Transcript Global Business 1

REVIEW QUESTIONS
1.) In which type of market structure does the consumer
have the most available substitutes or choices?
a)
b)
c)
d)
monopoly
oligopoly
monopolistic competition
perfect competition
2.) Which of the following is a primary characteristic of a
capitalist system?
a)
b)
c)
d)
private ownership of property
governmental regulation of business
equal distribution of resources
graduated income tax
3.) The Acme Furniture Company has issued a statement that they
will be expanding production to include office furniture. This
statement addresses which basic economic question?
a)
b)
c)
d)
What will be produced?
How will items be produced?
For whom will items be produced?
How much will workers be paid?
REVIEW QUESTIONS
Which of the following poses the greatest problem for
unions in their attempts to gain higher wages and
better benefits for their members?
a)greater demand for the products they make
b)increase in number of skilled workers
c) increased union membership
d)increasing global competition
As one of the factors of production, capital is defined
as:
a) the raw materials necessary to produce goods.
b) the equipment and factories needed to produce goods.
c) the supply of labor needed to produce goods.
d) the goods and services produced.
Chapters 15, 16 and 17
Federal Reserve
Money
Banking
What exactly is money?
• Medium of exchange- must be
recognized as something of value and
be acceptable as payment for goods
and services
• Unit of account- a “yard-stick” to
measure prices and the value of goods
• Store of value- can be saved to be used
in the future
The Ideal Money
• Durable, portable, divisible, of
uniform quality, has low
opportunity costs, does not
fluctuate widely in value and is in
limited supply
Types of Money
• Commodity money- a commodity with
intrinsic value
– Gold, silver, cigarettes, oil, etc.
• Fiat money- used as money because of
a government decree- it does not have
intrinsic value
– Present coins, paper currency, checks,
credit cards
The Role of The Federal Reserve
 Nation’s central bank
 Oversees the banking system
 Regulates the quantity of money in
the economy
 Formed in 1914, but was not
established enough to fight the
Great Depression
The Structure of the Fed:
Board of Governors–
–
–
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Location= Washington, DC
7 members appointed by president
Senate confirmation is required
Chairman- directs the staff, presides over
meetings, meets with congressional
committees
Ben S. Bernanke
Chairman of the
Board of Governors
of The Federal
Reserve Bank
Regional Federal Reserve BanksN.Y. Fed carries out the most important policies
Each district has
different money
needs.
The Structure of the Fed:
Federal Open Market Committee
• Main policy makers
• Meets approximately every 6 weeks to
review the economy
• All actions to regulate the economy by
them are called “open-market
operations”
The Fed’s Tool Box
Open-market operations- the Fed
purchases and sells US bonds
Changing the reserve requirement- the
amount of money held by a bank that
can not be loaned out
Changing the discount rate- the rate of
interest the Fed charges smaller banks
for loans
Monetary Policy Tool #1
Open-Market Operations
MONEY SUPPLY =
GDP =
Federal Reserve
SELLS
GOVERNMENT
BONDS
Consumers, Banks
& Businesses
A Monetary Policy Tool
Open-Market Operations
MONEY SUPPLY =
GDP =
Federal Reserve
BUYS
(back)
GOVERNMENT
BONDS
Consumers, Banks
& Businesses
A Monetary Policy Tool
Open-Market Operations
The Fed conducts Open-Market Operations
when it buys & sells government bonds to
and from the public:
•
•
To increase the money supply, the
Fed buys securities from the banks.
To decrease the money supply, the
Fed sells securities to the banks.
Monetary Policy Tool #2
Changing the Reserve Requirement
• Demand (checkable) deposit= balances in
bank accounts that we can access “on
demand” by writing a check- or using our
ATM card
• Reserves= money received by banks that can
not loan out
• Required reserves= demand (checkable)
deposits multiplied by the required reserve
ratio AKA Fractional Reserve Banking
Here’s how it works…
$10.00
kept in
reserves
Reserve Requirement
ratio= 10%
I deposit
$100.00
The bank loans $90.00
Inverse Relationship
• There is an inverse relationship
between the reserve requirement and
the money supply
Reserve
Requirement
Reserve
Requirement
Money Supply
Money Supply
Monetary Policy Tool #3
Changing the Discount Rate AKA Interest Rate
• Remember, this is the interest rate the
Fed charges banks for loans
Discount Rate
Discount Rate
Money Supply
Money Supply
Review: Actions of “The Fed”
– Poor Economy = Expansionary Policy
• Buy securities, decrease reserve ratio, lower the
discount rate
• GOAL= Expand the Money Supply
– Strong Economy = Contractionary Policy
• Sell securities, increase reserve ratio, lower
discount rate
• Goal= Reduce the Money Supply
Quick Review
• What is an example of a public good?
• What is an example of a private good?
• What do most businesses provide – public
goods or private goods?
– WHY?
• How do public goods exist, or how do they
come to be?
• How does the government cover these
expenses?
Public Goods
• They are non-rival; meaning there is little
competition for them, because all people are
granted to same “amount.”
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–
–
–
–
A city park
A public library
Public Highways
Community services
Community pest control
Government’s Raising Money
• Taxes
– Federal Gov’t – Income Tax
– State / Local Gov’t – Income Tax, higher levels of
gov’t
• User Fees
– Highway tolls
• Fines
– Speeding tickets, littering
• Monopoly Profits
– Lotteries
– Liquor
• Borrow from the public
– Bonds
Ben Franklin once said…
“There are only
two certainties in
life: death and
taxes.”
Taxes
• Benefits-Received Tax Principle
– Definition – Those who value the benefit
the most should pay the majority of the
taxes.
– Example – A couple who has no children
get no benefit from a the government
building a neighborhood park…should they
have to pay for this?
– Problem – free-riders – people may say
that they do not value a particular service
in order to avoid paying for the service at
all or partially
Taxes
• Ability-To-Pay-Tax Principle
– Definition – Those with a higher income
should pay the majority of the taxes
– Example – Bill Gates should pay more for
homeland security because he is wealthy
– Problem – Bill Gates doesn’t get anymore
protection, he just pays a bigger portion
Tax Incidence
• Proportional Taxation
•All taxpayers at ALL incomes pay the
same percentage of tax
•AKA – “Flat Tax”
•Example – If I make $20,000/year
and the tax incidence is 10% I could
contribute $2,000. If I got a raise to
$100,000/year, I would contribute
$10,000.
Tax Incidence
• Progressive Taxation
– The percentage of taxes paid increases as
my income increases
– This is the method that the federal and
many state governments use
– Example – If I make $20,000/year and the
tax bracket that I fall into in 10%, I would
pay $2,000. If I got a raise to $100,000
then I would move into a higher bracket,
and may end up paying $33,000.
Tax Incidence
• Regressive Taxation
– The percentage of taxes paid decreases as
my income increases
– The opposite of progressive taxation
– Example – If I make $20,000/year and the
tax bracket that I fall into in 10%, I would
pay $2,000. If I got a raise to $100,000
then I would move into a lower bracket
(%age of my income), and may end up
paying $8,000.
Other Taxes
• Pollution Taxes and Sin Taxes
– Used to discourage certain activities
– Fines for businesses that pollute the air,
water, and soil (EPA)
– Heavy Taxes on cigarettes, liquor, etc.
– Fine for littering along the highway