SOME RESERVATIONS, AMAZON’S TRIBES, SOME AFRICAN GROUPS, NATIVE AUSTRALIAN TRIBES, ETC.

COMMAND ECONOMY

SLAVERY: EGYPT, ROME AND OTHER ANCIENT EMPIRES.

COMMUNISM (1917-90): SOVIET UNION, CHINA, EASTERN EUROPEAN BLOC, VIETNAM, NORTH KOREA, CUBA.

DEMOCRACY (PARTIAL USE: TAXES, INTEREST RATES, MINIMUM WAGE, WELFARE POLICY, ENVIRONMENTAL LAWS, INTERNATIONAL TRADE, ETC.)

IN THIS SYSTEM, THE GOVERNMENT OR THE “SOCIETY AS A WHOLE” OWNS MOST OF THE RESOURCES AND MEANS OF PRODUCTION.

THE GOVERNMENT ALSO DECIDES ON: WHO IS ASSIGNED TO DO EACH JOB, PRODUCTION GOALS, DISTRIBUTION OF TOOLS AND MACHINERY TO THE FACTORIES, WAGES AND PRICES, DISTRIBUTION OF GOODS AND SERVICES THAT RESULTED FROM THE PROCESS OF PRODUCTION.

THE SYSTEM OF PUNISHMENT AND REWARDS TO ENCOURAGE THE FACTORIES AND INDIVIDUALS TO COMPLY WITH THE RULES AND PLANS. LEADERS APPEAL TO MORAL / COMMON WELFARE / POLITICAL / RELIGIOUS MOTIVATIONS TO PUT PRESSURE ON PRODUCERS AND MAKE THEM OBEY THE ORDERS.

 

FREQUENT PROBLEMS

SHORTAGES OR SURPLUSES OF GOODS BECAUSE OF THE CENTRAL PLANNING.

PRODUCTS AND SERVICES’ LACK OF QUALITY (ABSENCE OF REAL COMPETITION).

LACK OF INDIVIDUAL MOTIVATION TO DO A BETTER JOB, TO TAKE CARE OF THE “COLLECTIVE PROPERTY”, TO CREATE AND INNOVATE, TO IMPROVE THE SYSTEM. BUREAUCRATIC BARRIERS SLOW THE CHANGES.

MANY PRODUCTS ARE SUBSIDIZED BY THE GOVERNMENT AS WELL AS FACTORIES THAT ARE NOT PROFITABLE.

POLITICS DECIDES OVER ECONOMICS. MANY TIMES, THE WHIMS AND NON-SCIENTIFIC THEORIES OF THE INDIVIDUALS WHO LEAD THE GOVERNMENT CAUSE ECONOMIC DISASTERS.

 

ADVANTAGES

THE GOVERNMENT IS ABLE TO RESPOND FASTER THAN IN OTHER SYSTEMS TO SOLVE NATURAL DISASTERS, EPIDEMICS, AND OTHER EMERGENCY SITUATIONS (IT CONTROLS ALL THE RESOURCES).

ONCE APPROVED BY THE CENTRAL POWER, CHANGES IN THE PRODUCTIVE PROCESS CAN BE DONE IN LESS TIME AND WITHOUT LEGAL OPPOSITION.


MARKET ECONOMY

ADAM SMITH, THE “FATHER OF CAPITALISM”. The Wealth of Nations (1774): THE LAISSEZ-FAIRE DOCTRINE.

THE DESIRE FOR PROFIT IS THE “INVISIBLE HAND” THAT GUIDES THE SYSTEM OF DEMAND AND SUPPLY. COMPETITION GUARANTEES QUALITY AND GOOD PRICES.

THE GUIDING PRINCIPLE IS THE SELF-INTEREST.

PRIVATE INDIVIDUALS AND BUSINESSMEN OWN MOST OF THE RESOURCES AND MEANS OF PRODUCTION.

PRODUCERS COMPETE ONE TO EACH OTHER TO GAIN CONSUMERS’ PREFERENCE AND MAKE A PROFIT.

CONSUMERS’ PURCHASES DECIDE WHAT SHOULD BE PRODUCED IN THE FUTURE.

PEOPLE SELL THEIR LABOR FOR THE HIGHEST WAGES THEY CAN OBTAIN. PRODUCERS SEEK THE HIGHEST PRICES FOR THEIR PRODUCTS.

SUCCESSFUL WAYS FOR MAKING AND SELLING PRODUCTS SPREAD VERY QUICKLY (INNOVATIONS & NEW TECHNOLOGIES OR REVOLUTIONARY IDEAS). THIS IS A VITAL NEED FOR BUSINESSMEN TO STAY IN THE MARKET.

MAJOR COMPONENTS OF THE MARKET SYSTEM

1-PRIVATE PROPERTY

2-FREEDOM OF EXCHANGE

3-COMPETITION

4-PROFIT MOTIVE

 

DISADVANTAGES OR PROBLEMS

1-INCREASING ECONOMIC AND SOCIAL INEQUALITIES AMONG PEOPLE. THE GAP BETWEEN THE RICH AND THE POOR IS EACH DAY LARGER.

2-HUGE ECONOMIC AND SOCIAL DIFFERENCES BETWEEN CORE AND PERIPHERAL COUNTRIES. NEOCOLONIALISM AND IMPERIALISM.

3-CYCLICAL ECONOMIC DEPRESSIONS OR CRISES.

4-PEOPLE TEND TO BE MORE SELFISH, MONEY FOCUSED, AND AMBITIOUS THAN IN OTHER ECONOMIC SYSTEMS. THE SURVIVAL OF THE FITTEST AND THE LAW OF THE JUNGLE. THESE ELEMENTS PROMOTE MANY SOCIAL PROBLEMS.

5-CONSUMERISM.

4-THE FREE ENTERPRISE SYSTEM


Objectives

1-Determine how the costs of production affect the distribution and consumption of goods and services and the allocation of resources. (I A)

2-Describe the relationship between economics and environmental issues. (I A)

3-Describe the interrelationship among the factors of production. (I A)

4-Describe the theories of noted economic philosophers (Adam Smith, Thomas Malthus, etc.). (II A)

5-Analyze the process of production decision-making in a mixed market economy. (II A)

6-Analyze the effect of government regulations on economic activities. (II B)

7-Analyze the role of profit as an incentive in a market economy. (IV A)

8-Analyze the result of the current market price being above or below the market clearing price (IV A).

9-Explain the effect of government price floors or ceilings on market equilibrium (IV A)

10-Explain how an economic model can be used to understand economic concepts. (IV A)

11-Distinguish between private goods and public goods (IV C)


VOCABULARY

1-CAPITALISM: THE FREE ENTERPRISE SYSTEM.

2-EMINENT DOMAIN: THE RIGHT OF THE GOVERNMENT TO FORCE PEOPLE TO SELL THEIR PRIVATE PROPERTY TO PUBLIC PURPOSE.

3-FREEDOM OF CONTRACT: THE RIGHT OF INDIVIDUALS TO MAKE BUSINESS AGREEMENTS OR CONTRACTS.

4-CONSUMER SOVEREIGNTY: THE FACT THAT CONSUMERS DECIDE WHAT SHOULD BE PRODUCED. “DOLLARS ARE VOTES”.

5- MIXED ECONOMY: AN ECONOMY THAT IS A MIX OF BOTH PRIVATE AND GOVERNMENT ENTERPRISE / CONTROL.

6-SPECIALIZATION OR DIVISION OF LABOR: THE SITUATION IN MODERN LIFE IN WHICH WORKERS PERFORM JUST ONE SPECIALIZED TASK AND DEPEND ON OTHER WORKERS FOR THE OTHER TASKS.

7-INNOVATION: NEW WAYS / TECHNOLOGIES TO DO THINGS FASTER, BETTER, AND/OR CHEAPER.

8-CIRCULAR FLOW: THE STREAM OF FUNDS, RESOURCES, GOODS AND SERVICES THAT ARE CONSTANTLY PASSING BACK AND FORTH BETWEEN THE PUBLIC, BUSINESS, AND GOVERNMENT. THE SPENDING / INVESTMENTS MADE BY ANY PART OF THIS SYSTEMIC FLOW (COSTUMERS, BUSINESSES, AND/OR GOVERNMENT) WILL AFFECT THE OTHER PARTS AND THE SYSTEM AS A WHOLE.

9-GROSS NATIONAL PRODUCT (GNP): THE TOTAL VALUE OF GOODS AND SERVICES PRODUCED IN A SINGLE YEAR BY A COUNTRY. GNP = C + B + G

10-MACROECONOMICS: THE BRANCH OF ECONOMICS THAT REFERS TO THE ECONOMY AS A WHOLE.

11-MICROECONOMICS: THE BRANCH OF ECONOMICS THAT REFERS TO THE ECONOMIC BEHAVIOR OF INDIVIDUAL UNITS IN THE ECONOMY (HOUSEHOLDS, CORPORATIONS, ETC.)

12-EXTERNALITY OR EXTERNAL COST: SIDE EFFECTS OF DOING BUSINESS THAT ARE PAID BY THE SOCIETY AS A WHOLE.

13-PRIVATE GOODS / SERVICES: PEOPLE PAY FOR THEM FOR THEIR EXCLUSIVE USE (FOOD, CLOTHES, HOUSES, CARS, ETC).

14-PUBLIC GOODS / SERVICES: STREETS, POLICE PROTECTION, AIR, RIVERS, BEACHES, BASIC EDUCATION, PUBLIC PARKS. TAXES AND LAWS MAKE POSSIBLE THEIR FREE USE / ACCESS FOR EVERYONE.

15-ENTITLEMENT PROGRAMS: PROGRAMS CREATED AS A RESULT OF THE POPULAR BELIEF THAT ANY NEEDY PEOPLE DESERVE TO RECEIVE SOME TYPE OF PUBLIC AID.

16-PRODUCTIVITY: THE PRODUCTIVE CAPACITY OF LABOR, THE NUMBER OF UNITS AN EMPLOYEE CAN PRODUCE IN AN HOUR OR THE OUTPUT PER EMPLOYEE.

MAJOR PRINCIPLES OF THE FREE ENTERPRISE SYSTEM

1-PRIVATE PROPERTY: INDIVIDUALS HAVE THE RIGHT TO OWN NOT ONLY PERSONAL PROPERTY, BUT ALSO LAND, FACTORIES, BUSINESS. THERE ARE CERTAIN LIMITATIONS TO PROTECT THE RIGHTS OF OTHERS (EMINENT DOMAIN). “JUST COMPENSATION”.

2-FREEDOM OF ENTERPRISE: INDIVIDUALS CAN ENTER AND CONDUCT ANY LEGAL BUSINESS IN ANY WAY THEY CONSIDER BETTER FOR THEIR INTERESTS.

3-FREEDOM OF CONTRACT:

4-THE PROFIT MOTIVE: THE DESIRE TO MAXIMIZE PROFITS IS THE PRINCIPAL FORCE BEHIND BUSINESS.

5-COMPETITION: THE RIVALRY AMONG BUYERS AND SELLERS FOR GOODS AND SERVICES. (KEEP PRICES LOW, KEEP COSTS LOW / MORE EFFICIENCY, STIMULATE INNOVATIONS, PROVIDE A HIGHER QUALITY).

6-CONSUMER SOVEREIGNTY:


THE ROLE OF GOVERNMENT ACCORDING TO ADAM SMITH:

PROVIDE FOR THE NATIONAL DEFENSE.

PROTECT ITS CITIZENS AND PROVIDE FOR A SYSTEM OF JUSTICE.

PROVIDE FOR PUBLIC WORKS THAT ARE NOT PROFITABLE.

COLLECT TAXES TO PAY FOR THE COST OF GOVERNMENT.

 

TODAY, GOVERNMENT MUST PLAY A LARGER ROLE IN CAPITALIST ECONOMIES. THE REASONS WHY THIS IS SO ARE:

HELP TO SOLVE / AVOID SOME ECONOMIC PROBLEMS (INFLATION, UNEMPLOYMENT, ECONOMIC CRISIS).

REGULATE PUBLIC UTILITIES (ELECTRICITY, WATER) TO ENSURE THAT THEY PROVIDE A SATISFACTORY SERVICE AT FAIR PRICES.

TAKE CARE OF THE ENVIRONMENT (CHEMICAL WASTES, POLLUTION, RADIATIONS).

KEEP THE COMPETITION AMONG BUSINESSES (NO MONOPOLIES). GUARANTEE THAT BUSINESSES “PLAY BY THE RULES”.

HELP THE NEEDY (ENTITLEMENT PROGRAMS: SOCIAL SECURITY, MEDICARE, MEDICAID, UNIVERSITY GRANTS, UNEMPLOYMENT BENEFITS).

SPECIALIZATION

ADVANTAGES:

WORKERS PRODUCE MORE BECAUSE THEY BECOME HIGHLY SKILLFUL.

IT ENCOURAGES THE EFFICIENT USE OF CAPITAL (DELIVERY TRUCK).

IT PROMOTES INNOVATIONS.

NOTE: THE DEGREE OF SPECIALIZATION IS LIMITED BY THE EXTENT OF THE MARKET / POTENTIAL CUSTOMERS (THE PIANO SHOP).

EVALUATION OF THE MARKET SYSTEM

ADVANTAGES:

IT IS THE MOST EFFICIENT ECONOMIC SYSTEM EVER.

IT IS MORE SENSITIVE TO CONSUMER DEMAND.

IT PROVIDES THE MOST INDIVIDUAL FREEDOM AND LEAST CONTROL BY GOVERNMENT.

IT GIVES THE BEST REWARDS TO THOSE WHO CONTRIBUTE THE MOST TO IT.


LIMITATIONS THAT MAKE NECESSARY THE INTERVENTION OF GOVERNMENT:

IT DOES NOT PROVIDE SOME NOT PROFITABLE SERVICES.

IT DOES NOT INSURE THE PRESERVATION OF NATURAL RESOURCES / THE ENVIRONMENT (EXTERNAL COSTS).

IT DOES NOT ADEQUATELY PROVIDE FOR THE NEEDS OF ALL PEOPLE.

IT EXPERIENCES PERIODS OF ECONOMIC EXPANSION AND CONTRACTION (CRISIS).

IT CREATES SOCIAL AND ECONOMIC INEQUALITIES. THE DISTRIBUTION OF WEALTH IS EACH YEAR MORE DISPROPORTIONED:

a)-RICH PEOPLE / NATIONS ARE RICHER. MOGULS & CORPORATE EMPIRES OR MULTINATIONAL CORPORATIONS.

b)- MIDDLE CLASS PEOPLE / SEMI-PERIPHERAL NATIONS ARE SMALLER IN NUMBERS.

c)- POOR PEOPLE / NATIONS ARE POORER. REGRESS IONAL PROCESS / INVOLUTION.

