I want to I want to start a start a sole sole

proprietorshiproprietorship p tasting tasting cakes.cakes.

Jessica and I Jessica and I want to start want to start a a partnershippartnership selling toilet selling toilet

paper.paper.

I want to form I want to form a a corporationcorporation called Paul’s called Paul’s

Ballpark Garlic Ballpark Garlic Fries. Hey! Fries. Hey!

This is a nice This is a nice segue to the segue to the chapter on chapter on business.business.

Objectives:Objectives:1.1.Analyze the advantages and disadvantages of Analyze the advantages and disadvantages of sole proprietorshipssole proprietorships2.2.Analyze the advantages and disadvantages of Analyze the advantages and disadvantages of partnershipspartnerships3.3.Explain how a corporation is formed and Explain how a corporation is formed and describe the characteristics of a corporationdescribe the characteristics of a corporation4.4.Explain how stocks and bonds differExplain how stocks and bonds differ5.5.Analyze the advantages and disadvantages of Analyze the advantages and disadvantages of corporationscorporations6.6.Analyze horizontal, vertical and conglomerate Analyze horizontal, vertical and conglomerate combinations, franchises, cooperatives and combinations, franchises, cooperatives and nonprofit organizations nonprofit organizations

12.112.1: Students understand common : Students understand common economic terms and concepts and economic terms and concepts and economic reasoning economic reasoning

72%72%13.2%13.2%

14.7%14.7%

Advantages of Sole Proprietorships Advantages of Sole Proprietorships

Ease of Start-upEase of Start-upControlControlProfits Profits Let’s see: Let’s see: start upstart up would would

be a few fliers I could be a few fliers I could place around town, I place around town, I

control all the laborcontrol all the labor so so everything I make I keep. everything I make I keep. I run the business out of I run the business out of my house so I don’t have my house so I don’t have

to worry about to worry about zoning zoning lawslaws. I like that idea. . I like that idea.

Disadvantages of Sole Proprietorships Disadvantages of Sole Proprietorships

Unlimited liabilityUnlimited liabilitySole responsibilitySole responsibilityLimited growth potentialLimited growth potentialLack of longevity Lack of longevity

OK, let’s look at the OK, let’s look at the downside. If I borrow downside. If I borrow

money for fliers and the money for fliers and the business goes south it is business goes south it is my my sole responsibility to sole responsibility to pay off the loan—frompay off the loan—from

my personal funds. Plus my personal funds. Plus I have to do all the I have to do all the

tasting myself, meaning tasting myself, meaning a lot of sugar highs—I a lot of sugar highs—I won’t be able to taste won’t be able to taste

every day.every day.

Key terms Key terms

Zoning: You may only Zoning: You may only pursue certain pursue certain business activities in business activities in certain parts of certain parts of municipalitiesmunicipalities

Key terms Key terms

Liability: responsibility for debtLiability: responsibility for debtCollateral: Anything of value that a Collateral: Anything of value that a borrower agrees to give up if he or she is borrower agrees to give up if he or she is not able to repay a loannot able to repay a loanLongevity: the length of a firm’s lifeLongevity: the length of a firm’s life

Liability: responsibility for debtLiability: responsibility for debtCollateral: Anything of value that a Collateral: Anything of value that a borrower agrees to give up if he or she is borrower agrees to give up if he or she is not able to repay a loannot able to repay a loanLongevity: the length of a firm’s lifeLongevity: the length of a firm’s life

Liability: responsibility for debtLiability: responsibility for debtCollateral: Anything of value that a Collateral: Anything of value that a borrower agrees to give up if he or she is borrower agrees to give up if he or she is not able to repay a loannot able to repay a loanLongevity: the length of a firm’s lifeLongevity: the length of a firm’s life

Licensing lawsLicensing laws

Ensure that service providers are properly Ensure that service providers are properly qualified qualified Hey girls. I’m Hey girls. I’m

starting a starting a swimming swimming

lessons lessons business.business.

That’s cool, Stevie, but That’s cool, Stevie, but remember to get a remember to get a

government issued lifesaving government issued lifesaving certificate first.certificate first.

Advantages of Partnerships Advantages of Partnerships

Ease of start-up—partnership contract Ease of start-up—partnership contract outlining the distribution of profits and outlining the distribution of profits and losses among the partners and outlines losses among the partners and outlines each partner’s responsibilitieseach partner’s responsibilities

Justina and I just signed a contract starting our new

partnership, Hats for Hotties. I’m the brains

and Justina provides the muscle. We both

act as models.

Advantages of Partnerships Advantages of Partnerships

Specialization—specific business duties can Specialization—specific business duties can be assigned to different partnersbe assigned to different partnersShared Decision MakingShared Decision MakingShared Business LossesShared Business Losses

Stevie selects the Stevie selects the hat types from the hat types from the distributer. I, uh, distributer. I, uh,

ensure the ensure the distributer gives us distributer gives us

a fair price. We a fair price. We both decide on both decide on

colors and markups colors and markups as we set prices as we set prices

that we charge. If that we charge. If there are financial there are financial

losses, we split losses, we split them 50-50.them 50-50.

Disadvantages of Partnerships Disadvantages of Partnerships

Unlimited liabilityUnlimited liabilityPotential for ConflictPotential for ConflictLack of longevityLack of longevityNow I’m alone. Stevie said Now I’m alone. Stevie said

that Dodger hats would sell that Dodger hats would sell more than Giant hats and I more than Giant hats and I

believed her. We took a bath believed her. We took a bath and had to pay for the and had to pay for the

unsellable Dodger hats from unsellable Dodger hats from our own funds. So we had a our own funds. So we had a

fight and dissolved the fight and dissolved the partnership. It only lasted a partnership. It only lasted a week. I feel like such a loser week. I feel like such a loser

(like the Dodgers.)(like the Dodgers.)

General Partners vs. Limited Partners General Partners vs. Limited Partners

General partners have equal decision-General partners have equal decision-making authority and unlimited liability. making authority and unlimited liability. Limited partners have little participation in Limited partners have little participation in decisions, but their liability is confined to decisions, but their liability is confined to the amount of money they invested.the amount of money they invested.

