Transcript External Environment

NATIONAL ECONOMIC
GOALS
• Growth of output
• Price stability
• Full employment
COMPONENTS OF OUTPUT
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Household consumption
Business investment
Government expenditures
Net Exports (Exports-Imports)
$8 Trillion GDP
PRICE STABILITY
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Zero Inflation
Measured by CPI
Productivity gains reduce inflation
Inflation overstated
FULL EMPLOYMENT
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Set at 5.75% unemployment
NAIRU rate
Actual rate is < 4.25%
Upward pressure on wages
ECONOMIC POLICY
• FISCAL
– Government Expenditures
– Tax Policy
• MONETARY (Federal Reserve)
– Discount Rate
– Reserve Requirements
– Open Market Operations
LINK TO FOREIGN
ECONOMIES
• Globalization of U.S. industry
• Technology changes
• Exchange rates
STRATEGY IN ACTION
1. Monetary policy has been the policy of choice.
2. It is executed by the Federal Reserve.
3. Decisions are made by the federal open market
committee.
4. Interest rates have increased by .0075 within the last
year.
5. The effect will be to slow down the rate of growth of
output.
6. The effect will be felt on durable goods because their
purchase is interest rate sensitive.
7. A reduction in money supply causes interest rates to
rise.
STRATEGY IN ACTION
1. New single family home sales have fallen since
January, 1999.
2. Both the S&P 500 and the Nasdaq Composite averages
have fallen since January, 2000.
3. From 1st quarter, 1999 to today interest rates on 30year Treasuries have risen from 6.2% to 6.75%.
4. Inflation in 1999 was about 2.0%.
5. The only bad news (for the Fed) is that vehicle sales set
a record with 17 million in 1999.
STRATEGY IN ACTION
THE EXTERNAL ENVIRONMENT
1. Demographics suggest the “aging” of our population.
2. Per capita prescription use is 7 per year.
3. The forecast is that per capita prescription use will be
22 per year by 2010.
4. Industry sales are forecast to increase by 45% over the
same period.
5. You have just looked at the industry--- If you were a
manager in this industry what would you do with the
information in this slide?
Macroeconomic Readings
Here are some up-to-date readings that will help you understand the
Macroeconomic Economy.
.The Case For a Soft Landing, Rick Miller, Business Week, Jan.
24, 2000, page 48.
See also the section, Economic Analysis for a discussion of
interest rates.
.Was it the Rates?, Marcia Vickers, Business Week, Jan. 17,
2000, page 32.
See also the section, Economic Analysis for a discussion of
interest rates.
.A Global New Economy, Michael J. Mandel, Business Week,
Jan. 31, 2000, page 73.
See also the section, Economic Analysis for a discussion of
interest rates.