FACTORS THAT DETERMINE THE POTENTIAL AND SCOPE OF NATIONAL PRODUCTION OF GOODS AND SERVICES (GNP)

1-THE AMOUNT AND QUALITY OF AVAILABLE RESOURCES.

a)-NATURAL RESOURCES (LAND, WATER, MINERALS AND OTHER RAW MATERIALS, ETC).

b)-HUMAN RESOURCES (QUANTITY & QUALITY).

c)-CAPITAL RESOURCES.

2-THE ABILITY TO USE THOSE RESOURCES:

 

TECHNOLOGY & PRODUCTIVITY (PRODUCE MORE IN LESS TIME WITH LESS COSTS AND WITH HIGHER QUALITY). HOW TO INCREASE PRODUCTIVITY:

-WORKERS’ SKILLS: THE CAPABILITY TO APPLY NEW TECHNIQUES.

-MANAGEMENT’S SKILLS: PROPER DECISIONS, METHODS, POLICIES.

-CAPITAL INVESTMENT: PROVIDE THE NECESSARY MACHINERY, TOOLS, BUILDINGS.

-TECHNOLOGY: INVESTMENTS IN RESEARCH AND INTRODUCE ITS RESULTS (INNOVATIONS).

 

LAW OF DIMINISHING RETURNS

AS ADDITIONAL UNITS OF A RESOURCE ARE APPLIED TO SOME FIXED RESOURCES, OUTPUT MAY AT FIRST INCREASE, BUT AT SOME POINT - THE POINT OF DIMINISHING RETURN - THE EXTRA OUTPUT RESULTING FROM MORE ADDITIONAL RESOURCES WILL BECOME LESS AND LESS: SUPERFLUOUS RESOURCES WILL DECREASE PRODUCTIVITY.

 

ADVANTAGES OF GROWING LARGER. (BIG vs. SMALL BUSINESSES).

1-DIVISION OF LABOR OR SPECIALIZATION.

2-QUANTITY DISCOUNTS / WHOLESALE PRICES.

3-ACCESS TO EXPENSIVE SPECIALIZED MACHINERY.

4-EASIER ACCESS TO CREDIT / CAPITAL.

5-MORE RESOURCES / INVESTMENTS FOR RESEARCH AND DEVELOPMENT.

See Neoliberalism

5-THE ROLE OF BUSINESSES

Objectives

1-Determine how the costs of production affect the distribution and consumption of goods and services and the allocation of resources. (I A)

2-Describe the relationship between economics and environmental issues (I A).

3-Describe the theories of Adam Smith and Karl Marx. (II A).

4-Analyze the effect of government regulations on economic activities and institutions (II B).

5-Analyze the role of profit as an incentive in a market economy (IV A).


VOCABULARY

1-LIABILITY: ECONOMIC RESPONSIBILITY OR OBLIGATION / DEBT. PERSONAL FUNDS AND OTHER ASSETS CAN BE SEIZED FOR PAYMENT.

2-SHARE / STOCK: PIECE OR PART OF A PUBLIC CORPORATION.

3-SHAREHOLDERS: OWNERS OF SHARES. THEREFORE, OWNERS OF PART / PIECES OF A CORPORATION.

4-PUBLIC CORPORATION: BUSINESS THAT HAS THE RIGHT TO ISSUE SHARES.

5-DIVIDENDS: ANNUAL SHARE OF PROFITS PAID TO SHAREHOLDERS BY CORPORATIONS. FOR DIFFERENT REASONS, CORPORATIONS MAY DECIDE TO NOT PAY DIVIDENDS SOME YEAR (S).

6-BONDS: LEGAL PROMISE TO REPAY SOME AMOUNT OF MONEY WITH INTERESTS. LONG TERM (5 TO 30 YEARS) IOU (“I OWE YOU”) NOTE ISSUED BY CORPORATIONS OR GOVERNMENTS TO OBTAIN FUNDS. CORPORATIONS / GOVERNMENTS ARE LEGALLY OBLIGED TO PAY THE INTERESTS ON THEIR BONDS.

7-CREDITOR: INDIVIDUALS OR ORGANIZATIONS THAT LEND FUNDS OR BUY BONDS.

8-PROXY: A WRITTEN AUTHORIZATION FORM THAT A STOCKHOLDER GIVES TO ANOTHER PERSON (USUALLY TO CEO AND VPs) TO VOTE IN HIS/HER NAME IN THE CORPORATION’S STOCKHOLDERS MEETING.

9-RECEIPT: INCOME, MONEY TAKEN IN (SALES + INTERESTS, ETC).

10-DEPRECIATION FUNDS: MONEY THAT IS SET ASIDE BY A CORPORATION TO REPLACE FIXED CAPITAL: WORN-OUT OR OBSOLETE BUILDINGS, EQUIPMENT, FURNITURE, ETC.

11-RETAINED EARNINGS: UNDISTRIBUTED PROFITS OR THE EARNINGS THAT WERE NOT PAID TO THE STOCKHOLDERS AS DIVIDENDS, BUT THAT WERE USED TO INVEST IN THE DEVELOPMENT OF THE COMPANY.

12-EQUITY FUNDS: FUNDS OBTAINED BY CORPORATIONS THROUGH THE SALE OF STOCKS.

13-SECURITIES: STOCKS AND BONDS.

14-MORTGAGE BONDS: PROPERTY (LAND, BUILDINGS) THAT IS PLEDGED AS SECURITY FOR BONDS BY CORPORATIONS.

15-DEBENTURE BONDS: BONDS THAT RELY ONLY ON THE GOOD NAME OR CREDIT OF THE CORPORATION.

16-UNDERWRITER: INSURER. BANK THAT BUY THE ENTIRE ISSUE OF STOCKS OR BONDS (OR PROPERTY) TO SELL THEM TO THE PUBLIC FOR A PROFIT.

17-N.A.S.D.A.Q.: NATIONAL ASSOCIATION OF SECURITIES DEALERS AUTOMATED QUOTATIONS. A COMPUTER SYSTEM THAT PROVIDES INFORMATION ABOUT THE AVAILABILITY AND SELLING PRICE OF SECURITIES.

18-BROKERAGE FIRM: COMPANY OF SECURITIES - SALES SPECIALISTS OR BROKERS.

19-BROKER: LICENSED PERSON WHO BUYS AND SELLS SECURITIES IN BEHALF OF THEIR CLIENTS AND RECEIVES A COMMISSION.

20-SPECULATOR: PERSON WHO SEEKS TO PROFIT IN THE SHORT RUN FROM THE CHANGES IN THE STOCKS’ VALUE. BUY-LOW & SELL-HIGH IN THE RIGHT MOMENT.

21-“BULLS”: SPECULATORS WHO BELIEVE THAT THE VALUE OF A PARTICULAR STOCK WILL RISE AND BUY IT IMMEDIATELY TO SELL IT LATER AT A PROFIT.

22-“BEARS”: SPECULATORS WHO EXPECT THAT THE PRICE OF A PARTICULAR STOCK WILL DECLINE AND SELL IT IMMEDIATELY TO BUY IT BACK LATER AT A LOWER PRICE, OBTAINING PROFITS IN THE PROCESS.

23-MARGIN: PERCENTAGE THAT A BUYER HAS TO PUT UP IN CASH TO BUY STOCKS (40%). STOCKS CAN BE PURCHASED ON CREDIT, THROUGH INTERNET, ETC..

24-S.E.C. : THE SECURITIES AND EXCHANGE COMMISSION. FEDERAL AGENCY THAT COLLECTS FINANCIAL INFORMATION ABOUT CORPORATIONS THAT WANT TO SELL SECURITIES TO THE PUBLIC TO AVOID DECEPTION OR FRAUD TO POTENTIAL BUYERS.

25-ASSETS: PROPERTIES, FUNDS, AND ANYTHING OF VALUE THAT ARE OWNED BY A BUSINESS OR INDIVIDUAL.

26-NET WORTH = ASSETS - LIABILITIES.

27-NET INCOME = SALES - COSTS AND OTHER EXPENSES.

28-MUTUAL FUNDS:

29-HEDGE FUNDS:

 

DIFFERENT TYPES OF ORGANIZATION OF BUSINESS

PROPRIETORSHIP: BUSINESS OWNED BY ONE PERSON. THIS IS THE MOST COMMON FORM OF BUSINESS IN THE U.S. (80% OF ALL ENTERPRISES IN THE NATION).

ADVANTAGES:

1-SIMPLICITY: NO LAWYERS, NO AGREEMENTS WITH OTHERS.

2-THE APPEAL OF WORKING FOR ONESELF AND MAKE ALL THE DECISIONS.

3-THE OPPORTUNITY TO MAKE A PROFIT.

4-NO SPECIAL FEDERAL TAXATION.

DISADVANTAGES:

1-THE ONLY OWNER ASSUMES ALL THE RESPONSIBILITIES.

2-THE SIZE OF THE BUSINESS IS LIMITED BY THE OWNER’S AVAILABLE FUNDS.

3-UNLIMITED LIABILITY.

PARTNERSHIP: BUSINESS ASSOCIATION OF TWO OR MORE OWNERS THAT SHARE RESPONSIBILITIES AND PROFITS.

ADVANTAGES:

1-THE AVAILABLE CAPITAL IS INCREASED.

2-PARTNERS BRING SPECIAL SKILLS INTO THE BUSINESS.

3-PARTNERS SHARE THE PROBLEMS AND CAN SOLVE THEM MORE EFFECTIVELY.

4-IT PROVIDES FOR COVERAGE WHEN ONE PARTNER IS ILL OR ON VACATIONS.

5-NO SPECIAL FEDERAL TAXATION.

DISADVANTAGES:

1-UNLIMITED LIABILITY.

2-AVAILABLE FUNDS ARE LIMITED TO THE WEALTH / CREDIT OF THE PARTNERS.

3-PARTNERSHIP IS RISKY BECAUSE OF THE CHANCES OF CONFLICT BETWEEN THE PARTNERS.

CORPORATION: BUSINESS MADE UP OF A NUMBER OF OWNERS (STOCKHOLDERS) WHICH IS AUTHORIZED BY LAW (CHARTER) TO ACT AS A SINGLE PERSON AND ISSUE STOCKS. IT IS LEGALLY SEPARATE AND DISTINCT FROM THE PEOPLE WHO OWN IT. THEY REPRESENT THE 88% OF ALL RECEIPTS AND 77% OF ALL PROFITS OF THE AMERICAN INDUSTRY. THEY EMPLOY OVER 60% OF THE LABOR FORCE.

ADVANTAGES:

1-LIMITED LIABILITY. STOCKHOLDERS CAN NOT BE HELD LIABLE FOR ITS DEBTS (Ltd. or Inc.).

2-TRANSFERABILITY OF SHARES.

3-EASE OF OBTAINING CAPITAL: SALE OF STOCKS, ISSUE BONDS, LARGER LOANS.

4-S CORPORATIONS / SMALL BUSINESS (25 0R FEWER STOCKHOLDERS): NO SPECIAL FEDERAL TAX.

DISADVANTAGES:

1-SUBJECT TO DOUBLE TAXATION: SPECIAL FEDERAL TAXES AND PERSONAL INCOME TAXES (DIVIDENDS).

2-DIFFICULT TO ORGANIZE.

3-REGULAR ACCOUNTABILITY

STRUCTURE OF BIG CORPORATIONS

1-STOCKHOLDERS: ELECT THE BOARD. A FEW LARGE STOCKHOLDERS (THOSE WHO OWN 15% OF ALL THE STOCKS) DECIDE ABOUT THE RESULTS OF THE ELECTIONS OF THE BOARD (THEY OBTAIN PROXIES). THE PERSON WHO OWNS 51% OF ALL THE STOCKS HAS ABSOLUTE POWER.

2-BOARD OF DIRECTORS: THE FINANCING OF THE CORPORATION: DISTRIBUTE THE PROFITS (DIVIDENDS vs. RETAINED EARNINGS), SEEK ADDITIONAL FUNDS FROM OUTSIDE, PRESENT PERIODICAL REPORTS TO THE SHAREHOLDERS, SELECT THE OFFICERS.

3-THE OFFICERS: RUN THE CORPORATION AT THE HIGHER LEVEL, HIRE THE PERSONNEL UNDER THEM, TAKE THE KEY DECISIONS. THEY RECEIVE HUGE SALARIES AND BONUSES IN PREFERRED STOCKS. TODAY, LONG-TIME CEO’s IN BIG CORP. ARE BILLIONAIRES AND TEND TO BECOME KEY STOCKHOLDERS, CONTROL THE BOARD, AND ASSURE THEIR RE-SELECTION AS CEOs.

4-MANAGERS AND SUPERVISORS. DIVISIONS AND DEPARTMENTS CHAIR PERSONS.

5-EMPLOYEES / WORKERS.

CORPORATE FUNDS

1-INTERNAL (RETAINED EARNINGS AND DEPRECIATION FUNDS).

2-LONG-TERM & SHORT-TERM LOANS.

a)-CREDIT FROM FIRMS WITH WHICH THEY TRADE (SHORT-TERM).

b)-CORPORATE LOANS (FROM BANKS) (BOTH SHORT & LONG)

c)-CORPORATE BONDS (LONG-TERM)

3-EQUITY FINANCING (SALE OF STOCKS).

                                                         Year 2007


 

CORPORATE SECURITIES

1-STOCKS:

-COMMON STOCKS: REGULAR & FLEXIBLE DIVIDENDS.

-PREFERRED STOCKS: FIXED DIVIDENDS. THEY ARE PAID FIRST.

-CUMULATIVE PREFERRED STOCKS: IF THE COMPANY DOES NOT DISTRIBUTE DIVIDENDS ONE YEAR, THE OWNERS OF THESE STOCKS RECEIVE DOUBLE DIVIDENDS NEXT YEAR.

2-BONDS:

a)-CORPORATE BONDS

-MORTGAGE BONDS

-DEBENTURE BONDS

b)-GOVERNMENT BONDS

-SAVING BONDS: BONDS ISSUED BY THE FEDERAL GOVERNMENT.