I’m glad we I’m glad we had a had a

general general partnership.partnership.

I wish we I wish we had had a had had a

limited limited partnership, partnership,

like my like my parents parents

suggested.suggested.

Forming a Corporation Forming a Corporation (Paul’s Ballpark Garlic (Paul’s Ballpark Garlic Fries)Fries)Apply for a state license—articles of Apply for a state license—articles of incorporationincorporationIssuance of a corporate charter by the Issuance of a corporate charter by the statestateOwners/Shareholders Owners/Shareholders electelect

Board of Directors Board of Directors selectselect

Corporate officers Corporate officers hirehire

Vice Vice PresidentsPresidentsDepartment Department HeadsHeadsEmployeesEmployees

Stock, dividends, common stock, Stock, dividends, common stock, preferred stockpreferred stockStockStock represents ownership of the firm represents ownership of the firm issued in portions known as sharesissued in portions known as sharesDividendDividend: profit paid to shareholders: profit paid to shareholdersCommon stockCommon stock provides shareholders with provides shareholders with a voice in how the company is run and a a voice in how the company is run and a share in any potential dividendsshare in any potential dividendsPreferred stockPreferred stock provides guaranteed provides guaranteed dividends—paid before any received by dividends—paid before any received by holders of common stock—but does not holders of common stock—but does not grant shareholders a voice in running the grant shareholders a voice in running the corporationcorporation

Bailey, Robert Bailey, Robert and I each own and I each own 200 shares of 200 shares of

preferred stockpreferred stock in Paul’s in Paul’s

Ballpark Garlic Ballpark Garlic Fries and we Fries and we

just got a just got a dividenddividend at at $2.00 per $2.00 per

share. Yaow!share. Yaow!

Corporate bonds Corporate bonds are certificates issued by are certificates issued by a corporation in exchange for money a corporation in exchange for money borrowed from an investorborrowed from an investorStocks Stocks representrepresent ownership; bonds ownership; bonds indicate that indicate that a corporation is in debt to a corporation is in debt to the person who holds the bond. the person who holds the bond. The The bondholder does not own any part of the bondholder does not own any part of the company.company.

Corporate bondsCorporate bonds

Laurie is happy right now. But if Laurie is happy right now. But if Paul’s Ballpark Garlic Fries drops Paul’s Ballpark Garlic Fries drops to 50 cents a share, she will lose to 50 cents a share, she will lose most of her investment. I’ll still most of her investment. I’ll still get back all my investment plus get back all my investment plus 6.5% interest on my bonds held 6.5% interest on my bonds held

in Amy’s Trombones, Inc., no in Amy’s Trombones, Inc., no matter what happens. matter what happens.

Principal and Interest Principal and Interest

PrincipalPrincipal: the actual amount of money : the actual amount of money borrowedborrowedInterestInterest: amount the borrower must pay for : amount the borrower must pay for the use of funds, generally calculated in the use of funds, generally calculated in percentspercents

The remaining The remaining principal on principal on the house is the house is $90,000 and $90,000 and that means that means

about $8,000 about $8,000 in interest, at in interest, at

4.5%.4.5%.

Miss Becky Miss Becky is such a is such a

good good money money

manager. manager. I’m a lucky I’m a lucky

dude!dude!

Advantages of Corporations Advantages of Corporations Limited liability (loss for stockholders is Limited liability (loss for stockholders is limited to the amount invested)limited to the amount invested)Separation of ownership from Separation of ownership from management—utilization of specialists to management—utilization of specialists to perform complex management tasksperform complex management tasksEase in raising capital (sale of stocks and Ease in raising capital (sale of stocks and bonds) bonds)LongevityLongevity

I don’t care what I don’t care what Emily thinks. My Emily thinks. My

liability is limited liability is limited to to what I invested (easy what I invested (easy come, easy go), and come, easy go), and Paul’s Ballpark Garlic Paul’s Ballpark Garlic Fries will Fries will lastlast forever, forever, ‘cuz are soooo tasty. ‘cuz are soooo tasty.

Plus they hire Plus they hire specialistsspecialists to run the to run the company and if they company and if they

need more need more moneymoney it’s it’s easy to geteasy to get..

Disadvantages of Corporations Disadvantages of Corporations

Charters are expensive and difficult to Charters are expensive and difficult to obtain Federal and state governments obtain Federal and state governments regulate corporationsregulate corporationsSlow decision-making processSlow decision-making processStockholders are far removed from the Stockholders are far removed from the actual running of the businessactual running of the businessStockholders experience lack of controlStockholders experience lack of controlCorporate profits are taxed twiceCorporate profits are taxed twice

Yeah, I think I’ll pick Yeah, I think I’ll pick that hot girl I met at the that hot girl I met at the

last general last general membership meeting to membership meeting to serve as serve as the proxy the proxy for for my shares vote at the my shares vote at the

next corporate meeting.next corporate meeting.

Andrew Carnegie Andrew Carnegie tried to buy tried to buy out out competing steel producers competing steel producers through a process calledthrough a process called horizontal consolidationhorizontal consolidation..Companies producing Companies producing

similar similar products merge merge Carnegie achieved Carnegie achieved a near monopoly—a near monopoly—controlled 80% of controlled 80% of U.S. steel production.U.S. steel production.

