Unit 1 – The Three Sectors of the Economy
There are two extracts which talks about the threee sectors of the economy. The first one
is from “Nice Work” by David Lodge. Robin Penrose, the protagonist, looking out of the
window during her business trip in Germany, realizes that the ground looks like a printed
circuit, scattered overa mosaic of thiny field connected by thin wires of motorways and
railways. She sees farm, industrial estate, house, shops and looking at these she thinks
how people are fitted into the total picture. Starting from this tought she tinks how common
object are made, such as a simple eletric kettle,usetd to have a simple cup of tea. Behind
it there are a lot of components like rivets, nuts, rubber, wires, screws. But all these are
made by row materials: iron, rubber, alluminium. Row materials must turn into finisched
products by someone and then, the product, must be sell. But kettle, to been used, needs
of electricity that’s produced by an energy plant. In conclusion the extract describes,
through this example, the three sectors of the economy. The primary sector:agriculture
and the extraction of the raw materials from the earth; the secondary sector: manufacuring
industry, in which raw materials are turned into finished products; the tertiary sector: the
commercial services that help industry produce and distribute goods to the final
consumers, as well as activities such as education, healt care, leisure, tourism… If we look
at a chart that shows employement in the European Union in the last thirty years we can
see that the distribution of labour unit changed in the years. According to Galbraith, and it’s
the second extratc, we should not be worried about the loss of manufacturing industry. It
happened in the USA in the past and it is an inevitable process. According to him, after a
country’s people are supplied with the physical objects of consumption, they go on to
concern about their design. They go on to an enormous industry pesuading people they
should buy these goods; they go on the arts, entertainment, music because these become
the further, later stages of employement.
Unit 2 – Management
According to Peter Drucker, the work of managers can be divided into five activities:
1. they plan and set objectives and decide the right strategy (panning)
2. they analize and classify tha activities, dividing work into manageable and into
individual job (organizing)
3. they motivate and communicate, supervise and organize the work of their
subordinates (integrating)
4. they measure the performances of their staff to see whether the objectives set are
being achieved (measuring)
5. they develop people, being them subordinates or themselves (developing people)
Managers have to decide how best allocate the human, physical and capital resources
available to them, have to supervise their subordinates, improve their performance, check
wheather objectives and targets are beeing achives. The task of a manager is not entirely
scientific. It is a mix of science and art. You can not be a good manager if you do not own
innate good qualities; competence, skills and techniques can be acquired while friendly,
motivation, efficience, intuition do not.
The second extract take the example of management style at IBM. In IBM every
employee’s ambition is apparently become a manager and company helps them out in this
area by making management the company ‘s single biggest business. IBM managers don’t
design hardware or write softwartes. Trainees, do it. Managers and everyone else, simply
go to meeting, is busy managing or learning to be a mangaer. Because of it IBM products
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often are not very competitive. Moreover in IBM the chain of control is too complex that it is
hard to make a bad decisione, in general any decision at all!
Unit 3 – Company Structure
There are different ways of organizing companies. Most business organizations have a
hierarchy consisting of several levels and a clear line of command. At the top of the chain
of command there is the board of director with a chairman (in USA is president) from which
the managing director (in USA chief executiveofficier) depends. Under there may be staff
positions that are not integrated into the hierarchy or the organization might also be
divided into functional departments, such as production, finance, marketing… Functional
organization is efficient but there are two standard criticism:1) firstly people, in most of
cases, are more concerned with the successof their department than that of the company
(so there are permanent battles between functional divisions) 2) secondly, separating
function is unlike to encourage innovation. Larger organizations are often further divided
into autonomus divisions (because having a single production department is generally
inefficient), each with its own functional sections. They followed the model of Alfred Sloan
who divided General Motors into separate competing autonomus divisions, in 1920.
Because of people at lower levels of the chain, are unable to make important decision but
have to pass on responsibility to their boss, Tomas Peter and Robert Waterman, in their
book “In Search of Excellence”, insist on the necessity of pushing authority and
authonomy down the line improving comunication among divisions: it is the matrix
management according to which teams, combinedby people from different functions keep
decision-making at lower levels.
