Chapter 3 Assessing Economic Conditions. Portion of Graphic from pg 72 will go here Learning...

Chapter 3Assessing Economic Conditions

Assessing Economic Conditions

Portion of Graphic from pg 72 will go

here

Learning Objectives

Assessing EconomicConditions

Growth Inflation

Government Interest Rates

Market Prices



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The Key Decisions in Running a Business



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Economic Growth

GrowthInflationInterest RatesMarket PricesGovernment

Weak

Strong

Recession



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• Can you give an example to express the ripple effect?



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Growth Indicators


G.D.P.

Production

AggregateExpenditures

Spending

• China has been the fastest-growing major nation for the past 30 years with an average annual GDP growth rate above 10%.China's per capita income has likewise grown at an average annual rate of more than 8% over the last three decades drastically reducing poverty, but this rapid growth has been accompanied by rising income inequalities.

http://en.wikipedia.org/wiki/Economic_growth

http://en.wikipedia.org/wiki/Per_capita_income

http://en.wikipedia.org/wiki/Income_inequalities



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Unemployment


Structural

Frictional

Cyclical

Seasonal



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• Which industry is more sensitive to economic growth than others?

Food industry Real estate industry Pharmaceuticals industry Construction industry Jewelry industry Auto industry



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Inflation

1985

1995

2005

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$$$$$GrowthInflationInterest RatesMarket PricesGovernment



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• If in 1995, you put RMB150,000, which was enough to pay for an apartment of 100 ㎡ , in the bank. In 2005, you money increased to 150,000+interests. Was it enough to pay for a 100 ㎡apartment which cost 300,000?



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Types of Inflation


Demand-PullCost-Push



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• What’s the ripple effect of the increase of oil/rice/pork price?

• Why do we need to control the over-heated economy?



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Interest Rates




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Interest and Revenue


Interest Rates (%)



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• Explain how interest rate influence the performance of real estate companies.

• If the government is going to increase the interest rate, is it a good news or bad news to the stock market?



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Determining Market Prices


Insert Exhibit 3.4(only top portion)



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Determining Market Prices

GrowthInflationInterest RatesMarket PricesGovernment Insert Exhibit 3.4

(only bottom graph portion)



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Demand Schedule


Pri

ce

Quantity

(S1)

(D1)(D2)

P1 = $ 2,000

P2 = $ 2,500



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• The strong demand for houses due to large population and industrialization pulls up the housing price.



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Supply Schedule


Pri

ce

Quantity

(S1)

(D1)

(S2)

P1 = $ 2,000

P2 = $ 1,500



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• The cars/computers will become cheaper and cheaper. Why?



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Influencing Market Prices


Production Expenses

Consumer Income

Consumer Preferences)))) ) )



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The market price is mainly determined by

demand

supply

Consumer income

Consumer preference

Production expenses



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Monetary Policy


FOMC

The Fed Reserve System

Money supply

Interest Rates



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Fiscal Policy


Excise Tax

Personal Income Tax

Corporate Tax

Budget Deficits



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• Explain the relationship between federal budget deficit and interest rate.



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Government Influence


Insert Exhibit 3.8

Chapter 3 Assessing Economic Conditions. Portion of Graphic from pg 72 will go here Learning...

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