-STATE / LOCAL GOVERNMENT BONDS

3-THE MARKET OF SECURITIES

Stock Exchanges

Arizona Stock Exchange American Stock Exchange (AMEX)

Boston Stock Exchange Chicago Stock Exchange

NASDAQ National Stock Exchange Philadelphia Stock Exchange

New York Stock Exchange (NYSE) Pacific Exchange

The New York Stock Exchange (NYSE) is one of the largest stock exchanges in the world. The NYSE is operated by the not-for-profit corporation New York Stock Exchange, Inc, with its main building located at 18 Broad Street, at the corner of Wall Street, in New York City, New York, U.S.A. NYSE is home to some 2,800 companies valued at nearly $15 trillion in global market capitalization.

Companies have to meet the requirements of the exchange in order to have their stocks and shares listed and traded there. To be listed on the NYSE (New York Stock Exchange), for example, a company must have issued at least a million shares of stock worth $16 million and must have more than $2.5 million net income (1998 requirements).

NASDAQ, originally an acronym for National Association of Securities Dealers Automated Quotations, is a stock exchange run by the National Association of Securities Dealers. When it began trading on February 8, 1971, it was the world's first electronic stock market. Since 1999, it is the largest American stock exchange with over half the companies traded in the United States listed.

The most regularly quoted market indices are those including the stocks of the largest listed companies on a nation's largest stock exchange. Examples include the American Dow Jones Industrial Average, the S&P 500, the Wilshire 5000, the British FTSE 100, and the Japanese Nikkei 225.

The Dow Jones Industrial Average (DJIA) is one of several stock market indices created by Wall Street Journal editor and Dow Jones & Company founder Charles Dow. Dow compiled the index as a way to gauge the performance of the industrial component of America's stock markets. It is the oldest continuing U.S. market index, and today it consists of 30 of the largest and most widely-held public companies in the United States

The S&P 500 : A market index or list owned and maintained by Standard & Poor's Corporation. The 500 companies in the list are among the largest in the US. The companies are carefully selected to ensure that they are representative of various industries in the US economy.

CORPORATE FINANCIAL STATEMENTS

-BALANCE SHEET (ASSETS, LIABILITIES, NET WORTH)

-INCOME STATEMENT (INCOME & SOURCES, EXPENSES, PROFIT)

 

BUSINESS COMPETITION

1-PURE COMPETITION (HARDLY EVER OCCUR): BUYERS AND SELLERS ACT INDEPENDENTLY. NO ONE IS BIG ENOUGH TO INFLUENCE THE MARKET PRICE. PRODUCTS COMPETING ARE PRACTICALLY THE SAME IN QUALITY. BUYERS AND SELLERS HAVE FULL KNOWLEDGE OF ALL PRICES IN THE MARKET. BUYERS AND SELLERS CAN ENTER / LEAVE THE MARKET AT WILL.

2-IMPERFECT COMPETITION (REAL COMPETITION. IN THE MIDDLE):

-MONOPOLISTIC COMPETITION (MANY BIG COMPANIES)

a)-STRONG COMPETITION: PRICE & QUALITY (ADVERTISING).

-OLIGOPOLY (FEW HUGE COMPANIES)

a)-LITTLE PRICE COMPETITION

b)-PRODUCT DIFFERENTIATION (BRANDS)

3-MONOPOLY (ILLEGAL): ONE SELLER CONTROLS THE ENTIRE OUTPUT OF A GOOD / SERVICE AND THERE IS NOT A SUBSTITUTE FOR IT OR THE SUPPLIER CONTROLS A LARGE ENOUGH SHARE OF THE MARKET TO BE ABLE TO DETERMINE THE PRICES.

MONOPOLIES ARE ILLEGAL IN THE U.S. WITH SOME EXCEPTIONS:

-PATENTS (INVENTIONS).

-COPYRIGHT (WRITERS, ARTISTS, COMPOSERS)

-PUBLIC UTILITIES (WATER, ELECTRICITY, TELEPHONE, GAS)

-GOVERNMENT MONOPOLIES  (POSTAL SERVICE, STATE TURNPIKES, AMTRAK) & NATURAL MONOPOLIES (ELECTRICITY, CABLE, WATER)

DISADVANTAGES OF MONOPOLIES:

-PRICES ARE HIGHER

-LESS EFFICIENCY / WASTE OF RESOURCES

-LESS SENSITIVITY TO CONSUMER DEMAND

-LOWER WAGES

-HIGHER POLITICAL INFLUENCE

-LOWER QUALITY

BUSINESS COMBINATIONS

1-POOLS: (1870’s) SECRET AGREEMENTS TO SHARE THE MARKET AND FIX THE PRICES.

2-TRUSTS: (1880’s) PUBLIC FUSION / MERGE OF STOCKS OF DIFFERENT COMPANIES IN THE SAME FIELD (OIL, BEVERAGES, MINING) THAT RESULT IN TRUST CERTIFICATES, SHARING OF PROFITS AND A BOARD OF TRUSTEES: ELIMINATE THE COMPETITION AND FIX PRICES. ILLEGAL IN 1890.

3-HOLDING COMPANIES: ONE CORPORATION BUYS THE 51% OF THE STOCKS OF OTHER CORPORATIONS TO CONTROL THEM. THE TECHNIQUE OF PYRAMIDING (BUILDING UP CONTROL OF A CHAIN OF CORPORATIONS).

4-INTERLOCKING DIRECTORATES: THE SAME MOGULS OR TYCOONS LEAD THE BOARD OF DIRECTORS OF DIFFERENT CORPORATIONS.

5-CARTELS: INDEPENDENT CORPORATIONS THAT WORK TOGETHER REGULATING PRODUCTION AND CONTROLLING THE PRICES (ILLEGAL IN THE U.S.).

6-MERGERS: THE MOST COMMON TODAY. ONE CORPORATION ABSORBS ANOTHER.

-VERTICAL MERGER

-HORIZONTAL MERGER

-CONGLOMERATE MERGER

6-THE ROLE OF LABOR

Objectives

1-Explain the advantages and disadvantages of unionization (II B).

2-Explain how wages are determined and why wage differentials exist (II B).

3-Describe the major problems facing organized labor and the mechanisms it employs to cope with those problems (II B).

4-Evaluate the impact of unions on the operation of the labor market (II B).

5-Relate employment and unemployment to the state of the economy (II B).

6-Explain why unemployment and job vacancies can exist simultaneously (II B).

7-Characterize the employment and growth conditions of the economy during stagflation (III A).

8-Explain how economics relates to social issues (III B).

9-Describe the relationships between savings, business investment, and employment (IV B).

10-Describe the role immigrants have played in the development of our economy (V A).

11-Describe the economy status of minorities and women in different periods of American history (V A).

12-Describe the operation of transnational corporations and their effects on domestic and international labor markets (VI B).


VOCABULARY

1-LABOR FORCE: PEOPLE THAT ARE 16 YEARS OLD AND OLDER WHO ARE WORKING FOR MONEY OR LOOKING FOR PAID WORK.

2-SOCIAL INSURANCE: PROGRAMS THAT LIKE PRIVATE INSURANCE REQUIRE PREVIOUS PAYMENTS OF PREMIUMS TO PROVIDE BENEFITS.

3-WELFARE: PUBLIC ASSISTANCE PROGRAMS FUNDED BY TAXES.

4-AFFIRMATIVE ACTION: PLAN THAT SETS QUOTAS, MINIMUMS OR % OF WOMEN AND MINORITIES THAT MUST BE CONSIDERED TO HIRE / ACCEPT / ASSIGN CONTRACTS BY / TO CORPORATIONS, FEDERAL AGENCIES, AND UNIVERSITIES.

5-WAGE / SALARY:

5a-Real Salary: Wages that have been adjusted for inflation.

5b-Nominal Salary:  Wages not adjusted for inflation.

6-FRINGE BENEFITS: HEALTH, VACATIONS, LIFE INSURANCE, RETIREMENT, BONUS, PARTICIPATION IN BUSINESS (STOCKS).

7-COLLECTIVE BARGAINING: AGREEMENT BETWEEN UNION AND EMPLOYER / LABOR CONTRACT (CONDITIONS FOR EMPLOYMENT, WORKING HOURS, WAGES).

8-TRADE UNION: ORGANIZATION OF WORKERS. ILLEGAL UNTIL FDR. A RESULT OF MASS PRODUCTION. VICTIMS OF THEIR OWN SUCCESS.

9-UNION SHOP: ALL WORKERS HAVE TO BELONG TO THE UNION AFTER AFTER THEY HAVE BEEN HIRED. CLOSED SHOP (BEFORE BEING HIRED) / OPEN SHOP (NOT REQUIRED).

10-STRIKE: WORK STOPPAGE TO GAIN CONCESSIONS.

11-PICKETING: MARCH OF WORKERS IN FRONT OF A BUSINESS WITH SIGNS TO PROCLAIM A STRIKE, LOOK FOR PUBLIC SUPPORT, FIGHT STRIKEBREAKERS, PROTEST FOR SOMETHING.

12-BOYCOTT: REFUSAL TO BUY GOODS FROM A COMPANY OR COUNTRY.

13-LOCKOUT: SHUTTING DOWN OF A PLANT / FACTORY.

14-INJUNCTION: COURT ORDER PROHIBITING CERTAIN ACTIONS TO UNIONS.

 

LABOR FORCE COMPOSITION:

WHITE COLLAR: PROFESSIONALS, TECHNICAL, CLERICAL, SALES, AND MANAGERIAL. NON PRODUCTIVE.

BLUE COLLAR: CRAFT, OPERATIVE, AND LABOR JOBS. THE MAIN PRODUCTIVE SECTOR.

SERVICE: FIREFIGHTERS, COSMETOLOGISTS, HOSPITAL AND RESTAURANT WORKERS.

FARMERS:


LABOR FORCE TRENDS:

INCREMENTS IN WHITE-COLLAR AND SERVICE.

REDUCTION IN BLUE-COLLAR AND FARMERS (REAL PRODUCERS).

TECHNOLOGICAL REVOLUTION / LESS WORKERS

 

FACTORS AFFECTING WAGES:

1-DEMAND FOR PARTICULAR GOODS / SERVICES (MOVIE STARS vs. DOCTORS, VOLLEYBALL vs. BASEBALL, MATERVA vs. PEPSI)

2-PRODUCTIVITY

 

FACTORS AFFECTING THE SUPPLY OF LABOR:

1-ATTRACTIVENESS OF THE JOB (PRESTIGE OF THE CIA.)

2-SKILLS REQUIRED (SPECIAL TALENT)

3-MOBILITY

 

NON-MARKET FORCES AND WAGES

1-UNIONS

2-GOVERNMENT LEGISLATION (MINIMUM WAGE)

3-DISCRIMINATION (RACE, SEX, AGE)

4-GEOGRAPHY (DEVELOPMENT OF A REGION / STATE)

5-EDUCATION

 

THE DISTRIBUTION OF INCOME IS BECOMING MORE UNEQUAL EACH YEAR.

1-THE % OF POOR FAMILIES IS INCREASING. POPULATION LIVING BELOW THE POVERTY LINE IS HIGH.

2-THE % OF MIDDLE CLASS FAMILIES IS DECREASING.

3- THE RICHEST FAMILIES ARE GROWING RICHER.

(THE BENEFITS FROM THE GROWING OF THE ECONOMY (STOCK VALUE, CORPORATION PROFITS, WAGES) ARE NOT BEING DISTRIBUTED FAIRLY. GOVERNMENT MONETARY POLICY: TAXES AND INTERESTS ARE DESIGNED TO STIMULATE BUSINESSES.

WHO ARE THE POOR?

1-MINORITY GROUPS (BLACKS / HISPANICS)

2- HOUSEHOLDS HEADED BY WOMEN

3-THE ELDER

Minimum Wage History

A federal minimum wage was first set in 1938. The graph shows nominal (blue diamonds) and real (red squares) minimum wage values. Nominal values range from $0.25/hr in 1938 to $5.85/hr as of July 24, 2007. The graph adjusts these wages to 2007 dollars (red squares) to show the real value of the minimum wage. Calculated in real 2007 dollars, the 1968 minimum wage was the highest at $9.47. The real dollar minimum wage (red squares) falls during periods Congress does not raise the minimum wage to keep up with inflation. The period 1997-2007, is the longest period during which the minimum wage has not been adjusted. The minimum wage increases in three $0.70 increments--to $5.85 in 2007, $6.55 in mid 2008, and to $7.25 in mid 2009. The real values after 2007 are projected for future decline in purchasing power.

Many states have departed from the federal minimum wage. Washington's minimum wage will advance to $8.07 as of January 1, 2008. California and Massachusetts currently have minimum wages of $8.00.

Multiplying the minimum wage by a work year of 50, 40-hour weeks gives the annual earnings that can be expected from a minimum wage job. The red line is the poverty level annual income for a family of four. Minimum wages have never been sufficient to raise a family out of poverty, if only one member of the family works.

 

Median Weekly Salary in the United States 2007 - 2008

   
2007 2008
Men $759 $790
Women 615 637
Total 693 719
   
White  $714 $742
Men 783 822
Women 625 652
   
Black $561 $582
Men 585 604
Women 540 556
   
Asian $798 $842
Men 864 939
Women 743 754
   
Hispanic 502% $520
Men 520 538
Women 471 501

Source: US Department of Labor

PROGRAMS TO FIGHT POVERTY:

I-SOCIAL INSURANCE:

1-SOCIAL SECURITY

2-UNEMPLOYMENT

3- MEDICARE

II-THE WELFARE (8 CENTS OUT OF EVERY FEDERAL DOLLAR)

1-SUPPLEMENTAL SECURITY INCOME (SSI): HELP TO PEOPLE THAT ARE 65 YEARS OR OLDER, BLIND OR DISABLED WHOSE INCOME IS NOT ENOUGH TO COVER BASIC NEEDS.

2-AID TO FAMILIES WITH DEPENDENT CHILDREN (AFDC): THE LARGEST AND COSTLIEST OF ALL THE WELFARE PROGRAMS. SINGLE MOTHERS.

3-FOOD STAMPS

4-MEDICAID

5-WIC: PREGNANT WOMEN, INFANTS.

III-INVESTING IN “HUMAN CAPITAL”: SCHOLARSHIPS, PELL GRANTS, LOANS FOR COLLEGE.

IV-AFFIRMATIVE ACTION: FIGHT DISCRIMINATION. (REVERSE DISCRIMINATION)

Poverty in the U.S.

Source: US Census Bureau

UNIONS IN THE U.S.

1-THE FIRST NATIONAL UNION: KNIGHTS OF LABOR (1869).

2-THE MOST SUCCESSFUL: THE AMERICAN FEDERATION OF LABOR (AFL). SKILLED TRADE GROUPS (1881).