Unit 4 – Work and motivation
Mr McGregor outlined two opposite theories of work and motivation: theory X and theory
Y. Theory X says that people are lazy and dislike work. So they have to be rewarded and
threatened, they are not able to take responsibility and have to be looked after. Theory Y,
on the contrary, assumes that people have a psychological need to work and want
achievement and responsibility. Mangers can not substitute theory X for Y one, but hate to
replace the security of theory X with a different structure of security. Herzberg believes that
conditions of good labour relations and working, good wages and benefits and job security
don’t motivate workers. These are only satisfiers. A challenging and am interesting job,
responsibility and promotion, instead, are motivators. Only these stimulate workers. In fact,
because of the computer and robotics in genre, there will always be plenty of boring jobs.
A solution, for managers, to have to motivate people is to give them some responsibility
but not as individual but as a part of a team.
Unit 5 – Management and cultural diversity
The conflict between globalization and localization is high and it has led to a new word, a
neologism: “glocalization”. Companies that want to have success on foreign markets have
to be aware of the local cultural characteristics. There are two schools of thought:
universalists who believes that rules are extremely important and particularists who believe
that personals relationship and friendship come first. Examples are the differences
between north America and north west Europe, where management is based on analysis
and rationality, and south Europe and south America, where intuition, emotion and
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personal relations dominate. While north Atlantic people are more individualist and a
young and dynamic manager can quickly became more important than a senior manager,
in Latin and Japanese culture status is accorded by the boss. Differences are also in
ethical idea of selling and in company structure. In north Atlantic culture the more you sell
and the more you get paid, on the contrary, the others mustn’t sell something that people
don’t really need because it is ethically wrong. In south Europe and in Latin culture in
general, the American idea of matrix management don’t works well: you can not have two
bosses as you can not have two fathers.
Unit 6 – Recruitment
When employee gives notice he will be leaving the company. When it happens the
company should try to discover why the person has resigned and, if it is the case, if
changes are needed in his vacant position. After that company should establish if there’s
someone in the company that could be moved or promoted to the job. If not, it will hire a
job agency or advertise the vacancy. Than it will make a selection from which a short list
will came from. The names in this short list will be invited for an interview and there
company will choose and have the final selection. At the end the company will inform the
other candidates they were unsuccessful.
Unit 7 – Labour Relations
Unit seven focus on labour relations starting from an extract from Bill Bryson’s book “notes
from a small island” and it talks about the newspaper industry in the 80s. Printers’ union
decided how many employer were needed and paid the management accordingly.
According to Mr Bryson in 1985 there were 300 extra printing staff at Telegraph and this
fact shows how many printers’ trade union were powerful in England. On top of plump
salaries, printers received special bonus payment for handling type of irregular size or
setting white space at the end of lines or words in other languages different from English.
Moreover if work was done out of house they were compensated for not doing it. Although
in this case Unions abuse of their power. Generally they are very important in particular in
industrial relations. Workers are often organized in labour unions, which attempt to ensure
fair wages, reasonable working hours and safe conditions. Unions are necessary because
management can consult workers on matters will concern them and has a counterpart to
negotiate with. For this reason a number of politicians and managers are beginning to
regret the weakness of unions caused by deregulation of labour market (in accordance
with the ideal of free markets) and actively encourage unionization because they insist that
a big company need someone to represent workers. Provided workers believe that the
Unions are able of doing it.
Unit 8 – Production
Each manufacturing company have to make a “make or buy” decision for every item or
component it uses. It means that company can outsource and buy from subcontractors
products that have to be assembled facing the problem of how much inventory it needs,
minimizing costs of holding inventories. This is the just in time production where nothing is
bought or produced until it is needed. Each product process makes the necessary
quantity of the necessary unit. This system is credited to Ohno, vice president of Toyota in
’50s. Outsourcing JIT production has no risks because there’s no fail to deliver a
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component on time. Japanese JIT system prefers small and specialized production plant
with a limited capacity, grouped together to avoid all the waiting and moving time of
sending components to each department. So it reduces transportation time and costs,
reduce inventory costs, guarantees no waste from overproduction and product defect
should be noticed more quickly. In conclusion firm can react more rapidly to demand
changes.
Unit 9 – Products
Product is something that is able to satisfy a need or want. Physically product can be
augmented by indirect services which give it more value and benefits. We are talking
about costumer advices, delivery, credit facilities, warranty.