Carnegie attempted to Carnegie attempted to control entire steel industrycontrol entire steel industry

Vertical integrationVertical integration—bought —bought out all of his suppliersout all of his suppliers

Coal/iron minesCoal/iron minesOre freightersOre freightersRailroadsRailroads

Total control overTotal control over quality & cost of steelquality & cost of steel

Horizontal, Vertical & Conglomerate Horizontal, Vertical & Conglomerate CombinationsCombinationsConglomeratesConglomerates

Mergers of companies producing unrelated Mergers of companies producing unrelated products--products--Pepsico

Advantages & Disadvantages of Advantages & Disadvantages of Combinations Combinations EfficiencyEfficiency—centralizing decision making within —centralizing decision making within an industryan industryPotential for lower costs—Potential for lower costs—buying an existing buying an existing business is often less expensive than building business is often less expensive than building new plants and offices, hiring new employees and new plants and offices, hiring new employees and acquiring additional financial capital to expandacquiring additional financial capital to expandEasier to acquire financial capital—Easier to acquire financial capital—bank loans bank loans and more shareholder investmentand more shareholder investmentCombinations can lead to increased Combinations can lead to increased unemploymentunemploymentReduced competitionReduced competition

Franchises

Cooperatives Cooperatives Businesses owned collectively by their Businesses owned collectively by their membersmembersPurchasing cooperativesPurchasing cooperativesMarketing cooperativesMarketing cooperativesService cooperativesService cooperatives

Nonprofit Organizations Nonprofit Organizations

Structured like a corporationStructured like a corporationUnlimited longevityUnlimited longevityRevenues generally come from charitable Revenues generally come from charitable contributions or events such as the Relay contributions or events such as the Relay for Lifefor LifeIncome not taxed by the governmentIncome not taxed by the government

Two summers ago, Two summers ago, Laurie Baxter Laurie Baxter

made me do a pull made me do a pull up. Man! Did I up. Man! Did I

labor knocking out labor knocking out that pull up. that pull up.

That’s a nice segue That’s a nice segue into this chapter on into this chapter on

laborlabor..

You people You people don’t know don’t know what labor what labor is! In my is! In my

day, working day, working in in

Washington’Washington’s grist mill, s grist mill, we REALLY we REALLY

had to had to labor!!!labor!!!

Objectives:Objectives:1.1.Describe factors that affect workers entering Describe factors that affect workers entering the labor forcethe labor force2.2.Explain how the U. S. labor force has changedExplain how the U. S. labor force has changed3.3.Analyze how the U. S. government affects Analyze how the U. S. government affects laborlabor4.4.Understand the history of the labor Understand the history of the labor movement in the United Statesmovement in the United States5.5.Describe how labor unions are organizedDescribe how labor unions are organized6.6.Identify the main challenges facing unions Identify the main challenges facing unions todaytoday7.7.Examine how government attitudes toward Examine how government attitudes toward labor unions have changed labor unions have changed 8.8.Understand the major issues that are Understand the major issues that are discussed in labor contract negotiations and discussed in labor contract negotiations and how both sides reach a contract agreementhow both sides reach a contract agreement

12.112.1: Students understand common : Students understand common economic terms and concepts and economic terms and concepts and economic reasoning economic reasoning

12.412.4: Students analyze the elements : Students analyze the elements of the of the U. S. labor market in a global setting U. S. labor market in a global setting

The U. S. Labor Force The U. S. Labor Force

All people who are at least 16 years old All people who are at least 16 years old and are working or actively looking for and are working or actively looking for work. work. The civilian labor force The civilian labor force makes up about makes up about 98 98 percent of the working population percent of the working population while the while the military military comprises the other comprises the other 2 percent2 percent

OK, so I need a job. OK, so I need a job. What kind should I What kind should I try to get? I’d like try to get? I’d like

one with good one with good wageswages—at least —at least

$15.00 per hour. $15.00 per hour. OK, now, what OK, now, what

skills skills do I have?do I have?

Bounty hunter Bounty hunter pays great pays great and I have the and I have the

marksmanship marksmanship skillsskills. But . But I don’t like the I don’t like the working working

conditionsconditions and, because and, because of school I have to stay of school I have to stay here and here and can’t travelcan’t travel. . But, hey! I could shoot But, hey! I could shoot people—now that’s an people—now that’s an intrinsic rewardintrinsic reward. And, . And, there will always be a there will always be a

needneed for bounty hunters! for bounty hunters!

Food service pays crappy Food service pays crappy wageswages, but it takes , but it takes

minimal minimal skillsskills (and I have (and I have them.) The them.) The working working

conditionconditions aren’t always s aren’t always great, but I could great, but I could work work close to homeclose to home. Plus I’d . Plus I’d get all the food get all the food I could I could eat and eat and market trends market trends indicate people always indicate people always

want to eat.want to eat.

Party planners get pretty Party planners get pretty good good wageswages, and I have , and I have the requisite the requisite skillsskills (I love (I love

games.) The games.) The working working conditionsconditions are usually are usually

pretty good and I could pretty good and I could work close to homework close to home. Plus . Plus I’d I’d get to play games andget to play games and eat lots of fun food eat lots of fun food and and market trends market trends indicate indicate

people always want good people always want good parties for their kids.parties for their kids.

The U. S. Labor The U. S. Labor Force—Unemployment 2011 IndustrializationIndustrialization

Capital-intensive—dependent on machines Capital-intensive—dependent on machines to produce goods; to produce goods; agriculturalagricultural economies economies are labor intensiveare labor intensive

Women in Today’s Labor ForceWomen in Today’s Labor Force

60% of America’s women are members of 60% of America’s women are members of the labor force, compared to 75% of the labor force, compared to 75% of America’s menAmerica’s men

Education and Salary/Unemployment Education and Salary/Unemployment 20092009

Equal Pay Act of 1963 & Civil Rights Act of Equal Pay Act of 1963 & Civil Rights Act of 19641964Equal Pay Act of 1963: requires that Equal Pay Act of 1963: requires that employers pay the same wages to male employers pay the same wages to male and female workers who perform the same and female workers who perform the same job. job.

The Civil Rights Act of 1964 protects The Civil Rights Act of 1964 protects workers from employer discrimination workers from employer discrimination based on race, sex, religion, or national based on race, sex, religion, or national originorigin. . The act The act also established the Equal also established the Equal Employment Opportunity Commission Employment Opportunity Commission (EEOC(EEOC)

Affirmative ActionAffirmative Action

Making up for patterns of discrimination Making up for patterns of discrimination against women, members of minority against women, members of minority groups and others who were traditionally groups and others who were traditionally disadvantaged in the workplace. Programs disadvantaged in the workplace. Programs were were aimed at eliminating racial and aimed at eliminating racial and gender bias in employment practices.gender bias in employment practices.Resulted in quotas.Resulted in quotas.