3-UNIONS HAVE BEEN IN DISADVANTAGE DEALING WITH POWERFUL CORPORATIONS.

4-GOVERNMENT LAWS HAVE TENDED TO HURT UNIONS AND HELP BUSINESS.

5-THE NEW DEAL HELPED UNIONS:

-THE WAGNER ACT (THE RIGHT TO ORGANIZE AND JOIN UNIONS AND THE RIGHT TO BARGAIN COLLECTIVELY)

-THE FAIR LABOR STANDARDS ACT (NATIONAL MINIMUM WAGE AND MAXIMUM WORKWEEK OF 44 HOUR / OVERTIME PAYMENT)

6-THE COMMITTEE FOR INDUSTRIAL ORGANIZATION (CIO): BLUE-COLLAR WORKERS (1935).

7-MERGE OF THE LARGEST UNIONS AFL-CIO (1955).

8-THE TAFT-HARTLEY ACT (1947): ILLEGAL CLOSE SHOP, SIXTY DAYS OF PREVIOUS NOTICE BEFORE STRIKES, THE PRESIDENT CAN DELAY FOR 80 DAYS A NATIONAL STRIKE, REQUIRED REPORTS ON UNION FINANCES.

 

 

BASIC AIMS OF UNIONS:

HIGHER WAGES: PRODUCTIVITY, INFLATION, EQUAL PAY

SHORTER HOURS: LUNCH / BREAKS, VACATIONS, HOLIDAYS.

UNION SHOP: CLOSE / OPEN.

CHECK-OFF: DEDUCT DUES DIRECTLY FROM WORKERS’ PAY.

UNION LABEL

JOB SECURITY

FRINGE BENEFITS

GRIEVANCE MACHINERY: SOLVE DISPUTES / IMPARTIAL ARBITRATOR.

UNION’S WEAPONS AGAINST MANAGEMENT:

1-STRIKE

2-PICKETING

3-BOYCOTT

4-SLOWDOWN

5-POLITICAL ACTION

MANAGEMENT’S WEAPONS AGAINST UNIONS

1-LOCKOUT

2-INJUNCTION

3-STRIKEBREAKERS

4-POLITICAL ACTIVITY

5-PUBLIC RELATIONS

PROBLEMS OF LABOR UNIONS:

1-DECLINE IN MEMBERSHIP (LESS BLUE-COLLAR WORKERS, LOST OF FAITH, RISES WITHOUT UNIONS).

2-MANY WORKERS DON’T LIKE OR CAN’T AFFORD STRIKES.

3-PUBLIC EMPLOYEES HAVE NOT THE RIGHT TO STRIKE.

4-CRIME AND CORRUPTION INSIDE THE UNION LEADERS RANKS.

EMPLOYMENT

1-UNEMPLOYMENT IN THE U.S. vs. EUROPEAN NATIONS

2-RELATIONSHIP ECONOMIC GROWTH / BUSINESS / EMPLOYMENT / UNEMPLOYMENT.

3-COEXISTENCE OF UNEMPLOYMENT AND JOB VACANCIES

4-FEDERAL EMPLOYEES

5-SELF-EMPLOYED WORKERS

6-UNEMPLOYMENT & DISCRIMINATION

7-IMMIGRANTS AND THE LABOR FORCE IN THE U.S.

                                      Unemployment Rate in the U.S. (See U.S. Department of Labor)

Labor force status:  Unemployment rate
Type of data:        Percent
Age:                 16 years and over
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
1998 4.6 4.6 4.7 4.3 4.4 4.5 4.5 4.5 4.6 4.5 4.4 4.4
1999 4.3 4.4 4.2 4.3 4.2 4.3 4.3 4.2 4.2 4.1 4.1 4.0
2000 4.0 4.1 4.0 3.8 4.0 4.0 4.0 4.1 3.9 3.9 3.9 3.9
2001 4.2 4.2 4.3 4.4 4.3 4.5 4.6 4.9 5.0 5.3 5.5 5.7
2002 5.7 5.7 5.7 5.9 5.8 5.8 5.8 5.7 5.7 5.7 5.9 6.0
2003 5.8 5.9 5.9 6.0 6.1 6.3 6.2 6.1 6.1 6.0 5.8 5.7
2004 5.7 5.6 5.8 5.6 5.6 5.6 5.5 5.4 5.4 5.5 5.4 5.4
2005 5.2 5.4 5.2 5.1 5.1 5.0 5.0 4.9 5.1 5.0 5.0 4.8
2006 4.7 4.7 4.7 4.7 4.7 4.6 4.7 4.7 4.5 4.4 4.5 4.4
2007 4.6 4.5 4.4 4.5 4.5 4.6 4.7 4.7 4.7 4.8 4.7 5.0
2008 4.9 4.8 5.1 5.0 5.5     6.4        

Retired Workers in America

7-THE ROLE OF GOVERNMENT

Objectives

1-Describe the relationship between economics and environmental issues (I A).

2-Describe the theories of Adam Smith, John Maynard Keynes, Milton Friedman, and John Kenneth Galbraith (II A).

3-Analyze the effect of government regulations on economic activities and institutions (II B).

4-Describe how monetarists, supply side economists, and Keynesian economists would use monetary and fiscal policy to regulate the economy (II B).

5-Describe the monetary and fiscal tools the government may use to regulate the economy (III B).

6-Compare / contrast the beliefs of supply-side and demand-side economists (III B).

7-Explain how the government regulates economic activities and institutions (III B).

8-Describe the forces that determine interest rates (III B).

9-Summarize the major components of the national income / expenditure accounts (III B).

10-Explain how economy relates to social issues (IV A).

11-Describe the purpose of taxation and establish criteria for a fair tax (IV C).

12-Classify taxes as regressive, progressive, and proportional (IV C).

13-Describe how taxation impacts resource allocation and income distribution (IV C).


VOCABULARY.

1-NATIONAL DEBT: BONDS.

2-FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC):

3-INNER CITY / SUBURB:

4-BUDGET: INCOME / EXPENSES

5-SURPLUS / DEFICIT:

6-INTERNATIONAL AFFAIRS: FOREIGN ECONOMIC ASSISTANCE, MILITARY ASSISTANCE TO ALLIES, FOREIGN SERVICE (EMBASSIES), FOREIGN INFORMATION (CIA).

7-INTERNAL REVENUE SERVICE (IRS). TAXATION IN THE U.S.FISCAL POLICY.  DEMOCRATS vs. REPUBLICANS (SOCIAL PROGRAMS)

8-LATTER: MONEY EARNED FROM THE SALE OF PROPERTY HELD FOR MORE THAN A YEAR.

9-TAX DEDUCTIONS: AMOUNT FOR LIVING EXPENSES OF THE FAMILY (ZERO-BRACKET), MONEY PAID AS LOAN & MORTGAGE INTERESTS, CHARITY CONTRIBUTIONS, MEDICAL EXPENSES, PROFESSIONAL EXPENSES.

9-TAX EXEMPTIONS (INCOMES NOT SUBJECT TO TAX): WELFARE, INHERITANCES, SOCIAL SECURITY INCOME, LONG-TERM CAPITAL GAINS (MUTUAL FUNDS), LATTER (ONCE IN A LIFETIME FOR SENIOR CITIZENS), INTERESTS FROM CERTAIN GOVERNMENT BONDS, GRANTS.

10-TAX CREDIT (ENCOURAGE OR HELP): FOR HAVING DEPENDENT CHILDREN, FOR HAVING STUDENTS IN COLLEGE, FOR INSTALLING MORE EFFICIENT HEATING-COOLING SYSTEMS, ETC.

11-FLAT TAX: SUGGESTED METHOD TO SIMPLIFY THE COLLECTION OF INCOME TAXES (ABOLISH DEDUCTIONS, CREDITS, AND INCENTIVES)

12-DIRECT TAXES: TAXES THAT ARE LEVIED ON PERSONS AND CANNOT BE SHIFTED. (INCOME TAX, PROPERTY TAX, INHERITANCE TAX).

13-INDIRECT TAX: TAXES LEVIED ON GOODS AND SERVICES AND ARE EASY TO SHIFT OR PASS TO OTHER PEOPLE. (EXCISE TAX, BUSINESS TAX, TARIFF TAX).

14-LAFFER CURVE:

15-MILITARY-INDUSTRIAL COMPLEX:

 

CAUSES OF THE GROWTH OF GOVERNMET

1-NATIONAL DEFENSE (WW I AND II, KOREA, VIETNAM, COLD WAR)

2-POPULATION GROWTH (MORE PEOPLE = MORE PUBLIC SERVICES: SCHOOLS, POLICE, ROADS, POST OFFICES)

3-MORE ECONOMIC & SOCIAL INVOLVEMENT (THE POOR, SECURITY FOR CONSUMERS, ENVIRONMENTAL ISSUES).

4-SUPPORT SCIENCE & TECHNOLOGY (SPACE, AIDS, CANCER).

5-AVOID CRISIS (INFLATION, RECESSION).

6-SHIFT FROM RURAL TO URBAN LIFE (HOUSING, CRIME, TRANSPORTATION).

THE FEDERAL BUDGET

-OFFICE OF MANAGEMENT AND BUDGET (THE PRESIDENT)

-CONGRESS APPROVAL (DEMOCRATS vs. REPUBLICANS)

-TRYING TO BALANCE THE BUDGET (REDUCE EXPENSES = CUT SOCIAL PROGRAMS. STARVE THE BEAST)

-EMERGENCIES (WAR, NATURAL DISASTERS, ECONOMIC CRISIS)

-RECEIPTS 0R INCOME / OUTLAYS OR EXPENSES (SEE TABLE): CHANGES IN THE ECONOMY WILL AFFECT THE INCOME OF GOVERNMENT.

PROMOTE BUSINESS = MORE JOBS, BEST SALARIES, MORE MONEY IN THE MARKET, MORE GOODS & SERVICES.

UNEMPLOYMENT & RECESSION = THE GOVERNMENT RECEIVES LESS INCOME FROM TAXES & HAS TO EXPEND MORE TO HELP THE POOR: MORE DEFICIT.

MORE TAXES = LESS FLOW OF MONEY, LESS SALES, LESS BUSINESS, LESS EMPLOYMENT: SLOW ECONOMY.

LESS MONEY TO SOCIAL PROGRAMS = LESS FLOW OF MONEY......

REDUCE TAXES (TO WHOM?): INCOME / CORPORATE / EXCISE

-BUDGET DEFICIT = NATIONAL DEBT


Sometimes, increasing taxes will not increase revenues. The government should find the appropriate rate.

WHY TAXES?

1-PAYING FOR THE COST OF GOVERNMENT

2-REDISTRIBUTION OF INCOME

3-PROTECTING CERTAIN INDUSTRIES (TARIFFS)

4-INFLUENCING CONSUMER & BUSINESS SPENDING (TOBACCO, LIQUOR)

PRINCIPLES OF TAXATION

1-FAIRNES (PROPORTION TO INCOME).

2-CLARITY (RATES, DATES, WAYS)

3-SIMPLICITY & EFFICIENCY (EASY TO COLLECT, DIFFICULT TO EVADE, INEXPENSIVE TO ADMINISTER).

4-FLEXIBILITY (ADAPT TO ECONOMIC CONDITIONS)

5-BENEFITS RECEIVED (BENEFIT FROM THE SPENDING OF THE MONEY COLLECTED THROUGH THE TAXES)

6-ABILITY TO PAY

TYPE OF TAXES

1-PROGRESSIVE: THE RATE (%) INCREASES AS THE INCOME INCREASES. (Ex. FEDERAL INCOME TAX).

2-PROPORTIONAL: SAME RATE TO EVERYONE.

3-REGRESSIVE: TAKE A LARGER % FROM LOW-INCOME FAMILIES THAN FROM THE HIGH-INCOME ONES (Ex. SALES TAX)

4-FEDERAL TAXES

5-INCOME TAX

6-CORPORATE TAX (NET PROFITS)

7-EXCISE TAXES (IMPOSED TO SOME ACTIVITIES AND GOODS MANUFACTURED WITHIN THE US: tobacco, alcohol, gambling, hunting, prostitution and gasoline): BUSINESSES PASS THESE COSTS TO CONSUMERS (PRICES).

8-ESTATE , INHERITANCE, DEATH & GIFT TAXES

9-SOCIAL SECURITY TAX (FICA)

10-STATE (SALES) & LOCAL (PROPERTY) TAXES

11- HOMESTEAD EXCEPTION IN FLORIDA

13-TOLL FEES


PROBLEMS WITH THE COLLECTION OF TAXES.

1-UNDERGROUND ECONOMY

2-TAX EVASION (BUSINESS & INDIVIDUALS)

3-DELINQUENT TAXPAYERS OR UNPAID BILLS:

-EXTENSION

-PAYMENT PLAN OR INSTALLMENTS

-LIEN (FREEZE YOUR PROPERTIES’ TITLES)

-LEVY (SEIZE YOUR WAGES, STOCKS, BONDS, BANK ACCOUNTS)

-SEIZURE (SEIZE YOUR PERSONAL PROPERTY AND SELL IT)

-PRISON

4-ABUSE OF POWER / LITTLE OVERSIGHT / SOFT DISCIPLINARY ACTION

 

ECONOMIC THEORIES ABOUT HOW THE GOVERNMENT SHOULD REGULATE THE ECONOMY.

1-ADAM SMITH (1723-90): British. The Wealth of Nations. THE LESS THE BETTER. LAISSEZ-FAIRE & THE INVISIBLE HAND.

2-KARL MARX (1818-83): German. Das Kapital. TOTAL CONTROL. COMMUNIST STATE CENTRALIZATION.

3-JOHN MAYNARD KEYNES (1883-1946): British. The General Theory of Employment, Interest, and Money. “SPENDING POLICY”. THE GOVERNMENT CAN ACTIVATE THE ECONOMY INJECTING MONEY IN THE MARKET, INCREASING ITS SOCIAL PROGRAMS, CREATING FEDERAL JOBS, CONSTRUCTING ROADS, DAMS, PARKS, ETC., GIVING GRANTS. (MORE MONEY = MORE DEMAND OF GOODS= BUSINESS BOOM=MORE SALES) OR AVOID INFLATION DECREASING ITS EXPENDITURES. (DEMAND-SIDE).

