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Chapter 22.1
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1. Sole proprietorship
2. Financial capital
3. Partnership
4. Articles of Partnership
5. Corporation
6. Charter
7. Stock
8. Stockholder
9. Board of Directors
10. Cooperative
11. Real GDP
12. Business Cycle
13. Civilian Labor Force
14. Unemployment Rate
15. Fiscal Policy
16. Inflation
17. Consumer Price Index (CPI)
18. Central Bank
19. Federal Open Market
20. Committee (FOMC)
21. Monetary Policy
22. Discount Rate Reserve
23. Open Market Operations
4 Elements of Business
1.
Expenses
• What you need to start & continue a
business
2. Advertising
• Introduction and reminder of your business
3. Receipts & Record Keeping
• Needs to be accurate and dependable – for
profits & losses
4. Risk (profit vs. loss)
• Risk is a consequence to the advantage of
being in business
Considerations When Starting a Business
*Establishment of inventory
*Use of computers/Technology
*Turbo Tax
*Time – the opportunity cost. You
could be working for someone
else.
*
*There are three main types of
businesses. They differ in size and in
daily operations.
*Sole-Proprietorship
*Partnership
*Corporation
*3 Types of Businesses
1.
Sole Proprietorship
• Owned by 1 person
• Easy & relatively
inexpensive to start
• Typically small businesses
• Most common form of
business
• Owner receives all profits
• Unlimited Liability
*
Advantages
Disadvantages
*Receive all profits
*Quick decisions
*Unlimited liability
*Handle all decisions
*Time consuming
*Rely on own funds
*Business depends on
because no
consultation
*Relatively low taxes
one person
*3 Types of Businesses cont.
2. Partnership
•
•
Owned by 2 or more individuals
Articles of Partnership – Partners sign an
agreement on what each is responsible for.
•
Limited Partnership
o Partners are not equal
o General Partner – has majority of control
o Limited Partner – owns a small part of the
business – does not voice opinions & is
responsible only for what they put in to the
partnership
o LLPs (Limited Liability Partnerships) [mix of
corporations and partnerships): Very popular
with lawyers, accountants, and architects.
• Joint Venture
o temporary partnership to do a job
*
Advantages
Disadvantages
*Losses are shared
*More efficient than
*Profits are shared
*Unlimited liability,
*Pay taxes on share of
*Must reach agreements
*Committed partners
proprietorships
profit
*Easier to borrow
money
most of the time
*3 Types of Businesses cont.
3. Corporation
a. Owned by many
b. Started by a founder
c. Owned by Stockholders
d. Run 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 – 1. Corp. pays a tax on its
profits. 2. After profits are distributed to the
stockholders – stockholders pay a tax on those
earnings.
*Founder’s responsibilities
*Register with the state government for a charter
*Sell Stock
*Select the initial Board of Directors
*Board of Director’s responsibility
*Elected by Stockholders – act on behalf of the
stockholders.
*Supervise & control the corporation
*Make all major decisions
*
Advantages
Disadvantages
*Owners do not have to *Decisions are slow.
devote time to make
money.
*Stockholders have
Interest of the board may
differ from the
stockholders.
limited liability; they *Double taxation. Govt.
only lose what they put taxes corporate profit
then individual shares.
in.
*Individuals trained in *Stockholders have little or
no say in how business is
specific areas make
run.
decisions.
*Stocks and Bonds
*Stock:
Individual
ownership in a
corporation.
Shareholder receives
voting rights and
dividends.
*Bond: Promise by a
corporation to pay a
stated amount of
interest over a period
of time.