Some manufacturers uses their family name for all of their products (ex Philips) other uses
a brand name for various products with the result that many customers feel unfamiliar with
the name of the company. This is a multi brand strategy which allow the company to
compete in various markets. Most manufactures produces a large number of products,
often divided into product lines that consists in several products. Companies can make
additions to product lines and this can be the result of:
 line stretching, that means making items of higher or lower quality. It’s an action set
to reach new customers or reach more profitable segments.
 Line filling that means adding further items in that part of a product range which a
line already covers. It can be done to compete in competitors niches.
Unit 10 – Marketing
Marketers have to identify or foresee a consumer need.They persuade target costumers
to try the product or service designing a particular features, attractive packaging…The aim
of marketing is to know and understand costumer’s need. To do it marketers combine
market research, new product development, distribution channel, advertising, promotion,
product improvement and so on. We can immagine that costumers are the “core” of a
circle, around which marketing is built and production, finance and personel are related to.
Sometimes companies limit themselves to attempting to satisfy the needs of a particular
market segment and their choice of action is often the result of market research. Once a
product concept has been established, marketers have to define the marketing mix.This
means to identify product’sfeatures, its distribution,the way of promotion and the price too.
Quite apart from costumer markets, where people buy products for direct consumption,
there is a great deal of marketing of industrial goods consisting of all the individuals and
organizations that acquire goods and services used in production of other goods or in the
supply of service to others. Because of it contains all the raw materials, manifactured parts
and components that go into consumer goods, it is more important than the marketing of
consumer and there is consequently more industrial than consumer marketing, even
though costumers are seldom exoposed to it.
Unit 11 – Advertising
Advertising informs consumers about the existence and benefits of products and services
and attempts to persuade them to buy them. Themost famous form of advertising is
probably word of mouth advertising, when satisfied costumers recommend products to
their friend. Althought large companies could easily set up their own advertising
departments, write their own advertisement, and buy media space themselves, they tend
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to use the services of large advertising agencies. These have more resources and more
knowledge about all aspects of advertising than a single company. In general the client
gives the advertising agency an agreed budget and a brief, that’s a statement of objectives
of the advertising campaign and a strategy concerning the message to be communicated
to the target costumers. The agency creates advertisement, also said ads, develops
amedia plan specifying which media will be used. Sametimes it produces alternative ads
that are pretested in newspapers, tv station, in different parts of the country before the
national campaign. Who plans the campaign have to decide what percentage of the target
they want to reach, the OTS, that’s the opportunities to be seen, and the time of the
campaign. How much a company want to spend on advertising it’s always problematic:
some companies use the comparative-parity method, matching competitor’s spending,
others set an advertising budget at a certain percentage of current sales renvenue. In any
case it is clear that any method is very expensive and may be counter-productive. In fact,
excessive advertising, too many exposures, lead people to stop noticing ads or to find
them irritating.
Unit 12 – Promotional tools
New products have to be made known to its target customers. So producers have to
inform potential customers about it, it is clearly promotion and each company has to
decide which tool use: advertising, sales promotions, public relations...and so on. Public
relations (PR) is concerned with maintaining, improving or protecting the image of a
company or product. The most important element of PR is publicity, in the sense of any
mention of a company’s product that’s not paid for. Sales promotion, such as free samples
price reductions, are temporary tactics and want to stimulate earlier or stronger sales of a
product. They can be aimed also at distributors, dealers and retailers to encourage them to
stock new items or larger quantity. The most expensive promotional tool is the personal
selling. Usually used as a complement to advertising, who sells is the only person of a
company that people see. This is an extremely important channel of information.
Unit 13 – Accounting and financial statements
In accounting we assume that a business is going concern, it will never end and that the
market value of its fixed assets is not relevant if they are not on sale. The most used
accounting system is cost accounting which records assets at their original purchase price
minus depreciation changes.. When in the system there is inflation cost accounting
understates the value of appreciating assets as land and overstates profits. The value of
an asset minus its depreciation is the net book value, The profit and loss account (or in
USA income statement) shows earning and expenditures. Balance sheet shows a
company financial situation on a date and lists the company’s assets, its long term/shortterm liabilities and shareholders funds.
Business’s assets include debtors but also intangible assets like copyright, trade marks.
The funds flow statement, source and application of funds statement, shows the flow of
cash, sources of funds include trading profits, depreciation, sales of assets, borrowing.