4-JOHN KENNETH GALBRAITH (1908- ): American. American Capitalism. “FISCAL MEASURES ON BUSINESS AND PRICE CONTROL”. GOVERNMENT FLOOR / CEILING PRICES. THE GOVERNMENT CAN ACTIVATE THE ECONOMY DECREASING THE CORPORATE TAX RATES AND LOOSENING THE PRICES. TO SLOW THE GROWTH RATE / STOP THE BOOM AND AVOID A CRISIS / INFLATION THE GOVERNMENT CAN REVERSE THESE MEASURES. LESS CORPORATE TAXES=MORE BUSINESS=MORE PRODUCTION=MORE GOODS. (SUPPLY-SIDE).

5-MILTON FRIEDMAN (1912- ): American. Dollars & Deficit. “MONETARISM”. CONTROL THE SUPPLY OF MONEY AND THE INTEREST RATE THROUGH THE FEDERAL RESERVE SYSTEM. LOWER INTEREST RATES & HIGHER SUPPLY OF MONEY (HOW MUCH MONEY THE BANKS SHOULD DEPOSIT IN THE FEDERAL RESERVE SYSTEM - FDIC) WILL ACTIVATE THE ECONOMY AND VICE VERSA.


THE WORST ECONOMIC NIGHTMARE: S T A G F L A T I O N.

STAGNATION=RECESSION/UNEMPLOYMENT/LACK OF MONEY/BANKRUPTCY + INFLATION =HIGH PRICES / MONEY DEVALUATION.



8-MONEY, CREDIT, & BANKING

Objectives
1-Describe how monetarists, supply side, and Keynesian economists use monetary and fiscal policy to regulate the economy (II B).

2-Describe the tools that the government may use top regulate the economy (III B).

3-Explain the relationship between inflation and the value of money (III B).

4-Describe the forces that determine interest rates (III B).

5-Explain the effect of government price controls on market equilibrium (IV A).

6-Describe the functions of financial institutions (IV B).

7-Describe the relationship between savings, investments, and employment (IV B).

8-Evaluate the effectiveness of wage and price control (IV C).


VOCABULARY

1-BARTER: EXCHANGE OF ITEMS WHEN MONEY DID NOT EXIST.

2-MONEY: ANYTHING THAT IS GENERALLY ACCEPTED IN PAYMENT FOR GOODS AND SERVICES. THE “LIFEBLOOD” OF THE ECONOMY.

3-THE GRESHAM’S LAW: WHEN TWO KINDS OF MONEY HAVING THE SAME NOMINAL VALUE CIRCULATE, THE ONE CONSIDERED MORE VALUABLE IS STORED (SILVER / GOLD / $100 bill) WHILE THE ONE WITH LESS VALUE ($1, $5 bills) CIRCULATES MORE.

4-COUNTERFEIT:

5-LEGAL TENDER: MONEY THAT HAS TO BE ACCEPTED IN PAYMENT FOR DEBTS.

6-CURRENCY: BANKNOTES, BILL, PAPER MONEY OR COINS ISSUED BY THE FEDERAL GOVERNMENT.

7- FIAT MONEY: MONEY THAT HAS CERTAIN VALUE BECAUSE THE GOVERNMENT SAYS SO, NOT BECAUSE ITS INTRINSIC VALUE (NO GOLD / SILVER BACKED).

8-DEMAND DEPOSITS: CHECKING ACCOUNTS WHICH PAY NOT INTERESTS, BUT WITH LOWER SERVICE FEES .

9-NEGOTIABLE ORDER OF WITHDRAWAL (NOW): INTEREST-BEARING CHECKING ACCOUNTS.

10-TIME DEPOSITS: SAVING ACCOUNTS.

11-CERTIFICATE OF DEPOSIT (CD’s):

12-ACCOUNT SERVICE FEES:

13-TRAVELER’S CHECK: BANKNOTES ISSUED BY A FEW LARGE BANKS AND CERTAIN SPECIALIZED FIRMS (AMERICAN EXPRESS). EQUAL TO CASH BUT SAFER.

14-GOVERNMENT / CORPORATE BONDS:

15-LIQUID FUNDS: FUNDS EASILY CONVERTED TO CASH (CHECKS)

16-“NEAR MONEYS”: BONDS, STOCKS, SAVING ACCOUNTS.

17-DOLLAR: WORD DERIVED FROM THE GERMAN “TOLAR” THAT WAS SAID TO BE WORTH A CERTAIN AMOUNT OF GOLD OR SILVER (GOLD STANDARD VALID UNTIL 1971).

18-GOLDSMITHS: INDIVIDUALS & INSTITUTIONS THAT TOOK CARE OF THE GOLD AND ISSUED RECEIPTS FOR ITS VALUE TO THE OWNERS. ANCESTOR OF MODERN BANKS.

19-EQUITY / BUSINESS LOANS:

20-MORTGAGE:

21-LINE OF CREDIT: CARDS, SPECIAL ACCOUNTS FOR BUSINESS.

22-ATM MACHINE: CREDIT & DEBIT CARD OPERATING ELECTRONIC MACHINES TO PROVIDE MONEY TO CUSTOMERS.

23-CREDIT CARD / DEBIT CARD:

24-SAFE DEPOSIT BOX:

25-BANK, BANK VAULT:

26-COMMERCIAL BANKS: SERVE BUSINESS & INDIVIDUALS

27-THRIFT INSTITUTIONS: SAVING & LOANS ASSOCIATIONS, MUTUAL SAVING BANKS, CREDIT UNION BANKS: SERVE ONLY INDIVIDUAL CUSTOMERS.

28-MONEY ORDER:

29-ESCROW ACCOUNT: TO PAY TAXES, INSURANCE, CLOSING COSTS.

30-BANK DRAFT : MONEY TO BE SENT TO OTHER PLACE.

31-TRUST DEPARTMENT: MANAGE / INVEST PEOPLE’S WEALTH.

32-401-K PLANS: RETIREMENT (See Pension Plans)

33-FRACTIONAL RESERVE: THE % OF THEIR DEPOSITS THAT BANKS MUST KEEP ON HAND, IN THEIR VAULTS.

34-RESERVE ACCOUNT: THE % OF THEIR DEPOSITS THAT BANKS MUST KEEP IN THE FEDERAL RESERVE BANKS

35-PRIME & SUB-PRIME LOANS: Good Credit vs. Bad Credit, Lower vs. Higher Interest, Safe vs. Risky

36-FEDERAL DEPOSIT INSURANCE CORPORATION (F.D.I.C.): One of FDR New Deal Reform Programs. Today it covers up to $100,000.

37-FEDERAL RESERVE SYSTEM: Consequence of Panic of 1907. Morgan provided the funds. Created in 1913 to control Money Supply (M0, M1, M2, M3), Interest Rates, Sell / Buy Bonds.

38-BANK TELLER:

39-MONETARY POLICY

 

HISTORY OF MONEY

EGYPTIANS: METALLIC RINGS

CHINESE: GOLD CUBES / FIRST PAPER MONEY

ROMANS: SALT

AZTECS: CACAO BEANS

NATIVE AMERICAN: ARROWHEADS, FUR, TOBACCO.

MIDDLE AGES: GOLD RECEIPTS (AVOID ROBBERS)

CURRENT PAPER MONEY & COINS

FUNCTIONS OF MONEY

1-MEDIUM OF EXCHANGE; SELL & BUY.

2-STANDARD OF VALUE: COMPARE THE VALUE OF DIFFERENT ITEMS.

3-STORE OF VALUE: ACCUMULATE, SAVE.


CHARACTERISTICS OF MONEY

1-DURABILITY: RELATIVE LONG USE.

2-PORTABILITY: LIGHT ENOUGH TO BE CARRIED.

3-DIVISIBILITY: CHANGE.

4-UNIFORMITY INSIDE THE NATION.

5-EASE OF RECOGNITION.

6-RELATIVE SCARCITY.

TYPES OF CURRENCY

1-FRACTIONAL CURRENCY / COINS: 3% OF THE TOTAL MONEY SUPPLY.

2-PAPER CURRENCY / NOTES ISSUED BY THE BANKS OF THE FEDERAL RESERVE SYSTEM (12): 25% OF THE TOTAL MONEY SUPPLY.

3-CHECKBOOK MONEY: MORE THAN 70% OF THE TOTAL MONEY SUPPLY.

4-TRAVELER’S CHECK:

MOVEMENT OF CURRENCY

1-TREASURY DEPARTMENT’S U.S. MINT (Also Check www.usmint.gov) AND BUREAU OF PRINTING AND ENGRAVING (Aslo check www.moneyfactory.gov): SUPPLY PAPER MONEY AND COINS TO FEDERAL RESERVE BANKS.

2-FEDERAL RESERVE BANKS: STORE THE MONEY & GOLD OF THE NATION. DESTROY OLD MONEY.

3-COMMERCIAL BANKS: THEY HAVE SAVING / RESERVE ACCOUNTS IN THE FEDERAL RESERVE BANKS. DEPOSIT & DRAW MONEY DEPENDING ON BUSINESS. COLLECT & SEND OLD MONEY TO BE SUBSTITUTED. INTERMEDIARIES BETWEEN THE GOVERNMENT AND THE PUBLIC.

4-BUSINESS AND INDIVIDUALS: THE QUANTITY OF CURRENCY CIRCULATING VARY. (CHRISTMAS = HIGH / AFTER CHRISTMAS = LOW)

KEY PRINCIPLES OF BANKING

1-TAKE CAKE OF DEPOSITS FOR A FEE.

2-OFFER INTEREST TO ATTRACT NEW DEPOSITORS.

3-THE AMOUNT OF FUNDS WITHDRAWN ON ANY GIVEN AVERAGE DAY IS EQUAL TO THE AMOUNT OF NEW FUNDS BROUGHT IN FOR DEPOSIT.

4-BANKS ARE NEVER CONFRONTED BY ALL THEIR CUSTOMERS ASKING FOR THEIR MONEY AT THE SAME TIME.

5-BANKS CAN SAFELY LEND OUT A PORTION OF THEIR DEPOSITS (LOANS, MORTGAGES, CREDIT CARDS) CHARGING INTERESTS (HIGHER THAN THE ONES PAID TO DEPOSITORS = PROFIT). THIS IS THE PRINCIPAL ACTIVITY AND SOURCE OF INCOME OF BANKS: GRANTING CREDIT.

IN TIMES OF RECESSION, BANKS ARE AFFECTED BY PERSONAL BANKRUPTCIES & FORECLOSURES:

THRIFT INSTITUTIONS

1-SAVING AND LOAN ASSOCIATION (S&L): Also known as a Thrift, is a financial institution that specializes in accepting savings deposits and making mortgage loans, they were famously portrayed in the 1946 film It's a Wonderful Life.

2-MUTUAL SAVING BANKS: Most mutual savings banks are located in the Northeast, and are owned by their depositors and borrowers. A mutual savings bank does not issue capital stock. Profits are distributed to the owner/customers in proportion to the business they do with the institution.

3-CREDIT UNIONS: Unions, Universities & Professional Organizations create them. Usually, only accept accounts and lend money  from/to members of the group . A credit union is a cooperative financial institution that is privately owned and controlled by its members. They elect their board of directors in a democratic one person-one vote system regardless of the amount of money invested in the credit union. Credit Unions typically pay higher dividend (interest) rates on shares (deposits) and charge lower interest on loans than banks.

THE FEDERAL RESERVE SYSTEM

-STRUCTURE

-THE MONETARY POLICY (MONEY SUPPLY & INTEREST RATE)

THE VALUE OF MONEY

1-INFLATION

2-DEFLATION

SEE:

1-THE CONSUMER PRICE INDEX OR “THE COST OF LIVING”.

2-THE PURCHASING POWER.

 

CAUSES OF INFLATION:

1-DEMAND-PULL (WHEN THE DEMAND IS HIGHER THAN THE CAPACITY TO PRODUCE THE GOODS).

2-COST-PUSH (PRICES RAISE AS A RESULT OF AN INCREASE IN COSTS OF PRODUCTION: WAGE INCREASES WITHOUT MORE PRODUCTIVITY).

FIGHTING INFLATION:

CONTROL THE GROWTH OF BUSINESS AND THE CONSUMER PURCHASING POWER (MONETARY AND FISCAL POLICES). THE NEGATIVE RESULT IS UNEMPLOYMENT (THE PHILLIPS CURVE).

 

LIMIT WAGES AND PRICE INCREASES (INCOME POLICES):

1-VOLUNTARY CONTROL: CORPORATIONS / WORKERS LIMIT VOLUNTARILY THEIR DEMANDS.

2-LIMITING MONOPOLY POWER: GOVERNMENT REDUCE THE MARKET POWER OF LABOR AND MANAGEMENT TO FIX THE PRICES.

3-DIRECT CONTROL: DURING WAR OR EMERGENCIES THE GOVERNMENT HAVE ESTABLISHED “CEILING PRICES” (TOP / MAXIMUM PRICES) AND “FLOOR PRICES” (MINIMUM PRICES).

 

9-ECONOMIC PERFORMANCE.

Objectives

1-Analyze per capita GNP or GDP as a measure of standard of living (I A).

2-Relate employment and unemployment statistics to the state of the economy (II B).

3-Describe the basic national economic goals and explain how the government and citizens can influence them (III A).

4-Identify ways to expand the participation of Americans in establishing national economic goals, especially minorities and women (III A).

5-Discuss how leading, coincident, and lagging indicators are used to forecast economic activity (III B).


VOCABULARY

1-GDP: THE TOTAL MARKET VALUE OF ALL THE GOODS AND SERVICES PRODUCED BY THE ECONOMY OF A NATION IN A SINGLE YEAR. Developed by Simon Kuznets in 1934 to study effects of Great Depression (Won Nobel Prize in 1971). Includes value of goods and services generated by G+C+B, except: Barter, Housewife's work and illegal activities. It has grown 20 times during last 100 years. See Nominal (Not Adjusted for Inflation) vs. Real (Inflation) vs. Potential (Full Employment) GNP.

2-CAPITAL CONSUMPTION ALLOWANCE: FUNDS SET ASIDE TO REPLACE MACHINERY, TOOLS, BUILDINGS.

3-NATIONAL INCOME : ALL THE INCOMES EARNED BY INDIVIDUALS AND BUSINESSES IN THE PRODUCTION OF THE GNP.

4-PERSONAL INCOME: THE PART OF THE NATIONAL INCOME THAT IS DISTRIBUTED TO FAMILIES AND INDIVIDUALS (COMPENSATION TO EMPLOYEES). IT ALSO INCLUDES THE GOVERNMENT BENEFITS, WELFARE, AND PENSIONS (TRANSFER OF MONEY).

5-DISPOSABLE PERSONAL INCOME: IT IS THE RESULT OF SUBTRACTING THE INCOME TAXES FROM THE TOTAL PERSONAL INCOME.