Students, my G’Pa Pete Students, my G’Pa Pete wants you to make wants you to make

another chart based on another chart based on the following slides. Call the following slides. Call

it the Supreme Court it the Supreme Court landmark decision chart.. landmark decision chart.. You will also use it when You will also use it when you study government.you study government.

Name of Case Year Key Points of the DecisionName of Case Year Key Points of the DecisionRegents of the U. Regents of the U. 1978 Reverse discrimination1978 Reverse discriminationof C. v. Bakke of C. v. Bakke Ruled against affirmative Ruled against affirmative action and Bakke admitted action and Bakke admitted to UC Davis Med. Schoolto UC Davis Med. School But said affirm act. OKBut said affirm act. OK

Allan Bakke, 35 year old Caucasian, had Allan Bakke, 35 year old Caucasian, had twice been rejected for admission to the UC twice been rejected for admission to the UC Davis medical school. The school reserved Davis medical school. The school reserved 16 places in each entering class for 16 places in each entering class for “qualified minorities” as part . . .“qualified minorities” as part . . .

A landmark case from A landmark case from the Warren Burger the Warren Burger

Court had to do withCourt had to do with “reverse “reverse

discrimination” discrimination” under under the affirmative action the affirmative action issue:issue: Regents of the Regents of the

University of University of California v. BakkeCalifornia v. Bakke

(1978)(1978)

. . .of the university’s affirmative action . . .of the university’s affirmative action program, in an effort to “redress long-program, in an effort to “redress long-standing, unfair minority exclusions from standing, unfair minority exclusions from the medical profession.” Bakke’s college the medical profession.” Bakke’s college GPA and MCAT scores exceeded those of GPA and MCAT scores exceeded those of any of the minority applicants who had any of the minority applicants who had been admitted ahead of him. Bakke been admitted ahead of him. Bakke claimed that he was excluded from claimed that he was excluded from admission solely on the purpose of race; or admission solely on the purpose of race; or “reverse discrimination.”“reverse discrimination.”

Issue: Did UC violate the Fourteenth Issue: Did UC violate the Fourteenth Amendment’s equal protection clause, and Amendment’s equal protection clause, and the Civil Rights Act of 1964, by practicing the Civil Rights Act of 1964, by practicing an affirmative action policy? an affirmative action policy?

The Burger Court held that the U. C. Davis The Burger Court held that the U. C. Davis Medical School could not reserve a certain Medical School could not reserve a certain number of seats for minority students in number of seats for minority students in an incoming class. The quota had violated an incoming class. The quota had violated the Civil Rights Act of 1964 because it the Civil Rights Act of 1964 because it made race the sole factor in admissions. made race the sole factor in admissions. The Court did maintain, however, that race The Court did maintain, however, that race could be one of several factors to could be one of several factors to determine admissionsdetermine admissions

In 2003, my court In 2003, my court made a similar ruling made a similar ruling inin Gratz v. BollingerGratz v. Bollinger..

Jennifer Gratz applied to the University of Jennifer Gratz applied to the University of Michigan’s College of Literature, Science Michigan’s College of Literature, Science and Arts with an adjusted GPA of 3.8 and and Arts with an adjusted GPA of 3.8 and an ACT score of 25 (about 1300 old SAT). an ACT score of 25 (about 1300 old SAT). TheTheUniversity of Michigan admitted using race University of Michigan admitted using race in making admissions decisions—its policy in making admissions decisions—its policy is to admit virtually all qualified applicants is to admit virtually all qualified applicants who are black, Latino or Native American.who are black, Latino or Native American.

Gratz v. Bollinger Gratz v. Bollinger (2003)(2003)Issue: Did the University of Michigan’sIssue: Did the University of Michigan’suse of racial preferences in undergraduateuse of racial preferences in undergraduateadmissions violate the Equal Protection admissions violate the Equal Protection clause of the Fourteenth Amendment or clause of the Fourteenth Amendment or the Civil Rights Act of 1964?the Civil Rights Act of 1964?The Rehnquist Court held that the The Rehnquist Court held that the University’s policy University’s policy diddid violate both laws. violate both laws. InInthe Bakke decision the Court took into the Bakke decision the Court took into account the fact that the University of account the fact that the University of California provided individualized con-California provided individualized con-sideration to Bakke. The Univ. of Michigansideration to Bakke. The Univ. of Michigandid NOT do so because each minority did NOT do so because each minority applicant received an automatic 20-points.applicant received an automatic 20-points.

Despite ruling against Despite ruling against the University of the University of

Michigan’s admissions Michigan’s admissions policy, ourpolicy, our Court did, Court did, however, confirm that however, confirm that

affirmative action plans affirmative action plans in university in university

admissions are legal admissions are legal and valid under the and valid under the

Constitution.Constitution.

Gratz v. Bollinger Gratz v. Bollinger (2003)(2003)

California Proposition 209 (1996)California Proposition 209 (1996)

Proposition 209 forbade state agencies, Proposition 209 forbade state agencies, including universities, from considering including universities, from considering race or gender in admissions, hiring, race or gender in admissions, hiring, promotions, and firing. The ACLU sued promotions, and firing. The ACLU sued in in federal court federal court claiming that the initiative claiming that the initiative violated the U. S. Constitution.violated the U. S. Constitution. In 1997 a federal appeals court In 1997 a federal appeals court ruled that the amendment was ruled that the amendment was constitutional.constitutional.