*Other Types of Businesses
*Franchise – sell the name & structure of a
business
*Help train employees & set up the business
*Franchisee – pays a start up fee & annual fee
*Non – Profit – Making a profit is not the main
purpose of the business
*Cooperative – individual businesses that work
together to benefit all members
*Producer – Ex: Farmer’s Market
*Consumer – Ex: PCC Natural Markets, REI
*Service – Ex: Credit Unions, Utility companies
*Stocks
*Corporations sell stock to raise financial capital
*People buy stock to make money
*Dividends – a share of a corporation’s profits
*Capital Gain – when stock is sold for more
than it originally cost – Rule: Buy low, sell
high
*
*Stock Indexes
*Statistical measures that track stock prices over time
*The ticker
*Ex: Dow Jones Industrial Average (DJIA) or Standard &
Poor’s (S&P)
*Stock Exchanges
*Stock market – where stock is bought & sold
*Ex: NYSE – largest & most prestigious
*Others: American Stock Exchange, Chicago Mercantile
Exchange, Electronic – NASDAQ
*Changes in stock prices are based on market forces of
supply & demand
*
*Bull Market
*Investors expect growth, profits high &
unemployment low
*Prices tend to rise
*Bear Market
*Investors are pessimistic, profits drop &
unemployment rises
*Prices fall
*Changes to Stock Prices
*Change in profits
*Rumors (externalities)
*News
*Stockbroker – person who buys & sells stock
*
Chapter 22.3
*
*1. Responsibilities to Consumers
*2. Responsibilities to Owners
*3. Responsibilities to Employees
*4. Responsibilities to the Community
Responsibilities to Consumers
•
•
•
•
Sell products that are safe
Products should work as promised
Be truthful in advertising
Treat all customers fairly
*
*To protect stockholders – to do this they *Reveal – making public important financial
information
*Transparency
Responsibilities to Employees
• Provide a safe workplace
• Treat all workers fairly and without
discrimination
• * Basis of race, religion, color, gender,
age, or disability
*
•
Social responsibility – obligation to
pursue goals that benefit society as
well as themselves.
•
ex – charitable gifts, national
volunteering, assisting disaster
victims through relief agencies.
Think about a personal experience in which
a product you purchased was flawed?
What did you do? Did the business try to fix the
problem?
*
*
The Business Cycle (AKA The
Economic Rollercoaster)
The ups and downs of the
economy
Alternating periods of growth
& decline
*
Prosperity(Expansion) Boom
Economy is improving
Economic activity peaks
Business activity is increasing
Businesses work at full
capacity
Businesses hire more
Stores sell at record
workers
amounts
Consumers buy more
*Peak: High point of boom
Decline
Economy slows down
Production is cut down
Workers are laid off
Recession
Lowest period for
production
High unemployment
Low consumer
spending
*Trough: Low point of recession
Depression: Severe recession
*
Peak
Trough
Boom
Expansion/
Prosperity
Decline/
Recession
Recovery/
Prosperity
Recession
*
*
1.
2.
3.
4.
Boom
Trough
Expansion
Peak
*
*The way the government taxes and spends money.
*In a recession:
*The government spends more money on public
works projects in order to provide jobs. This keeps
companies running and workers employed.
*Provides money to people and increases demand.
Producers will then increase supply.
*Tax cuts: Gives people more money to spend.
*The government will control peaks by increasing
taxes.
*
*The way the government regulates the amount of
money in circulation. Accomplished through raising
or decreasing interest rates. The Federal Reserve
(FED) is in control of monetary policy.
*There are 12 district banks in the Federal Reserve.
*
*A decline in the value on money.
*Purchasing power: Amount a dollar can buy.
*Inflation is measured by the Consumer Price Index
and the Implicit GDP price deflator.
*
*Change in price over time of a specific group of
goods and services the average household uses.
*Each year is compared to the average of 1982-1984.
This makes the base year.
*This tells us the change in the standard of living.
*
*Takes inflation away for year.
*The base year used for comparisons is 1987.
*
*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.
not counted.
Anything bought used is
*
*Consumer Goods:
Goods or services bought by
consumers for direct use.
*Business Goods: Business purchase of tools,
machines, and buildings used to produce other
goods.
*Government Goods: Anything bought by federal,
state, and local governments.