6-CONSTANT DOLLARS: THE VALUE / PRICE OF SOMETHING OVER TIME. THE VALUE OF THE DOLLAR IN TERMS OF WHAT IT CAN PURCHASE. THIS HAS TO BE ADJUSTED TO COMPENSATE FOR CHANGES IN PRICES (INFLATION). TO ACCOMPLISH THAT, IT IS NECESSARY TO SELECT A BASE YEAR.

7-CURRENT DOLLARS: THE VALUE OF THE DOLLAR IN A PARTICULAR YEAR. WHAT YOU CAN BUY, CONSIDERING THE PRICES AT THE MOMENT.

8-PER CAPITA GNP: IT IS THE RESULT OF DIVIDING THE NATION GNP IN CONSTANT DOLLARS BY ITS POPULATION. THIS IS USED TO COMPARE THE ECONOMIC OUTPUT OF DIFFERENT NATIONS IN ORDER TO ESTIMATE THE STANDARD OF LIVING.

9-STANDARD OF LIVING: AMOUNT OF GOODS AND SERVICES AVAILABLE FOR THE PEOPLE OF A NATION. Also see Purchasing Power Parity

10-BUSINESS CYCLE: THE UPS AND DOWNS IN THE LEVEL OF ECONOMIC ACTIVITY. CONTRACTION vs. EXPANSION. PEAK vs. TROUGH. RECESSION vs. DEPRESSION. See effects of Wars,

11-AGGREGATE DEMAND: THE SUM OF GOODS & SERVICES THAT CONSUMERS, PRODUCERS, GOVERNMENT, AND FOREIGN BUYERS (NET EXPORTS) PURCHASE.

12-FULL EMPLOYMENT: TOTAL GOODS & SERVICES THAT THE ECONOMY COULD PRODUCE IF ITS RESOURCES WERE FULLY EMPLOYED (PRODUCTIVE CAPACITY).

13-THE MULTIPLIER EFFECT: ANY SPENDING PROVOKES MORE SPENDING ACCORDING TO THE MPC / MPS.

14-MARGINAL PROPENSITY TO CONSUME / SAVE (MPC / MPS): THE PUBLIC’S INCLINATION TO SPEND / SAVE.

15-OPEN MARKET OPERATIONS: SELLING / BUYING OF GOVERNMENT BONDS

16-CONSUMER PRICE INDEX (C.P.I.): Compiled monthly by Department of Labor. Control Inflation

17-PRODUCTIVITY & MARGINAL PRODUCT:

18-CONSUMER CONFIDENCE: SPENDING LEVELS.

19-BANKRUPCY & FORECLOSURE:

20-INFLATION / UNEMPLOYMENT: PHILLIPS CURVE

 

COMPONENTS OF THE GNP

1-PERSONAL CONSUMPTION EXPENDITURES (2/3 OF THE TOTAL)

a)-DURABLE GOODS (FURNITURE, CARS, ELECTRIC EQUIPMENTS)

b)-NONDURABLE GOODS (FOOD, FUEL, MEDICINES, CLOTHES)

c)-SERVICES (RECREATION, MEDICAL CARE, RESTAURANTS)

2-GROSS PRIVATE DOMESTIC INVESTMENT (BUSINESS INVESTMENTS: WAGES, RAW MATERIALS, CONSTRUCTION OF NEW BUILDINGS, MACHINERY).

3-GOVERNMENT SPENDING: FEDERAL, STATE, LOCAL (DEFENSE, WAGES, FUNCTIONING OF GOV.) NOTE: WELFARE IS NOT INCLUDED (TRANSFER OF MONEY FROM SOME CITIZENS TO OTHERS).

4-NET EXPORTS OF GOODS AND SERVICES (EXPORTS - IMPORTS)

LIMITATIONS OF THE GNP

1-IT DOES NOT INCLUDE “NON MARKET” ACTIVITIES (HOMEMAKERS WORK, UNDERGROUND ECONOMY, ETC.

2-IT DOES NOT MEASURE ECONOMIC WELL-BEING (QUALITY OF THE NATION OUTPUT: FOOD OR TOBACCO OR POLLUTION).

3-IT DOES NOT CONSIDER MAJOR SOCIAL INDICATORS: LITERACY, HEALTH, GENDER SITUATION, ETC. (SEE HDI & GDI).

 

COMPOSITION OF THE NATIONAL INCOME

TOTAL INCOME - (CAPITAL CONSUMPTION ALLOWANCE + SALES TAXES + EXCISE TAXES) =

NATIONAL INCOME = COMPENSATION OF EMPLOYEES + PROPRIETORS’ INCOME + CORPORATE PROFITS + RENTAL INCOME + NET INTEREST.

 

NATIONAL INCOME:

1-COMPENSATION OF EMPLOYEES ( WAGES, TIPS, BONUSES, PENSIONS)

2-PROPIETORS’ INCOME (EARNINGS OF UNINCORPORATED BUSINESSES & FARMS).

3-CORPORATE PROFITS

4-RENTAL INCOME (PROPERTY RENT + PATENTS + COPYRIGHTS)

5-NET INTEREST (INTEREST RECEIVED - PAID INTEREST).

6-PERSONAL INCOME = COMPENSATION OF EMPLOYEES + TRANSFER OF MONEY BY

7-THE GOVERNMENT: WELFARE, PENSIONS, ETC.

THE BUSINESS CYCLES

1-RECESSION: ECONOMIC ACTIVITY GOES INTO A DECLINE. MILD AND SHORT. (CONSUMERS BUY LESS, MANUFACTURING SLOWS, UNEMPLOYMENT RATE RISES, WAGES FALL).

2-DEPRESSION OR CRISIS: THE BOTTOM OF THE CYCLE. SERIOUS AND SOME TIMES LONG. THE GREAT DEPRESSION (1929-39): 25% OF UNEMPLOYMENT, 4,000 CRACKED BANKS, GREAT BUSINESS FAILURE.

3-EXPANSION OR RECOVERY: SPENDING BEGINS TO INCREASE, UNEMPLOYMENT DROPS, PRODUCTION EXPANDS.

4-PEAK OR PROSPERITY: THE UPPER TURNING POINT OF BUSINESS CYCLE. ECONOMY CLOSES IN ON ITS MAXIMUM CAPACITY, FULL EMPLOYMENT.



THEORIES ABOUT THE CAUSES OF THE BUSINESS CYCLE

EXTERNAL CAUSES:

1-INNOVATIONS (INDUSTRIAL REVOLUTION, THE AUTOMOBILE, THE COMPUTER): THIS CREATES A TEMPORARY EXPANSION AND PROSPERITY BECAUSE THE HUGE INVESTMENTS THAT IN SOME MOMENT RETURN TO TO A NORMAL LEVEL.

2-POLITICAL EVENTS (WARS, BOYCOTTS, CONFLICTS): SEE OPEC AND THE LOST DECADE.

INTERNAL CAUSES:

1-PSYCHOLOGICAL FACTORS: THE SELF-FULFILLING PROPHECY (IF PEOPLE & BUSINESS BELIEVE THAT THE ECONOMY IS GOING TO IMPROVE OR DECLINE THIS “FEELING” WILL AFFECT THE REAL ECONOMY.

2-UNDERCONSUMPTION: DURING THE PERIOD OF PROSPERITY, SAVINGS ARE HIGH. PRODUCTION INCREASE UNTIL IT IS OUTPACING CONSUMPTION AND THEN BUSINESS ACTIVITY IS REDUCED = RECESSION BEGINS.

 

PRODUCTIVITY


Increasing the number of workers beyond certain point will reduce production and, of course productivity.

RELATIONSHIP BETWEEN AGGREGATE DEMAND & FULL EMPLOYMENT.

1-RECESSION: AGGREGATE DEMAND DECLINES AND THE GAP BETWEEN IT AND FULL EMPLOYMENT INCREASES.

2-RECOVERY: AGGREGATE DEMAND INCREASE, PRODUCERS EXPAND THEIR ACTIVITIES, HIGHER FULL EMPLOYMENT.

3-IF AGGREGATE DEMAND INCREASES SO MUCH THAT EXCEEDS THE CAPACITY OF THE ECONOMY (TOO MUCH MONEY CHASING TOO FEW GOODS), THIS WILL CAUSE HIGHER PRICES AND NOT MORE EMPLOYMENT = INFLATION.

4-THE FEDERAL GOVERNMENT TRY TO STABILIZE THE ECONOMY: FULL EMPLOYMENT WITHOUT INFLATION (CONTROL THE AGGREGATE DEMAND OR THE AMOUNT OF MONEY IN THE MARKET).

 

SPENDING PATTERNS

1-CONSUMERS: CONSUMER SPENDING MAKES UP THE 63% OF THE GNP. PEOPLE SPEND FROM 90% TO 93% OF THEIR DISPOSABLE INCOME. THE REMAINDER GOES INTO SAVINGS. WHAT CONSUMERS SPEND DEPENDS ON HOW MUCH THEY EARN.

2-BUSINESS: BUSINESS SPENDING DEPENDS ON DIFFERENT FACTORS AND ITS FLUCTUATIONS IS A MAJOR CAUSE IN THE UPS AND DOWNS OF ECONOMY. INVESTMENTS: COST AND AVAILABILITY OF FUNDS TO INVEST, EXPECTATIONS OF LARGER SALES, NEW TECHNOLOGIES, POPULATION GROWTH OR NEW MARKETS, TAX LAWS, PRICES. WAGES (# OF WORKERS): SALES, CONSUMER SPENDING.

GOVERNMENT’S ECONOMIC GOALS (EMPLOYMENT ACT - 1946)

1-FREE, COMPETITIVE ENTERPRISE.

2-MAXIMUM EMPLOYMENT.

3-PRODUCTION GROWTH.

4-KEEP THE PURCHASING POWER / PRICE STABILITY.

 

TYPES OF GOVERNMENT STABILIZERS

-AUTOMATIC STABILIZERS: THEY DAILY ECONOMIC ACTIVITIES WORKING AS A TOOL TO BALANCE THE FLUCTUATIONS IN THE GDP WITHOUT ANY EXPLICIT POLICY ACTION BY THE GOVERNMENT.

-FISCAL POLICY: CHANGES IN TAXATION (EXCEPTIONS, DEDUCTIONS, INCENTIVES) & GOV. SPENDING (NATIONAL DEBT):
-TAX AND/OR SPEND FOR THE PURPOSE OF REGULATING THE ECONOMY.

-INCREASING / DECREASING ITS OWN SPENDING (SOCIAL PROGRAMS, WAGES), THE GOVERNMENT AFFECTS THE TOTAL DEMAND LEVEL.

-TAXING MORE / LESS INDIVIDUALS / BUSINESSES, OCCUR THE SAME: THERE IS MORE / LESS MONEY CIRCULATING IN THE MARKET.

-MONETARY POLICY:

1-THE MONEY SUPPLY:

a)-BANKS MUST KEEP CERTAIN % OF THEIR DEPOSITS IN  RESERVES IN THE FEDERAL SYSTEM. MORE / LESS MONEY AVAILABLE = MORE / LESS MONEY FOR LOANS = MORE / LESS MONEY CIRCULATING.

b)-OPEN MARKET OPERATIONS: SELL / BUY GOV. BONDS TO CONTROL THE CIRCULATING MONEY IN THE MARKET.

2-THE INTEREST RATE (COST OF CREDIT): HIGHER / LOWER INTERESTS = BUSINESS & INDIVIDUALS WILL SPEND / INVEST MORE / LESS.

 

THE REAL ESTATE BOOM & CRISIS


SOME OTHER INDICATORS OF ECONOMIC PERFORMANCE: Productivity, Inflation, Unemployment Consumer Confidence, Stock Market, Foreclosures, Bankruptcies.


 

Florida's unemployment has been growing during 2007 & 2008

                                          Price Increase from 2003 to 2008


          Precios de Medicinas por Receta 2004


During the last years (2005-2008), real wages have continued decreasing  while prices are increasing dramatically.


The measures to fight Inflation will create higher unemployment and vice versa.

 


Stock Market Performance (NYSE)

The Financial Crisis of 2006-08


10-PERSONAL ECONOMICS

Objectives

1-Explain how the central economic problem of scarcity is related to opportunity costs, making choices, and trade-offs (I A).

2-Explain how economics are related to social issues and problems (IV A).

3-Describe the relationships between savings, investments, and employment (IV B).

4-Evaluate the positive and negative aspects of advertising (IV B).

5-Discuss the role of insurance and credit in our society.

6-Give students some pragmatic tips about shopping.

 

VOCABULARY

1-INCOME:
1.1-DISPOSABLE INCOME: GROSS INCOME MINUS INCOME TAX
1.2-DISCRETIONARY INCOME: WHAT IS LEFT AFTER PAYING FOR BASIC NEEDS (HOUSING, FOOD, ETC.)
1.3-PERSONAL SAVINGS: THE PORTION OF THE DISPOSABLE PERSONAL INCOME THAT CONSUMERS DO NOT SPEND.

2-DIVIDENDS: THE SHARE OF EARNINGS PAID TO STOCKHOLDERS.

3-INTEREST: THE PAYMENT MADE FOR THE USE OF MONEY.
3.1-USURY: CHARGING A TOO HIGH INTEREST.
3.2-SIMPLE INTEREST: INTEREST IS EARNED ON THE PRINCIPAL OR ORIGINAL DEPOSIT ALONE.
3.3-COMPOUND INTEREST: INTEREST IS EARNED ON THE PRINCIPAL PLUS THE INTEREST ALREADY EARNED (CUMULATIVE).

4-CAPITAL GAINS: PROFITS EARNED FROM THE SALE OF STOCKS.

5-LIQUIDITY: THE EASE WITH WHICH A FORM OF SAVINGS CAN BE CONVERTED INTO CASH.

6-NEGOTIABLE ORDERS OF WITHDRAWAL (NOW): CHECKING ACCOUNTS THAT PAY SOME KIND OF INTEREST (THE LOWEST).

7-INVESTMENT RETIREMENT ACCOUNT (IRA): ACCOUNT WHOSE EARNINGS PAY NOT TAXES UNTIL YOU START RECEIVING BENEFITS, THAT ONLY ACCEPTS A MAXIMUM YEARLY DEPOSIT OF $2,000 , AND IN WHICH FUNDS MUST REMAIN ON DEPOSIT UNTIL YOU ARE 59 1/2 YEARS OLD. THIS TYPE OF ACCOUNT IS INSURED BY THE GOVERNMENT.