Unit 14 – Banking
There are three types of banking. We can distinguish between commercial bank,
investment bank and universal bank. Talking about commercial bank we can say that it
trades in money, receiving and holding deposits. Commercial banks make a profit from the
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difference, known as spread or margin, between the interest rate that pay to lenders or
depositors and those they charge to borrowers. They also create credit because money
they lent, from their deposits, is generally spent.
Investment banks, the so called merchant banks, raise funds for industry on the various
financial markets, finance international trade. They underwrite securities, deal with
takeovers and mergers and issue government bonds too. Their banking facilities also
include stock broking and portfolio management. Investment banks make profits from the
fees and commissions they charge for their services.
The last one type of banking is the universal bank. Notably it is born in Germany and
developed in Switzerland and Austria too. Universal banks combine deposit and loan
banking with share and bonds dealing and investment services. Because of American
legislation enforced a strict separation between commercial and investment banks, this
type of bank will be able to spread on USA only from 1999 when the act was repealed.
Deregulation, so, in USA and UK, has led to the creation of financial conglomerates similar
to the universal banks.
The interest rates that banks charge is made up the minimum interest rate that’s fixed by
the central bank: banks lend blue chip borrowers at the base rate or the prime rate; all
other borrowers pay more, depending on their credit standing. This minimum interest rate
is the discount rate.
Many banks also do Eurocurrency business. This means that they make loans in foreign
currency, notably dollars, at lower rates than in the currencies’ home countries. This is
possible because central bank can determinate the minimum lending rate for its national
currency but it has no control over foreign one. The first significant Eurocurrency market
was for US dollar in Europe after the Second World War but the name is now used for
foreign currencies held anywhere in the world.
Unit 15 – Stocks and Shares
Individuals, and group of people doing business as a partnership, have unlimited liability
for debts, unless they form a limited company. A limited company is a legal entity separate
from its owners, and is only liable for the amount of capital that has been invested in it. If a
limited company goes bankrupt, it is wound up and its assets are liquidated to pay the
debts and, in case the assets don’t cover the liabilities, or the debts, they remain unpaid.
Most companies begin as private limited companies: their owners have to put up the
capital themselves and have to write a Memorandum of Association (UK) or a Certificate of
Incorporation (USA) which states the company’s name, its purpose, its registered office or
premises and the amount of the authorized share capital. They also write Articles of
Association (UK) or Bylaws (USA), which set out the duties of directors and the rights of
shareholders (stockholders in USA).
Growing company can apply to a stock exchange to became a public limited company
(UK) or a listed company (USA). Newer and smaller companies usually join over the
counter markets such as Nasdaq in NY. Very successful business can apply to be quoted
or listed, to have their shares trade, on major stock exchanges.
The act of issuing shares (or stocks USA) for the first time is known as floating a company
(making a flotation in UK, public offering in USA). Companies generally use an investment
bank to underwrite the issue: in this way they guarantee to purchase all securities at an
agreed price on a certain day, if they cannot be sold to the public. Companies wishing to
raise more money for expansion can issue new shares, generally offered first to existing
shareholders at less than their market price (it is known as rights issue). They can also
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choose to capitalize their profit turning it into capital by issuing news shares instead of
paying dividends (known as bonus issue, script issue, subscription certificate or
capitalization issue in UK, stock dividend or stock split in USA).
Shares are also known as equities because all the shares of a company have equal value
that is called nominal value (or face value or par value). Shareholder can sell their shares
on secondary market at any time but the market price of a share may be different from its
nominal value. Who buys share holds a part of the ownership of a company and it is
entitled to vote at a company’s Annual General Meeting (UK) or Annual Meeting of
Stockholders (USA), and to receive a proportion of distributed profits in the form of
dividend.
Unit 16 – Bonds
Companies finance most of their activities by way of internally generated cash flow. If they
need more money they can either sell shares or borrow from banks or issuing bonds.
Nowadays companies prefer issue their own bonds rather than borrow from banks
because this is often cheaper: this is not a good thing for banks which have to lend large
amounts of money to borrowers that are much less secure than blue chip companies.
Bond issuing companies are rated by private rating companies such as Moody’s or
Standard & Poors, and given an investment grade according to their financial situation and
performance, AAA being the best an C the worst.