Fair Labor Standards Act of 1938Fair Labor Standards Act of 1938

Set the minimum wage at 40 cents per Set the minimum wage at 40 cents per hour. hour. That wage applied only to That wage applied only to businesses engaged in interstate businesses engaged in interstate commercecommerce—trade that crosses state —trade that crosses state boundaries. Furthermore, the law did not boundaries. Furthermore, the law did not apply to farm laborers, domestic servants apply to farm laborers, domestic servants and some other groups.and some other groups. Over time it has Over time it has extended to a wider range of jobsextended to a wider range of jobs

Labor Union Labor Union

An organization of workers that negotiates An organization of workers that negotiates with employers for better wages, improved with employers for better wages, improved working conditions, and job securityworking conditions, and job security

Factory wages at turn of 20Factory wages at turn of 20thth century: century: $400-500 per year$400-500 per year $600 was considered minimum for $600 was considered minimum for a reasonable level of comforta reasonable level of comfortConditions: not greatConditions: not great• Strict, monotonous schedulesStrict, monotonous schedules• Machines performed tasks onceMachines performed tasks once• valued in artisansvalued in artisans• Impersonal & demanding systemImpersonal & demanding system• 6 days/week; 10 hours/day6 days/week; 10 hours/day• Many unsafe/unhealthyMany unsafe/unhealthy

Most disturbing aspect of factory labor:Most disturbing aspect of factory labor:loss of control over work conditions loss of control over work conditions

Women: Women: • 17% of workforce17% of workforce• Lower wages than adult malesLower wages than adult males• 75% under 2575% under 25• $6-$8 per week$6-$8 per week• Annual wage (1900)Annual wage (1900)

Male: $597Male: $597Female: $314Female: $314

Child laborChild labor Under 16 in 1900—1.7 millionUnder 16 in 1900—1.7 million

10% of all girls 10-1510% of all girls 10-15 20% of all boys20% of all boys

38 states—child labor laws38 states—child labor laws Agricultural sector jobs exempt Agricultural sector jobs exempt Children on farms: 12 hours/dayChildren on farms: 12 hours/day Children in factories: 10 hours/day Children in factories: 10 hours/day Canneries: 16 hours/day girlsCanneries: 16 hours/day girls High accident ratesHigh accident rates

Accident rate: highest in world (of any Accident rate: highest in world (of any industrialized nation)industrialized nation)1907: 12 railroad men a week died on 1907: 12 railroad men a week died on the jobthe jobFactories: thousands of workers: Factories: thousands of workers: occupational diseasesoccupational diseases Lead or phosphorus poisoningLead or phosphorus poisoning Few owners took preventive measuresFew owners took preventive measures

1866: National Labor Union1866: National Labor Union 640,000 members640,000 members Disintegrated after PanicDisintegrated after Panic of 1873of 1873 Excluded womenExcluded womenMolly MaguiresMolly Maguires Ancient Order of Ancient Order of HiberniansHibernians Terrorist attacks to Terrorist attacks to intimidate coal intimidate coal mine operatorsmine operators

Great Railroad Strike of 1877—the Great Railroad Strike of 1877—the first major national labor conflict in U. S.first major national labor conflict in U. S.Baltimore to St. LouisBaltimore to St. Louis

Knights of LaborKnights of Labor Uriah S. Stephens Uriah S. Stephens Open to all who toiledOpen to all who toiled Included womenIncluded women Championed:Championed:

• 8-hour work day8-hour work day• End to child laborEnd to child labor• Arbitration over strikes Arbitration over strikes • Equal pay for equal work Equal pay for equal work

Leonora BarryLeonora BarryWomen’s Bureau of the Women’s Bureau of the Knights of Labor Knights of Labor

Terence V. Terence V. PowderlyPowderlyExpanded KoLExpanded KoLModerateModerate

Strikes against Powderly’s wishes ledStrikes against Powderly’s wishes ledto downfall of the union.to downfall of the union.

American Federation of Labor American Federation of Labor Federation Federation of Organized Trade and of Organized Trade and labor unions of U. S. and Canadalabor unions of U. S. and Canada

Samuel Gompers Samuel Gompers AFL: most important andAFL: most important and enduring labor group in U. S. enduring labor group in U. S. Association of autonomousAssociation of autonomous craft unions craft unions (mostly (mostly skilled workers/artisans)skilled workers/artisans)Goal: secure for workers greater shareGoal: secure for workers greater share of capitalism’s material rewards of capitalism’s material rewards

Congress of Industrial OrganizationsCongress of Industrial Organizations

John L. Lewis, John L. Lewis, president of thepresident of theUnited Mine Workers, United Mine Workers, formedformedthe Committee for Industrialthe Committee for IndustrialOrganizations within the AFL, Organizations within the AFL, with the goal of organizing with the goal of organizing both unskilled and skilled both unskilled and skilled workers workers in several industriesin several industries

1937, AFL leaders (William Green), 1937, AFL leaders (William Green), expelled Lewis and all of the expelled Lewis and all of the industrial unions he helped organizeindustrial unions he helped organize

Congress of Industrial OrganizationsCongress of Industrial Organizations

In 1938, Lewis became president of In 1938, Lewis became president of the the New Congress of Industrial New Congress of Industrial Organizations. Organizations. Under his leadership, Under his leadership, millions of unskilled industrial millions of unskilled industrial workers—including women and workers—including women and African Americans—were organizedAfrican Americans—were organizedUnited Steel WorkersUnited Steel WorkersUnited Automobile WorkersUnited Automobile WorkersUnited Mine WorkersUnited Mine Workers

Today AFL & CIO are united Today AFL & CIO are united

Reasons why organized labor failed Reasons why organized labor failed to make greater gains to make greater gains Wages for works rose hardly at allWages for works rose hardly at all Low wages could not keep up with Low wages could not keep up with the rising cost of livingthe rising cost of living Major labor organizations representedMajor labor organizations represented only a small portion of industrial only a small portion of industrial work force (work force (4% in 19004% in 1900)) AFL excluded unskilled workers, who AFL excluded unskilled workers, who were emerging as the core of the were emerging as the core of the industrial workforce industrial workforce Divided due to internal tensionsDivided due to internal tensions Immigrants—no long-range view in USImmigrants—no long-range view in US

Open Shop vs. Closed ShopOpen Shop vs. Closed Shop

Open shop: workers do not have to join Open shop: workers do not have to join unions; Closed shop: workers can be hired unions; Closed shop: workers can be hired only if they have first joined a uniononly if they have first joined a union

I’m so bummed. I I’m so bummed. I tried 3 times to get a tried 3 times to get a job as a model with job as a model with Madison’s Models of Madison’s Models of

Modesto. Each time I Modesto. Each time I was turned down was turned down

because I am not in because I am not in the union and it is a the union and it is a

closed shopclosed shop!!