*Export: Anything sold to other countries.
*Import: Anything bought from other countries.
*Net Exports: The difference in what the nation
buys and sells with other countries.
*
*
Loose Money
1. Easy to borrow
2. Consumers buy
more
3. Business Expansion
4. Employment
increases
*
Tight Money
1. Difficult to borrow
2. Consumers buy less
3. No business
expansion
4. Unemployment
increases
5. Spending increases
5. Production
This can lead to
inflation
This can lead to a
recession
decreases
*
*The way banks create money.
*Discount Rate: Prime rate that banks can borrow
money from the FED.
*Reserve Requirements:
Percentage of deposits
that banks must hold.
*Banks are free to loan out money that is not on
reserve leading to expansion.
*
http://www.learner.org/courses/amerhistory/un
its/18/video/
*
*The depression begins in 1929. Black Tuesday,
October 29, 1929
*By 1933, salaries decreased by 40% and hourly wages
by 60% compared to 1929 levels.
*The average family income fell from $2,300 to
$1,600.
*1930: 4 million Americans were unemployed. By
1933 the number tripled.
*Bank runs – People tried to get all their cash out of
banks, banks ran out of money
*Many Americans marked this as the end of capitalism.
Communists and Socialists fought with each other
leading to the decline of this movement.
Soup Kitchen
Hooverville – Names of shanties (homeless
towns) during the Depression (President
Hoover was president
*
*FDR’s plan to end the depression.
First had to
restore faith in banks.
*Began “fireside chats” insuring Americans the
situation would improve.
*Hundred Days:
March 9-June 16, 1933. Congress
passed 15 bills. Most were written by FDR.
*
*Glass-Steagall Act (1933):
Banks could not
invest in the stock market. Created the FDIC
to insure deposits.
*Federal Securities Act (1933):
fraud.
No stock market
*
* First Fireside Chat
*
*Unemployment rate:
Percentage of the labor force
without jobs but actively looking for work.
*Unemployment reduces living standards, disrupts
families, and causes a loss of self-respect.
*Reaches its height during recession.
*
*Cyclical:
Associated with the ups and downs of the
economy.
*Structural: Changes in the economy based on
technology.
*Seasonal: Based on weather.
*Frictional: Based on people being terminated or
looking for new jobs.
*Videos
*Dealing with unemployment
*The Pain of Unemployment
*Slow Recovery
* Hailey, a worker at Ford, loses her job because of a machine that can
do her job more efficiently.
* Structural
* Matt works at the Sugar Mountain Ski Lodge.
* Seasonal
* Jarret, Hailey’s friend at Ford, loses his job because of low car sales.
* Cyclical
* Abby is tired of working at In-n-Out Burger quits her job.
* Frictional
* Maddy has just graduated from college and is unemployed.
* Frictional
* Travi slost his job at the neighborhood swimming pool after Labor
Day.
* Seasonal
* Mrs. Kelley is laid off due to the tight budget of ISS for 2014-2015
school year.
* Cyclical
* Drake loses his job as a cleaning guy because he is replace by a
RoboMaid.
* Structural
Write a short story, play, poem, or song about
a family during the great depression.
Make sure to include terms and concepts we
have been talking about in class!
*
* Ch 24.3
*
*What do Banks do?
*Accept Deposits
*Make Loans
*
*Checking Accounts –
*Allow customers to write checks or use
check/debit cards
*Used to pay bills or transfer money from 1
person to another.
*Pay little or no rate of interest.
*People don’t keep money in checking accounts
for very long. Why?
*Used to meet regular expenses.
*
*Savings Accounts –
*banks pay interest to customers based on how
much is deposited.
*Certificates of Deposits (CDs) –
*Require the saver to deposit money for a certain
period of time.
*Offer higher interest rates.
*The longer the time the higher the interest rate
*Making loans - One of the main principals of banks
is to lend money to businesses and consumers.