Most bonds are barer certificates, so they can be traded on the secondary bond market
until the mature. They are therefore liquid, although their price, on the secondary market
fluctuates according to changes in interest rates. The amount of the interest that bond
pays is known as coupon and it is the yield expressed as a percentage of its price on the
secondary market.
For companies, the advantage of debt financing aver equity financing is that bond interest
is tax deducible. This means that a company deducts its interest payment from its profits
before paying tax, whereas dividends are paid out of already taxed profits.
Bond issuing is a sign of good health and anticipate higher future profits if a company
borrows. On the other hand, increasing debt increases financial risks: bond interest has to
be paid while companies are not obliged to pay dividends. Thus companies have a debtequity ratio that is determined by balancing tax saving against the risk of being declared
bankrupt creditors.
Government, unlike companies, do not have the option of issuing equities. It can issue
long term bonds, knows gilts (in UK) and Treasury Bonds (in USA), and short term bonds.
The last one are three month Treasury Bills and are a way of regulating the money supply:
to reduce the money supply they sells these bills to commercial banks and withdraw the
cash received from circulation; to increase the money supply they buy them back paying
with newly creating money.
Unit 17 – Futures and derivatives
Every day enormous amount of commodities, currencies and financial securities are
traded on spot markets, bought or sold immediately. But they can be traded also in
another type of market where they will be bought or sold at a future date but with the price
fixed at the date of the deal. Standardized deals for fixed quantities and time periods are
called futures, individual, non standards deal between two parties are called forward
contracts. Futures, options and other derivatives exist in order to diminish the effects of
future changes in prices, exchange rates, interest rates and so on. When commodities
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prices are expected to rise, futures prices are higher than spot rates and viceversa.
Speculators, instead, anticipate the appreciation/ depreciation of the currency and release
a capital gain. They are active in currency futures markets, as the life.
A call option gives the right to buy securities, currencies at a certain price during a certain
period of time. A “put option”, instead, gives you the right to sell an asset at a certain price.
The last type of derivative are swaps. These allow to a French company, for example, that
can borrow euro at a preferential rate and needs Yen, to arrange a swap with a Japanese
company in the opposite situation.
Unit 18 – Market structure and competition
Companies which operate into a market compete each other. But they are, each other, in a
different position so that we can identify different kinds of market operator. Market leader is
often the first company to have entered the field, it is able to lead other firms in the
introduction of new production, prices changes and so on. Leader, usually, want to
increase its market share or at least to protect its current share and one way to do it is to
find ways to increase the size of the entire market. In this case monopoly could be an
advantage. The seconds larger market companies which attempt to attack the leader are
called market challengers. Behind them there are the market followers. These do not
represent threat to the leader, in fact a lot of them are small and concentrate on a market
segmentation, called niche, where it has a unique selling proposition. Because of they are
small they are more flexible and can respond to market changes quickly but they are also
in danger when recession is in act.
Vocabulary:
 Monopoly: only one seller
 Monopsony: only one buyer
 Natural monopoly: an industry where the existence of more than opne producer is
impossible
 Market segmentation: the division of a market into sub market according to needs
or buying habits of customers
 Niche: small segment of a market
 Perfect competition: products are homogenous with a lot of many firms and no
leader
 Economies of scale: falls of the average cost as output increases
 Cartel: group of producers which fix prices to avoid competition and increase profits
It is illegal.
Unit 19 – Takeovers, mergers and buyout
In the 60s were created big conglomerates of unrelated businesses, there were too many
companies but not enough synergy. After the recession of 80s raiders realized that a lot of
companies, in USA markets, were clearly not maximizing stockholder value and concluded
that stock market were inefficient in terms of information. For this reason they found out
that asset stripping, that is selling assets of poor and inefficient companies, was lucrative.
Raiders, moreover, realized that the permanent threat of takeovers, a public offer to a
company’s shareholders to buy their shares at a particular price so as to acquire the
company, is a challenge to company managers to do their job better. Extract take the
example of Vodafone/ Mannesman takeover, in 1999. Vodafone-air touch made a hostile
takeover bid for the German Mannesman which firstly opposed the bid. Germans believed
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that a takeovers would be a disincentive to long term capital investment and, in conclusion,
the offer price of 129 billion of dollars was too low. German’s resistance, thus, collapse
when Vodafone, offered 160 billions of dollar and acquired Mannesman.