Drop in Union MembershipDrop in Union MembershipEmployer opposition—Employer opposition—employers have employers have tried to make unions seem unnecessary by tried to make unions seem unnecessary by changing company labor policies to changing company labor policies to recognize the invaluable role of workersrecognize the invaluable role of workers; ; some companies have moved production to some companies have moved production to other other countries countries (Hershey’s to (Hershey’s to Mexico)Mexico)Changes in employment Changes in employment patternspatternsNegative public opinionNegative public opinion

Major Labor LegislationMajor Labor Legislation

How do the laws listed in Figure 8.7 on p. How do the laws listed in Figure 8.7 on p. 182 reflect changes in government 182 reflect changes in government attitudes toward unions?attitudes toward unions?Most early legislation (Wilson, Franklin Most early legislation (Wilson, Franklin Roosevelt) favored unions and increased Roosevelt) favored unions and increased their power.their power.Since the Taft-Hartley Act of 1947, Since the Taft-Hartley Act of 1947, however, labor legislation has tended to however, labor legislation has tended to place limits on unionsplace limits on unions

Negotiations between Labor and Negotiations between Labor and Management Management

I’m labor.I’m labor.

And I’m And I’m management.management.

We demand We demand wages wages

commensurate commensurate with fair labor with fair labor

practice for this practice for this type of work.type of work.

Your wages Your wages are already are already 6% above 6% above

the norm for the norm for that type of that type of

labor.labor.

Yeah? We also demand Yeah? We also demand COLA COLA that offsets that offsets

inflation, 3 more inflation, 3 more sick sick daysdays, all federal , all federal

government government holidaysholidays and 3 weeks paid and 3 weeks paid

vacation.vacation.

We’ll give you 2 more We’ll give you 2 more sick days, 75% of federal sick days, 75% of federal holidays, selected by the holidays, selected by the employee, and 12 days employee, and 12 days

vacation. But, vacation. But, your your health insurance health insurance

premiums premiums will increase will increase by 13%.by 13%.

That bites! Well, we That bites! Well, we also want an increase also want an increase

in the maximum we can in the maximum we can pay into our pay into our 403b 403b

accountsaccounts. .

No go on the 403b No go on the 403b accounts, but we will accounts, but we will consider initiating an consider initiating an

employee stock employee stock ownership planownership plan. .

Let’s talk Let’s talk conditionsconditions. . We demand—and this is We demand—and this is

a show stopper—that a show stopper—that you renovate the air you renovate the air

conditioning system in conditioning system in the plant. The the plant. The

conditions there are conditions there are awful—it’s hard on the awful—it’s hard on the

workers.workers.

We’ll consider We’ll consider renovating the air renovating the air

conditioning system, conditioning system, although we think although we think

conditions are adequate, conditions are adequate, if you back off on your if you back off on your

demand that all demand that all promotions be based on promotions be based on seniorityseniority. Also we want . Also we want

an an open shopopen shop..

That may be a problem, That may be a problem, Erik. You see, our rank Erik. You see, our rank

and file likes the and file likes the seniorityseniority system. And system. And forget the forget the open shopopen shop——we’ll walk away from we’ll walk away from

the table if you persist the table if you persist on that demand.on that demand.

If you don’t compromise If you don’t compromise on either the on either the open shop open shop or promotions not based or promotions not based on on seniorityseniority, you may as , you may as well use your union dues well use your union dues

to buy fans, because to buy fans, because there will be no there will be no renovated air renovated air conditioning.conditioning.

You guys are jerks! All right, You guys are jerks! All right, I’ll talk to the rank and file. I’ll talk to the rank and file. One last thing, we want a One last thing, we want a joint management-labor joint management-labor

grievancegrievance committee and committee and written assurance that written assurance that management will not management will not

retaliate against those who retaliate against those who file legitimate grievances.file legitimate grievances.

That one I think we can That one I think we can go for, but you tell your go for, but you tell your

rank and file that we rank and file that we aren’t bluffing on the aren’t bluffing on the

other stuff.other stuff.

National Labor Relations BoardNational Labor Relations BoardAt least 30% of a firm’s employees must At least 30% of a firm’s employees must sign a sign a petition petition informing the NLRB that they informing the NLRB that they want to hold an election to determine whether a want to hold an election to determine whether a majority of employees want to unionizemajority of employees want to unionizeSecond, the NLRB conducts the election using a Second, the NLRB conducts the election using a secret ballot, secret ballot, which allows workers to vote which allows workers to vote without fear of harassment or intimidationwithout fear of harassment or intimidationIf the majority of workers favor unionization, the If the majority of workers favor unionization, the NLRB recognizes the union as the only bargaining NLRB recognizes the union as the only bargaining representative for the company’s employeesrepresentative for the company’s employees

Collective Bargaining, Mediation & Collective Bargaining, Mediation & ArbitrationArbitrationUnion and management representatives meet Union and management representatives meet to to discuss their goals and offer solutions and discuss their goals and offer solutions and compromisescompromisesMediation: Mediation: negotiators call in a negotiators call in a neutral third neutral third party, or mediator, to listen to the arguments of party, or mediator, to listen to the arguments of both sides and to both sides and to suggestsuggest ways in which an ways in which an agreement may be reached; agreement may be reached; Taft-Hartley Act of Taft-Hartley Act of 1947 established the Federal Mediation and 1947 established the Federal Mediation and Conciliation ServiceConciliation ServiceArbitration: An arbitrator, like a Arbitration: An arbitrator, like a mediator, is a neutral third party. mediator, is a neutral third party. Unlike in mediation, however, Unlike in mediation, however, an an arbitrator’s decision is legally bindingarbitrator’s decision is legally binding

PicketingPicketingInforms the public Informs the public May arouse public supportMay arouse public supportDiscourages non strikers from crossing the Discourages non strikers from crossing the picket picket lines to worklines to work