8-401-K PLANS: SIMILAR TO IRA IN SOME POINTS. MANY BIG CORPORATIONS AND GOVERNMENT AGENCIES OFFER THIS BENEFIT. EMPLOYER MATCHES SOME % OF YOUR DEPOSIT. THE MONEY IS USED TO INVEST IN THE COMPANY / AGENCY SECURITIES. NO FEDERAL INSURANCE: RISKY !!!

9-MUTUAL FUND INSTITUTIONS: CORPORATIONS THAT OFFER INVESTMENT PLANS OR MONEY MANAGEMENT FOR A FEE (HIGHER RATES THAN STOCK BROKERS’ COMMISSIONS), WHICH IS DEDUCTED FROM THE PROFITS (IF THERE IS SOME). THEY USE YOUR MONEY TO SPECULATE IN HUNDREDS OF DIFFERENT SECURITIES. THEY HIRE PROFESSIONAL MONEY MANAGERS, INVESTMENT COUNSELORS, AND OTHER SPECIALISTS. HIGHLY LIQUID: FUNDS CAN BE WITHDRAWN AT ANY TIME WITHOUT PENALTY. NO INSURANCE: RISKY !!!

10-PENSION PLANS: SOME BIG CORPORATIONS AND GOVERNMENT AGENCIES REQUIRE THAT THEIR EMPLOYEES PLACE A PORTION OF THEIR INCOME IN RETIREMENT PROGRAMS AND THE EMPLOYERS CONTRIBUTE IN SOME % TO THE PLAN. SECURITY AND GROWTH.

11-CHECK: IT IS WRITTEN ORDER, IN WHICH A PERSON OR A BUSINESS DIRECTS A BANK TO PAY A SUM OF MONEY TO A THIRD PARTY.

12-ENDORSE A CHECK: THIS MEAN THAT YOU TRANSFER A CHECK THAT WAS ORIGINALLY ISSUED TO YOU TO A THIRD PARTY.

13-BOUNCED CHECK: BANKS CHARGE A FEE FOR THIS. “THE BLACK LIST”.

14-INSURANCE: SHARING THE RISK OF FINANCIAL LOSS WITH OTHERS: INSURANCE COMPANIES CALCULATE THE PROBABILITY (GENERAL TRENDS, AGE, PERSONAL HISTORY) OF LOSS DURING A PERIOD, AND DIVIDE THE RISK AMONG THE PEOPLE SHARING THE SAME CONDITIONS (PREMIUM). See Homeowner, Car, Life and Health Insurance (Providers, Types, etc)
14.1-ARSON: INTENTIONAL FIRE, USUALLY TO RECEIVE MONEY FROM INSURANCE.

15-MORTGAGE: FIXED vs. VARIABLE, DEED (BANK), PRINCIPAL vs. INTEREST (YOU PAY THE ORIGINAL PRICE 3 TIMES), EQUITY (GROWING VALUE), PAY IT W/ A WEEK OF HOUSEHOLD'S SALARY

16-INCOME INEQUALITY / THE GROWING GAP. BLAME THE VICTIM THEORY: POOR PEOPLE ARE RESPONSIBLE FOR THEIR POVERTY

17-SOCIAL DEMOCRACY (EUROPE, CANADA): CURVE WEALTH TO REDUCE POVERTY

18-POVERTY: GREAT DEPRESSION (30% OF Pop.); FDR created Social Security & Welfare; JFK created the Job Corps; LBJ declared War on Poverty (Head Start, Pell Grants, Medicaid & Medicare); Clinton reformed Welfare in 1996 (Work).

19-CREDIT / CREDIT BUREAUS / CREDIT REPORT / CREDIT SCORE:

20-IDENTITY THEFT / PHISHING / FRAUD:

21-CONSUMER SPENDING: See Graph for 2008 at http://www.nytimes.com/interactive/2008/05/03/business/20080403_SPENDING_GRAPHIC.html

 

SOURCES OF INCOME

1-CURRENT INCOME (WAGES OR SALARY, DIVIDENDS, PROFITS)

2-PERSONAL SAVINGS

3-CREDIT

REASONS OF SAVING

1-FOR A “RAINY DAY”

2-FOR PURCHASE OF COSTLY THINGS

3-FOR ADDITIONAL INCOME (INVESTMENT)

4-FOR RETIREMENT

CONSIDERATIONS ABOUT HOW TO SAVE / INVEST

1-DEGREE OF SAFETY: INVERSELY PROPORTIONAL TO THE SIZE OF THE PROFITS. US BONDS - BANK SAVING ACCOUNTS - REAL ESTATE - CORPORATE SECURITIES - MUTUAL FUNDS.

2-RUSH IN RECEIVING THE RETURN (SHORT, MEDIUM, OR LONG TERM): RETIREMENT (US BONDS, REAL ESTATE, INVESTMENT RETIREMENT ACCOUNT (IRA), MUTUAL FUNDS, 401-K) - CERTIFICATE OF DEPOSIT - DIVIDENDS, SAVING ACCOUNTS.

3-SIZE OF THE PROFITS: BANK INTERESTS: 5-14% (SAVING ACCOUNT, MONEY-MARKET ACCOUNT, CERTIFICATE OF DEPOSIT), DIVIDENDS (FLUCTUATE ACCORDING TO CORPORATIONS’ HEALTH), CAPITAL GAINS (DEPEND ON FINANCIAL WISDOM).

4-LIQUIDITY: AUTOMATED TELLER, PENALTY FOR EARLY WITHDRAWAL, BANKING HOURS, TYPE OF INVESTMENT (MUTUAL FUNDS, STOCKS, REAL ESTATE, BONDS).

TYPES OF ACCOUNTS IN BANKS (IN GROWING RETURNS ORDER)

1-CHECKING

2-INTEREST-BEARING CHECKING (NOW)

3-REGULAR SAVING

4-MONEY-MARKET

5-CERTIFICATE OF DEPOSIT (CD)

6-IRA

OTHER WAYS TO SAVE (INVESTING)

1-401-K

2-MUTUAL FUNDS

3-SECURITIES: STOCKS & BONDS

4-PENSION PLANS

5-REAL ESTATE

                                       

TYPES OF CHECK ENDORSEMENT

1-BLANK: ONLY YOUR SIGNATURE

2-SPECIAL: PAY TO THE ORDER OF ........ AND YOUR SIGNATURE.

3-RESTRICTIVE: FOR DEPOSIT ONLY AND YOUR SIGNATURE.

4-CASH

                                      SOCIAL SECURITY

 

TYPES OF INSURANCE

1-HOUSE OWNER: FIRE, NATURAL DISASTERS (FLOOD: MANDATORY ACCORDING TO AREA) (HURRICANE: PROBLEMS AFTER ANDREW = STATE INTERVENTION.), THEFT.

2-CAR, BOAT: PERSONAL INJURIES (PIP), PROPERTY DAMAGE OF THE OTHER CAR (PD), COMPREHENSIVE (THEFT, VANDALISM, FIRE OF YOUR CAR), COLLISION (DAMAGES OF YOUR CAR), FULL COVER.

3-LIFE: TERM (PAY IF DIE BEFORE CERTAIN DATE), ORDINARY (PAY THE FIXED FACE VALUE AT THE MOMENT OF DEATH), LIMITED PAYMENT (PREMIUMS ONLY DURING 20/30 YEARS. PAY AT THE TIME OF DEATH).

4-HEALTH: PPO (NO PRIMARY PHYSICIAN AND NETWORK), HMO (PRIMARY PHYSICIAN AND NETWORK OR CLINIC SYSTEM), DENTAL, SPECIFIC: AIDS, CANCER).

5-SOCIAL SECURITY: MANDATORY. GOVERNMENT MANAGED

6-UNEMPLOYMENT: MANDATORY. EMPLOYERS PAY THE PREMIUMS ACCORDING TO FIRING RATES OF THE COMPANY. GOVERMENT MANAGED.

7-LIABILITY: HOUSE, CAR, BUSINESS, OR ANY PROPERTY.

                                     HEALTH INSURANCE PREMIUMS

                                             CAR INSURANCE PREMIUMS

CONSUMER CREDIT  TYPES:

(ALWAYS CHECK  I N T E R E S T   R A T E S)

1-INSTALLMENT PLANS: FURNITURE, HOUSEHOLD APPLIANCES, CARS.

2-CHARGE ACCOUNTS: STORES, GASOLINE.

3-CREDIT CARDS

4-PERSONAL LOANS: CONSOLIDATE DEBS, COLLEGE, HOUSE IMPROVEMENTS, POOL.

5-HOME MORTGAGE.

CONSUMER CREDIT (April 2008)

(Outstanding Debt in Billions of Dollars) 

 

2003   

    2004   

    2005   

2006  

   2007    

Total  

2078.0 

2191.3 

2284.9 

2387.5 

2523.6

Revolving

770.5

800.

825.0

875.4

940.6

Non-Revolving

1307.5

1391.3

1459.9

1502.1

1583.0

CREDIT QUALIFICATIONS

1-CHARACTER: RESPONSIBILITY AND RELIABILITY. PREVIOUS HISTORY PAYING YOUR BILLS.

2-CAPACITY: ABILITY TO PAY (INCOME - OBLIGATIONS).

3-CAPITAL: FINANCIAL RESOURCES (BANK ACCOUNTS, HOMEOWNER, STOCKS).

CREDIT BUREAUS:

1-EQUIFAX:

2-EXPERIAN:

3-TRANS UNION:

 

SHOPPING GUIDELINES

DO NOT FOLLOW ADVERTISEMENTS BLINDLY !!!!!!!!

1-PLAN AHEAD OF TIME: SEASON SPECIALS, CLEARANCES.

2-READ GOODS’ LABELS: WEIGHT, NUTRITIONAL FACTS, CALORIES.

3-SEARCH THE MARKET: COMPARE DIFFERENT STORE’S PRICES FOR THE SAME PRODUCT (10-20%) AND DIFFERENT GOODS’ QUALITY FOR THE SAME PRICE AND THE SAME QUANTITY.

4-LOOK FOR DIRECT OUTLETS, WHOLESALE STORES.

6-READ OVER ALL BILLS, BANK & CREDIT CARD MONTHLY STATEMENTS, CONTRACTS, ETC. BE CAREFUL WITH THE SMALL PRINT. REMEMBER THAT anyone can make a mistake !!!!!!

7-ASK FOR THE “CONSUMER INFORMATION CATALOG” (FREE): FEDERAL CONSUMER INFORMATION CENTER, PUEBLO, COLORADO, 81009. CHECK THE LOCAL “BETTER BUSINESS BUREAU”.

8-KEEP RECEIPTS, BILLS’ STUBS, WARRANTIES, AND ALL OTHER FINANCIAL DOCUMENTS IN A SAFE PLACE, AT LEAST FOR THREE YEARS.

9-DEMAND WHAT WAS PROMISED / ADVERTISED TO YOU. DO NOT HESITATE ASKING FOR AN EXCHANGE OR REFUND IN THE CASE OF DEFECTIVE GOODS.

10-IF NECESSARY, WRITE A “LETTER OF COMPLAIN”.

11-DO NOT TRUST APPARENT GIFTS, ILLOGICAL GOOD OFFERS, MILLIONAIRE \SWEEPSTAKES, ETC. IF IT IS TOO TOO GOOD, IT SHOULD BE FALSE. BE CAREFUL OF “BAITS” TO ATTRACT FOOLS.

ADVERTISING

IN FAVOR:

1-HELPS TO INTRODUCE NEW PRODUCTS & INVENTIONS.

2-PROVIDES KEY INFORMATION TO CONSUMERS.

3-AS AN EXPRESSION OF COMPETITION, PROMOTES LOWER PRICES AND HIGHER QUALITY.

4-THIS INDUSTRY PROVIDES JOBS, SUPPORT NEWSPAPERS, RADIO, AND TV.

 

AGAINST:

1-ITS REAL INTENTIONS ARE CREATE IMAGES, PROVOKE CONSUME (NEEDED OR NOT). IT CREATES FALSE STEREOTYPES.

2-THEY INCREASE THE COSTS OF GOODS = PRICES.

3-SOME OF THEM ARE MISLEADING OR DECEPTIVE.

4-THEY APPEAL TO EMOTIONS RATHER THAN TO REASON.

 


 

                 Advertising Spending by Type of Media: 2006 vs. 2005

 

MEDIA  2006 (Millions)  2005 (Millions) % CHANGE
       
TELEVISION MEDIA $65,373.3 $62,103.1 5.3%
    NETWORK TV $22,879.2 $22,313.1 2.5%
    SPOT TV $17,233.7 $15,614.8 10.4%
    CABLE TV $16,746.0 $16,196.6 3.4%
    SPANISH LANGUAGE TV $4,279.3 $3,756.1 13.9%
    SYNDICATION - NATIONAL $4,235.1 $4,222.5 0.3%
       
NEWSPAPER MEDIA $27,972.1 $28,645.8 -2.4%
    NEWSPAPERS (LOCAL) $24,057.5 $24,872.2 -3.3%
    NATIONAL NEWSPAPERS $3,539.2 $3,427.5 3.3%
    SPANISH LANGUAGE NEWSP $375.4 $346.1 8.5%
       
MAGAZINE MEDIA $29,833.4 $28,738.5 3.8%
    CONSUMER MAGAZINES $23,190.5 $22,169.1 4.6%
    B-TO-B MAGAZINES $4,144.9 $4,260.2 -2.7%
    SUNDAY MAGAZINES $1,881.0 $1,739.4 8.1%
    LOCAL MAGAZINES $461.6 $428.2 7.8%
    SPANISH LANGUAGE MAG $155.4 $141.7 9.7%
       
RADIO MEDIA $11,054.8 $11,017.70 0.3%
    LOCAL RADIO $7,355.3 $7,403.6 -0.7%
    NATIONAL SPOT RADIO $2,695.0 $2,604.1 3.5%
    NETWORK RADIO $1,004.5 $1,009.9 -0.5%
       
ALL OTHER MEDIA TYPES $15,415.7 $13,303.4 15.9%
    INTERNET $9,756.1 $8,318.0 17.3%
    OUTDOOR $3,831.2 $3,528.8 8.6%
    FSI's $1,828.4 $1,456.5 25.5%
       
TOTAL $149,649.3 $143,808.4 4.1%
Expenditure Per Capita (Pop. 300 mill) $498.8 $479.36  
Source: TNS Media Intelligence
 

                                

                                    BUYING YOUR HOME

                           POVERTY IN THE U.S.A.