Takeover is only a way to acquire a company. Horizontal and vertical integration are other
two ways which allows to merge different companies. Horizontal integration merge firms
producing the same type of goods, vertical one joins firms in other stages of the production
or sale of a product. Vertical integration can be backward integration that is an acquisition
of one’s supplier, forwarding integration which is the acquisition of ones marketing outlets.
Unit 20 – Efficiency and employment
This is an extract from “the truth about work”, by Robert Taylor. He says that we talk about
employment, politicians and journalists continue to stress with the talk of the end of the
permanent job. We assist to a rapid and irreversible transformation of the long-tenured
employment that dominated for the first three decades since the second world war. Labour
instability, thus, is linked to a certain group of people only, whose education is low. The
investigation of the job tenure doesn’t show any universal trend toward increased labour
instability. Differences exists between countries and seem to be linked with business cycle
with its peaks (punte di massimo) and its trough (punti di minimo). Analysts observed that
the huge rise in temporary works caused this idea of instability but it is not the reality.
Rather they observed that people working in larger companies tend to stay there for a long
time so downsizing tend to hit more junior workers than them.
Unit 21 – Business ethics
In the 20s a lot of big American companies began to establish pension funds, employee
stock ownership, life insurance schemes, high wages, they built also houses, schools and
provided to medical services too. According go Mitchell these was the concretization of the
“welfare capitalism”, as a way of creating favourable public opinion. Friedman, on the other
hand, criticized this way of doing saying that companies should not spend stockholders’
money for something which doesn’t make money and doesn’t guarantee the company
target that is maximum profit. However, according to Galbraith, Friedman doesn’t consider
that stockholders, maybe, prefer less dividends but also less pollution or unemployment. In
conclusion, according to Galbraith, managers have the responsibility of all people involved
into the company and its include local community too.
Unit 22 – The role of government
This is an extract by Galbraith where he says that in a good society the state has some
responsibility which are not only health care or providing low cost housing. According to
him state has other many function which must also look after those activities, and have a
more larger time horizon. He is talking about, for example, of medical research and, in
general, supporting science. He knows that these are investments made in the long run
interests of the environment and that they depend on the public investment. Innovation
and research trade off economy, without spending money in research economy goes
down. In this sense we should be more free to use the resource we have in the way we
want, deciding how many we want to allocate in science and innovation, how many in
health. But we are not free, freedom cannot be absolute, we live in interdependent society
and we have a lot of restrictions.
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Unit 23 – Central banking, money and taxation
Taxation has different functions but the main one is to raise government revenues. Other
two functions, by indirect excise duties, is to dissuade people from smocking, drinking
alcoholics and, by methods of accelerated depreciation accounting, encourage capital
investments. Business profits are generally taxed twice, in fact companies pay on their
profits and shareholders pay tax on dividends. Higher the tax rates are, more people are
attempted to not declare their revenues. In Italy, in 1986, the black economy is a big
problem and, according to the national institute of statistics, it was in the size of 16-17% of
the GNP. To reduce income tax liability, some employers uses a loop holed (scappatoia)
and gives highly paid employees lot of benefits instead money. Companies can avoid tax
on profits making a tax loss. It can be done bringing forward capital expenditure on news
machines, factories… An other way can be setting up their head offices in the so called tax
heavens, where taxes are low or, by money laundering, disguise the origin of money from
tax inspectors. This can be done passing money through a series of controlled companies
to create confusion and disguise its origin.
Unit 24 – Exchanges rates
In 1944 Bretton wood agreements was signed. It established the fixed exchange rate
regime, defined in terms of gold and US dollars. With this system, undervalued or
overvalued currencies could only be adjusted with agreement of the international monetary
funds with devaluations or revaluations. In 1971 USA abandoned the agreement because
of the lack of reserve of FED which had not more gold to guarantee the dollar. Bretton
wood agreement was replaced by a flexible exchange rate system where the rates were
determinate by supply and demand. Currencies would automatically establish stable
exchange rate that will better reflects economic realities. Because of the deregulation of
exchange system there was no more control on it. This led to the situation where 95% of
world’s currency transaction were purely speculative. In Europe, in 80s, a lot of western
European governments joined the European monetary system. According to it if the
currencies diverged by more or less than 2.25% from parity, national central banks had to
intervene buying or selling currencies to adjust its value. EMS, thus suspended in the 90s,
brought to the euro system. Euro introduction was caused by the pressure of industrialist
and government . Twelve countries fixed their exchange rate against a new currency
which became legal in 2002 but, from 1999, was used in inter-bank transactions and
bonds.