Primary and Secondary Boycotts Primary and Secondary Boycotts Primary boycott—organized effort to stop Primary boycott—organized effort to stop purchases of a firm’s products—purchases of a firm’s products—grape boycottgrape boycottSecondary boycott: refusal to buy the goods or Secondary boycott: refusal to buy the goods or services of any firm that does business with a services of any firm that does business with a company whose employees are on strike company whose employees are on strike (Taft-(Taft-Hartley Act made secondary boycotts illegal if Hartley Act made secondary boycotts illegal if workers are striking in an attempt to make that workers are striking in an attempt to make that employer join a boycott of another firm)employer join a boycott of another firm)

Management Responses to Strikes, etc.Management Responses to Strikes, etc.Hiring replacement workers Hiring replacement workers (scabs)(scabs)Introducing a Introducing a lockoutlockoutAsking for an Asking for an injunction—a court order to injunction—a court order to prohibit prohibit workers from strikingworkers from striking

I am financial advisor, I am financial advisor, Justin Martin. Those Justin Martin. Those lucky people have lucky people have

nothing to worry about—I nothing to worry about—I will show them how to will show them how to diversify their winnings diversify their winnings with a combination of with a combination of

savingssavings, and other , and other investmentsinvestments including including

stocks and bondsstocks and bonds. They, . They, and I of course, will make and I of course, will make

a ton of cash! Hey! a ton of cash! Hey! That’s what we’re That’s what we’re

studying in this chapterstudying in this chapter..

Objectives:Objectives:1.1.Describe the benefits of saving moneyDescribe the benefits of saving money2.2.Illustrate how savings differ from time Illustrate how savings differ from time depositsdeposits3.3.Explain how economists measure savingsExplain how economists measure savings4.4.Describe the goals and elements of a Describe the goals and elements of a personal financial planpersonal financial plan5.5.Analyze how financial investment and real Analyze how financial investment and real investment differinvestment differ6.6. Explain why and how people invest in stocksExplain why and how people invest in stocks7.7. Analyze the factors that influence stock Analyze the factors that influence stock pricesprices8.8. Describe how corporate and government Describe how corporate and government bonds differ from stocksbonds differ from stocks9.9. Identify the advantages and disadvantages Identify the advantages and disadvantages of investing in futuresof investing in futures

12.112.1: Students understand common : Students understand common economic terms and concepts and economic terms and concepts and economic reasoning economic reasoning

12.212.2: Students analyze the elements : Students analyze the elements of of America’s market economy in a America’s market economy in a global global setting setting

12.312.3: Students analyze the influence : Students analyze the influence of theof the federal government on the American federal government on the American economy economy

12.512.5: Students analyze the aggregate: Students analyze the aggregate economic behavior of the U. S. economic behavior of the U. S. economy economy

Disposable income Disposable income

Money available after taxes have been Money available after taxes have been paid. Saving is the non-consumption of paid. Saving is the non-consumption of disposable incomedisposable income

This month my This month my disposable disposable income is income is

nearly nearly $300.00. I’m $300.00. I’m going to buy going to buy out the store.out the store.

Why People Save MoneyWhy People Save Money

Major Purchases Major Purchases

Yuck, Daniel! Yuck, Daniel! You really You really

need a new need a new pair of shoes—pair of shoes—for you that’s for you that’s

a a MAJOR MAJOR PURCHASEPURCHASE!!

Pay large annual or semiannual billsPay large annual or semiannual bills

Yike! My property Yike! My property taxes in taxes in

Stanislaus County Stanislaus County are two payments are two payments

of $950.00 in of $950.00 in November and November and

February. I have February. I have to save!!!to save!!!

Unexpected expenses Unexpected expenses

My bail is My bail is $20,000.00.$20,000.00.

Major long-term expensesMajor long-term expensesCheck it out! My Check it out! My college fund is college fund is

really taking off. I really taking off. I think I have think I have

enough here for enough here for at least 2 years at at least 2 years at

Stanford!!!Stanford!!!

Amass wealth/leave inheritanceAmass wealth/leave inheritance

Thanks to the Thanks to the inheritance I’ll inheritance I’ll one day get one day get from G’ma from G’ma

Becky and G’pa Becky and G’pa Pete, I’ll be Pete, I’ll be

able to live a able to live a relaxing life on relaxing life on

the beach, the beach, drinking a few drinking a few

cool ones.cool ones.

Interest rate fluctuationInterest rate fluctuation

Interest rates vary Interest rates vary according to the according to the type of type of account chosen and the financial institution account chosen and the financial institution in which the money is depositedin which the money is deposited. Interest . Interest rates also fluctuate to reflect the general rates also fluctuate to reflect the general availability of money in the economy. availability of money in the economy.

When the When the supply of money supply of money in the economy in the economy is reduced, interest rates is reduced, interest rates generallygenerally increase. increase.

When When more money is available, more money is available, on the on the other hand, other hand, interest rates are lower.interest rates are lower.

Compounded interest on a single investment of Compounded interest on a single investment of $1,000$1,000

$3,500

$3,000

$2,500

$2,000

$1,500

$1,000

$ 500 1 2 3 4 5 6 7 8 9 10

Years12% 10% 8%6% 4% 2%

Regular Savings vs. Money Market Regular Savings vs. Money Market Accounts Accounts Regular: require only a small deposit; Regular: require only a small deposit; perhaps a small fee if balance drops below perhaps a small fee if balance drops below a specified level; a specified level; offer liquidityoffer liquidityMoney Market: Money Market: Like regular, Like regular, pay interest and allow relativelypay interest and allow relativelyeasy access to savings; easy access to savings; viableviable interest rates generally higher interest rates generally higher than those of regular savings than those of regular savings accountsaccounts

Certificates of Deposit Certificates of Deposit

Must keep the money in the CD for a Must keep the money in the CD for a specified amount of time specified amount of time until it maturesuntil it maturesCDs with CDs with longer maturities longer maturities generally offer generally offer higher interest higher interest because the higher rates because the higher rates compensate for reduced liquidity.compensate for reduced liquidity. If you If you withdraw your fund before maturity, you withdraw your fund before maturity, you must pay a penaltymust pay a penaltyBoth the maturity and the interest rate are Both the maturity and the interest rate are established when the account is opened established when the account is opened and locked in place—and locked in place—the interest rate will the interest rate will not change until maturity datenot change until maturity date

I’m pumped because I’m pumped because my grandparents my grandparents

gave me $5,000 for gave me $5,000 for graduation. I’m graduation. I’m

investing in a 5 year investing in a 5 year CD at 6 percent. At CD at 6 percent. At

that rate, I’ll get that rate, I’ll get $6,691 and some $6,691 and some

change in 5 years. change in 5 years. That’s so That’s so

awesome!!!awesome!!!

