Types of Business 4 Elements of Business 1. 2. 3. 4. Considerations when starting a business _________________________________________. _________________________________________ – turbo tax, quick books _____________ - the opportunity cost. You could be working for someone else. Business Types Sole-Proprietorship, Partnership, Corporation What are the main differences between the 3 main types of businesses? 1. Sole Proprietorship _______________________________________ East & relatively inexpensive to start. Typically small businesses. Most common form of business Unlimited liability How much of the profit does the owner receive in a sole proprietorship? Advantages Disadvantages 1 2. Partnership *Owned by _____________________________________________________ *______________________________ - Partners sign an agreement on what each is responsible for. a. Limited Partnership Partners are _______________________________ General Partner - __________________________________ Limited Partner – owns a small part of the business – ____________________________________ ________________________________________________________________________________ LLPS (___________________________________________) mix of _________________________ ___________________________ - very popular with lawyers, accountants, and architects Joint Venture - __________________________________________________ Advantages Disadvantages 3. Corporation a. Owned by _________________ b. Started by a __________________________ c. ______________ by stockholders d. __________ by a board of directors e. State government issues a charter to run the business f. Complicated structure g. Business has the same rights as an individual h. Are Double Taxed. Duties of Corporate Role PlayersFounders Responsibilities Board of Director’s Responsibility 2 Advantages Disadvantages Owners do not have to devote time to make money Decisions are ______. Interest of the board may _______ from the stockholders Stockholders have limited liability; _______________________________. __________ _______________ - Govt taxes corporate profit, then individual shares. Individuals trained in specific areas make decisions stockholders have ________________ say in how business is run Stocks and bonds Stock - ____________________________________________________. Shareholder receives voting rights and dividends. Bond - ________________________________________________________________________________ _________________________________________________________ Other Types of Businesses Franchise – _________________________________________________________ Helps train employees & set up the business Franchisee - pays a startup fee & annual fee Ex. Non- Profit – Making money is not the main purpose of the company Ex Cooperative - ________________________________________________________________________ Producer – ex – farmer’s market Consumer – ex – PCC Natural Markets, REI Service - ex – Credit Unions, Utility companies 3 Stocks Why do corporations sell stock? Why do people buy stock? _____________________ - a share of a corporation’s profits. ______________________ - When stock is sold for _________ than it originally cost. Rule –_________________________ Stock Indexes Statistical measures that track stock prices over time The ticker Ex – Stock Exchanges Stock Market - ____________________________________________________ Ex – Others – American Stock Exchange, Chicago Mercantile Exchange, Electronic – NASDAQ What are stock prices based on? Bull Market Bear Market Changes to Stock Prices Change in profits Rumors (externalities) News _____________________ - person who buys and sells stock 4 Roles of Business Who are businesses responsible to? Responsibilities to Consumers Responsibilities to Owners Responsibilities to Employees Responsibilities to the Community 5 Business Cycle The business cycle (AKA The Economic Rollercoaster) The ups and downs of the economy Alternating periods of growth and decline. 4 Economic Phases Prosperity Decline Boom Recession Years 6 Fiscal Poicy What is it? What does the government do with fiscal policy during a recession? Why do they do this? What do you think the government will do with fiscal policy during an expansion? How does the government control peaks? What will that do? Monetary Policy What is monetary policy? How does the government regulate the amount of money in circulation? Who is in control of monetary policy? How many district banks are in the Federal Reserve? Inflation What is inflation? What is purchasing power? Inflation is measured by the Consumer Price Index and the Implicit GDP Price Deflator 7 Consumer Price Index (CPI) What is CPI? Each year is compared to the average of 1982-1984. This makes the base year. Why is the CPI important? Implicit GDP Price Deflator Takes inflation away for the year. The base year used for comparisons is 1987. Gross Domestic Product The total dollar value of all final goods and services produced and sold in the nation during a single year. Value is always expressed in terms of the dollar. Final means only finished goods. Only new items are counted. Anything bought used is not counted. GDP Categories Consumer Goods Business Goods Government Goods Export Import Net Exports 8 Loose and Tight Money Loose Money Tight Money 1. 2. 3. 4. 5. 1. 2. 3. 4. 5. This can lead to inflation This can lead to a recession Fractional Reserve Banking The way banks create money. Discount Rate Reserve Requirements Banks are free to loan out money that is not on reserve leading to expansion. Struggles in the Economy The Great Depression The depression begins in 1929. Black Tuesday, October 29, 1929. By 1933, salaries decreased by ___________ and hourly wages by ________ compared to 1929 levels. The average family income fell from _______________ to _____________ 1930 -4 million Americans were unemployed. By 1933 the number tripled. Bank runs Many Americans marked this as the end of __________________________. Communists and Socialists fought with each other leading to the decline of this movement. What are Hoovervilles? Why were they called Hoovervilles? New Deal _________________________________ plan to end the depression. First had to restore faith in the banks. Began _______________________________ insuring Americans the situation would improve. _____________________________ - March 9-June 16, 1933. Congress passed 15 bills. Most were written by FDR. 9 Financial Reform Glass-Steagall Act (1933) Federal Securities Act (1933) Unemployment Unemployment Rate Unemployement reduces living standards, disrupts families, and causes a loss of self-respect. Reaches its height during a recession. Types of unemployment Cyclical Structural Seasonal Frictional How Banks Operate Banking Services What do banks do? Checking accounts Savings accounts . Certificates of Deposits (CDS) What is one of the main principals of banking? Why? 10