Unit 25 – The business cycle
The business cycle is a permanent feature of market economies: GDP fluctuates as boom
and recessions succeed each other. During a boom, an economy, expands until it is at a
point of full capacity where production, employment, profits and prices rise. During a
recession the demand falls and investments, output and profits decrease. A long lasting
recession is called depression or slump. The highest point of the business cycle it’s a peak
and the lowest is called trough. There are two main theories for the business cycle:
 Internal theory consider the cycle self generating, regular and infinitely repeating.
Peaks is reached when people being to consume less because they spend to much
more. When demand is rising employers will demand higher wages and so
employers will reduce investments.
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
External theory says that the cycle is influenced by external activities as scientific
advantages, natural disaster, elections and so on. The main actor of this theory is
Schumpeter who says that the business cycle is caused by a major technological
inventions which leads to periods of “creative destruction”.
Unit 26 – Keynesianism and monetarism
The price stability is very important because volatility damages the economy and can not
be a condition for a substainable growth because of the lack of information, high inflation,
high price of money and the adverse exchange rate. The target can be achieve controlling
monetary supply and fixing an inflation target. There are two ways to reach the target:
follow a monetary or a fiscal policy.
These theories go back to classical-monetarist and Keynesian philosophy according to
which economical policy, respectively, can be send to an autonomous agency, CB, or
government decisions. Today the conventional wisdom suggests that decisions related to
price stability should be independent from political thoughts. Monetarists works specifically
maintaining the volume of money, price stability and low inflation, they believe in a natural
system with a market with no need of any government’s interference and where
equilibrium level between demand and supply is guaranteed by perfect competition,
perfect information and the lack of exogenous shocks.
On the other hand, Keynesians, says that there is no perfect equilibrium in reality and do
not believe in the perfect self fulfilling system. Economic system, Keynes says, needs help
in short run. In long run it will be self fulfilling but now, in short run, needs help and he
identifies in government the once player that can be able to manage economy. The
primary resource of an economy is labour an low unemployment means mutualize
resources. So Keynesians suggest that by increasing the deficit, in the middle long term, it
would be possible to reduce unemployment, boost domestic demand and consumption
and feed the economy through the multiplier effect. But increasing the deficit, we know,
means increase interest rate and so means cut investments. Most economies agree that in
the short run it may be possible to increase employment through a higher inflation but just
because this will make interest rate rise to keep down inflation, and this will lead to
unemployment, most industrialized countries try to keep inflation low and stable.
Unit 27 – International trade
Most economies believe in the principle of comparative costs which proposes that nations
will raise their living standards and real income if they specialize in the production of goods
or services where they have the highest relative productivity. This theory explains because
there is international trade between north and south (example, semiconductors from USA
to Brazil, coffee from Brazil to USA) but not because 75% of international trade is between
advanced nations with similar resources. To protect strategic industries, like agriculture, for
example, governments impose tariffs. The reasons which lead to it can be to make import
more expensive than home-produced products or a way of protection against dumping
(the selling of goods abroad at a below cost price in order to destroy competitors or to
earn foreign currency). With tariffs we can not know how many products will be imported. If
we want to know it, government have to fix quotas of goods which fix a limit to imports but
do not provide revenues to government. To encourage international trade and reduce
tariffs, in 1947 the General Agreement on Tariffs and Trade was set up. Thanks this
institution “the most favoured nation” clause was introduced in trade agreement. According
to it countries could not have favoured trading partners but had to grant equally favourable
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conditions to all trading partners. The final GATT agreement was signed in Marrakech in
1944 and signed the WTO birth.
The banana wars are an example of how tariffs and quotas can sink countries economies.