 

FEDERAL PROTECTION FOR CONSUMERS

1-THE FOOD AND DRUG ADMINISTRATION (FDA): DANGEROUS FOOD, DRUGS, AND COSMETICS. See http://www.fda.gov/

2-U.S. DEPARTMENT OF AGRICULTURE: INSPECT AND GRADE THE MEAT.

4-THE FEDERAL TRADE COMMISSION (FTC): MISLEADING ADVERTISING, COMPLAINS, MONOPOLY PRICES OR STRATEGIES. INCLUDES THE BUREAU OF CONSUMER PROTECTION. See http://www.ftc.gov/

5-ALSO SEE: American Consumer Institute, Better Business Bureau, Consumers Union, Public Citizen, Consumer Federation of America, National Consumers League, and Public Interest Research Group.

11-TODAY'S ECONOMY & TRADE

Objectives

1-Describe the relationship between economics and environmental issues (I A).

2-Describe the theory of Thomas Malthus (II A).

3-Identify the factors necessary for economic growth (III A).

4-Propose alternative for solving some current economic issues (III A).

5-Explain how economics relates to social issues (IV A).

6-Identify some issues related to multinational corporations (IV B).

7-Define free trade, international trade, trade barriers, balance of trade, and protectionism (VI A).

8-Analyze the major reasons for international trade (VI A).

9-Explain how international trade impacts the relations among nations (VI A).

10-Assess the interdependence of the global economy (VI A).

11-Identify regional trade organizations (VI A).

12-Discuss the effects of trade deficits, tariffs, embargoes, etc. on the economy (VI A).

13-Discuss the importance of cross-cultural understanding in conducting international businesses (VI B).

14-Explain how internationalization of the economy has blended elements of various economic systems (VI B).


VOCABULARY

1-URBAN AREAS: COMMUNITY OF 2,500 OR MORE PEOPLE. TODAY, 90% OF THE AMERICAN POPULATION LIVES IN URBAN AREAS.

2-METROPOLITAN AREAS: CITIES OF 50,000 OR MORE PEOPLE WITH THEIR SURROUNDING SUBURBS. TODAY, IN THE U.S. THERE ARE OVER 300 METROPOLITAN AREAS.

3-DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD): FEDERAL AGENCY FOR URBAN PROGRAMS. FUNDS FOR IMPROVEMENT OF STREETS, WATER & SEWER FACILITIES. SEE www.hud.gov

4-FEDERAL HOUSING ADMINISTRATION (FHA): PROMOTES LOANS FOR THE POOR.

5-GENERAL REVENUE-SHARING GRANTS: FUNDS ASSIGNED BY THE FEDERAL GOV. TO THE CITIES THAT CAN BE USED IN ANY WAY THEY DECIDE.

6-BLOCK GRANTS: FEDERAL FUNDS RESTRICTED TO BE SPENT IN CERTAIN CATEGORIES.

7-NEW FEDERALISM: REPUBLICAN POLICY THAT PROMOTES GIVE MANY OF THE CURRENT FEDERAL ECONOMIC POWERS TO THE STATES (DECIDE HOW TO SPEND THEIR MONEY) AND FEWER FEDERAL SOCIAL PROGRAMS (REDUCE THE DEFICIT). MORE INEQUALITIES?

8-INMOBILITY OF FARM LABOR: MOST OF THE AMERICAN FARMERS LOVE THEIR JOB & THEIR WAY LIFE. THEY HAVE LITTLE TRAINING FOR OTHER KIND OF WORKS.

9-TRADE = EXPORTS  / IMPORTS. FREE TRADE:

10-DUMPING:

11-SUBSIDY:

12-PROTECTIONISM:

13-TRADE BALANCE / DEFICIT:

14-TRADE WAR: TARIFF

15-OUTSOURCING: REDUCE COSTS & PRICES + HIGHER PROFITS, BUT LOSS OF JOBS.

16-NEO-LIBERALISM:

 

PRICE-SUPPORT PROGRAMS:

GOVERNMENT PROGRAMS TO PROTECT (SUBSIDIZED) FARMERS (CROP LOANS, OUTRIGHT PURCHASE, TARGET PRICES, AND ACREAGE CONTROLS). THIS POLICY BEGAN DURING THE GREAT DEPRESSION AND HAS BEEN IN EFFECT UNTIL NOW.

a)-CROP LOANS: GOVERNMENT GRANTS SOFT LOANS TO FARMERS WHEN THEIR PRICES FALL. THEY MUST STORE AND TRY TO SELL THE CROP WHEN PRICES RISE.

b)-OUTRIGHT PURCHASE: IN SOME CASES, THE GOVERNMENT BUYS PART OF THE CROP AT SUBSIDIZED PRICES.

c)-GOV. PAYS FOR THE DIFFERENCE B/ MARKET / TARGET PRICES.

d)-ACREAGE CONTROL: FARMERS ARE PAID TO CHANGE TO DIFFERENT CROPS THAN THE TRADITIONAL IN THAT LAND.


FROM RURAL TO URBAN

1-INCREASES IN FARM PRODUCTIVITY: FEWER FARMERS ARE NEEDED TO SATISFY THE NATION’S DEMAND FOR FOOD AND FIBER.

2-IMMIGRATION: 28 MILLIONS DURING THE PERIOD OF 1881-1930. 365 THOUSANDS EVERY YEAR DURING 1960-80. MOST OF THEM SETTLED IN CITIES.

3-ADVANCES IN SCIENCE & TECHNOLOGY: HIGHER STANDARDS OF HYGIENE AND MEDICINE HAVE REDUCED THE THREAT OF EPIDEMICS. BETTER MEANS OF TRANSPORTATION.

4-GROWTH OF METROPOLITAN AREAS: SKYSCRAPER BUILDINGS IN DOWNTOWN + SUBURBS.

SHIFT TO THE SUBURBS

1-HIGH & MIDDLE CLASS MOVED TO THERE.

2-CHEAPER LAND (AT THE BEGINNING).

3-LESS TRAFFIC.

4-LOWER PROPERTY TAXES.

5-LOWER CRIME RATE.

6-LESS POLLUTION.

MAJOR PROBLEMS IN METROPOLITAN AREAS

1-TRAFFIC JAM.

2-POLLUTION.

3-INCREASE IN INNER CITIES NEEDED SERVICES VS. DECREASE OF THE ABILITY TO RAISE REVENUE TO FUND THOSE SERVICES (POOREST PEOPLE).

4-DISCRIMINATION HAS PROVOKED THE DEVELOPMENT OF GHETTOS (MINORITY GROUPS): SOCIAL PROBLEMS.

5-PHYSICAL DECLINE OF BUILDINGS AND STORES WITHIN THE INNER CITIES. SUBSTANDARD HOUSING.

6-MORE CRIME: NEED OF MORE POLICE PROTECTION, COURTS, CORRECTIONAL FACILITIES (HIGHER PUBLIC COST). PEOPLE MOVE AWAY.

7-LESS BUSINESS SETTLE THERE.


AMERICAN FARMING

1-MECHANIZATION, CHEMICAL FERTILIZER & PESTICIDES, SYSTEMS OF IRRIGATION, BIOTECHNOLOGY, ETC. HAVE MADE POSSIBLE THAT FEWER FARMERS CAN PRODUCE ENOUGH TO PROVIDE FOR A LARGER POPULATION (HIGHER PRODUCTIVITY). AMERICAN AGRICULTURE IS THE MOST EFFICIENT IN THE WORLD.

2-THE AVERAGE INVESTMENT IN MACHINERY NEEDED PER FARM HAS INCREASED DRAMATICALLY (HIGHER COSTS).

3-TREND OF FUSION / MERGE OF FARMS TO REDUCE COSTS.

4-REDUCTION IN THE NET FARM INCOME (PROFITS): HIGHER COSTS & RELATIVE SIMILAR LOW PRICES (ABUNDANT NATIONAL & CHEAP IMPORTED PRODUCTS).

5-RELATIVE INELASTIC SUPPLY / DEMAND OF AGRICULTURAL PRODUCTS (NOT BIG CHANGES BECAUSE OF PRICES).

6-INMOBILITY.

7-PRICE-SUPPORT PROGRAMS.

 

ECONOMIC GROWTH

The increase in the output of goods and services over a period of time. GNP in constant dollars (real GNP) as a measure of Economic Growth.

Real GNP per capita shows the living standards of a nation or the goods and services available per capita.

IMPORTANCE OF ECONOMIC GROWTH FOR THE U.S.

1-HIGHER LIVING STANDARDS

2-CAPACITY TO AID THE NEEDY

3-FREE WORLD POLITICAL LEADERSHIP

4-AID TO POOR COUNTRIES

INGREDIENTS OF ECONOMIC GROWTH

1-EXPANDING PRODUCTION CAPACITY

2-INCREASING DEMAND

3-FAVORABLE POLITICAL AND SOCIAL CLIMATE (Political stability, willingness to save and invest, national health and education, government concern for business).

CONTROVERSY OVER ECONOMIC GROWTH. HOW MUCH IS TOO MUCH?

1-DEPLETION OF OUR NATURAL RESOURCES (FORESTS, MINERALS)

2-ENVIRONMENTAL DECAY ( POLLUTION OF THE AIR & WATER)

3-LIMITED PHYSICAL SPACE (LAND)

MORE PEOPLE = MORE FOOD + MORE SPACE + MORE POLLUTION + MORE NATURAL RESOURCES + MORE SOCIAL PROBLEMS. WAS MALTHUS RIGHT?

 

WHY INTERNATIONAL TRADE?

1-NATURAL ADVANTAGES PRODUCING SOME GOODS AND SERVICES (CLIMATE, COSTS, EXISTENCE OF RAW MATERIALS, ENERGETIC RESOURCES).

2-SPECIALIZATION

3-DESIRE FOR EXOTIC PRODUCTS

TRADE & THE ECONOMY:

MORE EXPORTS = MORE JOBS, HIGHER DOLLAR VALUE

MORE IMPORTS = LESS JOBS, DOLLAR DEVALUATION

DOLLAR DEVALUATION = MORE EXPORTS, TOURISM, etc.

FREE TRADE = LOWER PRICES

PROTECTIONISM = HIGHER PRICES, BUT STRONGER NATIONAL INDUSTRIES

                               U.S. TOP TRADE PARTNERS

INTERNATIONAL TRADE RESTRICTIONS

1-TARIFFS:

a)-Protective tariffs (protect the domestic industry). Competition with cheap foreign workers. (PROTECTIONISM)

b)-Revenue tariffs (provide income for the government)

2-QUOTAS

3-ADMINISTRATIVE RED TAPE: Make the process so complicate that discourages businesspersons to import goods.

4-EXPORT CONTROLS: EMBARGO (CUBA), STRATEGIC MATERIALS, SOME WEAPONS, AND HIGH TECHNOLOGY.

 

SOME TRENDS IN THE INTERNATIONAL TRADE:

I-MULTINATIONAL CORPORATIONS (pros and cons).

1-Increase the markets for their products (Buy cheap & Sell high)

2-Obtain raw materials (Depletion of someone else natural resources)

3-Take advantage of lower production costs in Third World nations (Develop new industries & create new jobs, avoid unions and high wages demands, pollute someone else air & water).

4-Contribution to multicultural diffusion.

II-LOST OF AMERICAN JOBS (OUTSOURCING) IN FAVOR OF CHEAPER GOODS & HIGHER PROFITS

III-GLOBALIZATION OF BUSINESSES.

1-Specialization (Cars)

2-Environment as a global concern.

3-Blend of elements of different economic systems.

4-Cross-cultural understanding conducting international business.

5-Multinational economic interdependence.

IV-ABOLITION OF TRADE BARRIERS (ECM, NAFTA, CARICOM)

1-Common market (not tariffs)

2-Common labor force (not national frontiers)

3-Common currency

V-ASIAN EXPORTS HAS INCREASED RESPECT TO AMERICAN AND EUROPEAN.

VI-AMERICAN TRADE DEFICIT HAS BEEN INCREASING IN THE LAST 3 DECADES.

VII-NEO-LIBERALISM (WORLD BANK & INTERNATIONAL MONETARY FUND) vs. THE FOREIGN DEBT vs. SOCIAL PROGRAMS & DEVELOPMENT

 

AMERICANS ARE IMPORTING TOO MUCH

                                                                          TOP WORLD EXPORTERS & IMPORTERS (2007)

Rank

Exporters

Value (Billion$)

World Share %

Rank

Importers

Value (Billion $)

World Share %

1

 Germany

912.3

10.0

1

 United States                                                                   

1525.5

16.1

2

 United States                                                                   

818.8

8.9

2

 Germany

716.9

7.6

3

 China                                                                           

593.3

6.5

3

 China                                                                           

561.2

5.9

4

 Japan                                                                           

565.8

6.2

4

 France                                                                          

465.5

4.9

5

 France                                                                          

448.7

4.9

5

 United Kingdom                                                                  

463.5

4.9

6

 Netherlands                                                                     

358.2

3.9

6

 Japan                                                                           

454.5

4.8

7

 Italy                                                                           

349.2

3.8

7

 Italy                                                                           

351.0

3.7

8

 United Kingdom                                                                  

346.9

3.8

8

 Netherlands                                                                     

319.3

3.4

9

 Canada                                                                          

316.5

3.5

9

 Belgium                                                                         

285.5

3.0

10

 Belgium                                                                         

306.5

3.3

10

 Canada                                                                          

279.8

2.9

11

 Hong Kong, China                                                                

265.5

2.9

11

 Hong Kong, China                                                                

272.9

2.9

12

 South Korea                               

253.8

2.8

12

 Spain                                                                           

249.3

2.6

13

 Mexico                                                                          

189.1

2.1

13

 South Korea                               

224.5

2.4

14

 Russian Federation                                                              

183.5

2.0

14

 Mexico                                                                          

206.4

2.2

15

 Taipei, Chinese                                                                 

182.4

2.0

15

 Taipei, Chinese                                                                 

168.4

1.8

 

OTHER CHANGES IN AMERICA’S ECONOMY

1-THE ECONOMIC GROWTH CENTER HAS BEEN MOVING FORM THE NORTHEAST TO THE SOUTHEAST REGION.

2-AMERICAN ECONOMY IS SHIFTING FROM MANUFACTURING (SECONDARY SECTOR) TO SERVICES AND INFORMATION (TERTIARY & QUATERNARY SECTORS).

3-THERE IS A POLITICAL AGREEMENT TO REDUCE THE DEFICIT AND BALANCE THE FEDERAL BUDGET, WHICH IS NOT HAPPENING.

4-CENTRALIZATION / CORPORATE MERGERS: MORE OLIGOPOLIES