In 1999 Chiquita, through USA government, complained to the WTO about Europe’s
banana trade. Europe imported as many bananas as wished, at slightly above world price,
from former British and French colonies. These countries bases their economies on the
bananas (Dominica, for example, export to EU for around 70% of all exports) and if there
is no investment to reconvert their economies and to develop other was of using the land,
the countries’ economy collapse. Banana wars ended in 2001 when USA ended the tariffs
on European goods and EU agreed to import more Latin American bananas (so
Chiquita’s). But the agreement was joined by subsidy of billions of dollar, from America,
EU an Japan, to these countries.
Unit 28 – Economics and ecology (non è da fare)
Unit 29 – Information technology and electronic commerce
Most people think that information technology and internet represent progress, and are
clearly a change for the better. Some people disagreed, likes Ian Angell, the Head of the
Department of Information System at the London School of Economics. According to him
information technology, that will bring knowledge and power to the dispossessed making
life easier for everyone, will disenenfranchise large sections of society underminind politics
and economics. Everything is changing, electronic commerce is reality: products and
services that have traditionally delivered physically are transferred electronically, people
buy by internet from places where taxes are lowes, contributing to tax deficit growth.
Another problem is how governaments will control and supervise companies that produce
and sell in several different contries. Globalization sets more difficults to keep track of the
activities of companies. Because of it is an handy technology it will turn upside poor
countrys’ economies, like India or China. Their economies could take off or caould be cast
into the obscurity. In this way, information technology, will accelerate inequality and
information warfare will be commonplace beteween individuals. The internet makes it very
difficult to police rogue traders because buyer and sellers don’t live in the same
jurisdiction. Drugs, crime, terrorism will be no more localized problems, unemployement
among the semi-skilled will increase and, like in natural selection, society will mutate and
people with computer skills are likely to end up winers. For this reasons who invests in
communication technologies, countries, companies or single persons, will thrive.
Unit 30 – Entrepreneurs and venture capital (non è da fare)
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UNIT 1 – THE THREE SECTORS OF THE ECONOMY .................................................................................. 1
UNIT 2 – MANAGEMENT ................................................................................................................................. 1
UNIT 3 – COMPANY STRUCTURE .................................................................................................................. 2
UNIT 4 – WORK AND MOTIVATION ............................................................................................................... 2
UNIT 5 – MANAGEMENT AND CULTURAL DIVERSITY ............................................................................... 2
UNIT 6 – RECRUITMENT ................................................................................................................................. 3
UNIT 7 – LABOUR RELATIONS ...................................................................................................................... 3
UNIT 8 – PRODUCTION ................................................................................................................................... 3
UNIT 9 – PRODUCTS ....................................................................................................................................... 4
UNIT 10 – MARKETING.................................................................................................................................... 4
UNIT 11 – ADVERTISING ................................................................................................................................. 4
UNIT 12 – PROMOTIONAL TOOLS ................................................................................................................. 5
UNIT 13 – ACCOUNTING AND FINANCIAL STATEMENTS .......................................................................... 5
UNIT 14 – BANKING ......................................................................................................................................... 5
UNIT 15 – STOCKS AND SHARES ................................................................................................................. 6
UNIT 16 – BONDS ............................................................................................................................................ 7
UNIT 17 – FUTURES AND DERIVATIVES ...................................................................................................... 7
UNIT 18 – MARKET STRUCTURE AND COMPETITION................................................................................ 8
UNIT 19 – TAKEOVERS, MERGERS AND BUYOUT ..................................................................................... 8
UNIT 20 – EFFICIENCY AND EMPLOYMENT ................................................................................................ 9
UNIT 21 – BUSINESS ETHICS ......................................................................................................................... 9
UNIT 22 – THE ROLE OF GOVERNMENT ...................................................................................................... 9
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UNIT 23 – CENTRAL BANKING, MONEY AND TAXATION......................................................................... 10
UNIT 24 – EXCHANGES RATES ................................................................................................................... 10
UNIT 25 – THE BUSINESS CYCLE ............................................................................................................... 10
UNIT 26 – KEYNESIANISM AND MONETARISM ......................................................................................... 11
UNIT 27 – INTERNATIONAL TRADE ............................................................................................................ 11
UNIT 28 – ECONOMICS AND ECOLOGY ..................................................................................................... 12
UNIT 29 – INFORMATION TECHNOLOGY AND ELECTRONIC COMMERCE ........................................... 12
UNIT 30 – ENTREPRENEURS AND VENTURE CAPITAL ........................................................................... 12
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