Begin: $5,000 @ 6% per yearEnd year 1: 5,000 x .06 = $300Begin Yr 2: 5,300 x .06 = $318Begin Yr 3: 5,618 x .06 = $337Begin Yr 4: 5,955 x .06 = $357Begin Yr 5: 6,312 x .06 = $379Maturity: $6,691.05

That’s cool, Trevor, but That’s cool, Trevor, but check this out. I got 96 check this out. I got 96 mature $50.00 Series EE mature $50.00 Series EE Savings Bonds from my Savings Bonds from my parents. That means I parents. That means I

will get $4,800 plus will get $4,800 plus interest on all the bonds interest on all the bonds that have more than 10 that have more than 10 years of maturity—we’re years of maturity—we’re talking close to $6,000. talking close to $6,000. And I still have all the And I still have all the

bonds my dad bought me bonds my dad bought me between the ages of 8 between the ages of 8 and 18. I’m gonna be and 18. I’m gonna be

rich!!!rich!!!

Measuring savingsMeasuring savings

Calculating the savings rate—the Calculating the savings rate—the percentage of people’s disposable income percentage of people’s disposable income that is not spentthat is not spentPoopie! I Poopie! I

can’t put can’t put anything anything

into into savings savings

this month this month cuz I spent cuz I spent

all my all my money on money on shampoo shampoo and gel.and gel.

Yay! I Yay! I put $750 put $750

into into savings savings

this this month month due to due to

prudent prudent living.living.

Fixed and flexible Fixed and flexible expenses expenses

DiversificationDiversification

I’m a happy dude, because I’m a happy dude, because with my diversified portfolio with my diversified portfolio

I’m set for life!I’m set for life!

Retirement PlansRetirement Plans

Real InvestmentReal Investment

Real investment: use money to create a Real investment: use money to create a new capital goodnew capital good

InfrastructureInfrastructure

Real investment increases the number of Real investment increases the number of capital goods used by producers.capital goods used by producers. The The expansion of the capital goods existing in expansion of the capital goods existing in an economy is called capital accumulation.an economy is called capital accumulation.

Capital AccumulationCapital Accumulation

Transportation systems Transportation systems (roads, bridges, (roads, bridges, harbors, airports)harbors, airports) and public facilities and public facilities (schools)(schools)

Money invested in entrepreneurial Money invested in entrepreneurial enterprisesenterprises

Venture Capital Venture Capital

Invests in smaller-size firms with low Invests in smaller-size firms with low interest loansinterest loans

I’m happy I’m happy because I invested because I invested $1,000 in income $1,000 in income stocks. Go band!stocks. Go band!

I’m happy because I I’m happy because I invested $1,000 in invested $1,000 in growth stocks. Go growth stocks. Go

tennis!tennis!

Yeah, but Emily, my Yeah, but Emily, my income stocks income stocks pay pay

consistent dividends.consistent dividends.

OK, Amy. But OK, Amy. But MY MY growth growth

stocksstocks increase in increase in

value value more so more so than your than your

income stocksincome stocks—so I can sell —so I can sell

them and them and make a larger make a larger profit. If they profit. If they splitsplit, I’ll get , I’ll get

two shares for two shares for every share I every share I

own. own.

And ladies, as a And ladies, as a stockbrokerstockbroker, , I’ll be a I’ll be a link between link between you and you and the the buyerbuyer when you decide when you decide to become the to become the sellerseller. Just . Just

check and see which check and see which brokerage firm brokerage firm I work for I work for (probably Merrill Lynch.)(probably Merrill Lynch.)

Buy and sell large blocks of stockBuy and sell large blocks of stockInvestment banksInvestment banksStock Exchanges Stock Exchanges

New York Stock Exchange, American Stock New York Stock Exchange, American Stock Exchange Exchange plus 5 regional stock exchanges plus 5 regional stock exchanges in other US in other US citiescities—places to—places tobuy and sell buy and sell corporate stockscorporate stocksand governmentand governmentbondsbonds

Can now buy and sell stock onlineCan now buy and sell stock onlineBrokerage firms must purchase a seat on Brokerage firms must purchase a seat on the exchange (1,366 seats) nowadays, over the exchange (1,366 seats) nowadays, over $2 million $2 million

Stock ExchangesStock Exchanges

Stock Exchanges Stock Exchanges

Over-the-Counter: stocks not listed on the Over-the-Counter: stocks not listed on the NYSE or other stock exchanges NYSE or other stock exchanges (often (often stocks that do not meet the standards set stocks that do not meet the standards set by the nation’s stock exchanges) by the nation’s stock exchanges) can trade can trade OTCOTCNational Association of Securities Dealers National Association of Securities Dealers Automated Quotations (NASDAQ)Automated Quotations (NASDAQ)

Over-the-Counter StocksOver-the-Counter Stocks

Stocks typically traded in lots of 100Stocks typically traded in lots of 100Brokers bid and ask and then haggle over Brokers bid and ask and then haggle over an agreed upon pricean agreed upon priceWhen many buyers compete for a scarce When many buyers compete for a scarce supply of stock, demand pushes up the supply of stock, demand pushes up the pricepriceSimilarly, Similarly, when there is a large supply of when there is a large supply of stock and few buyers, stock and few buyers, low demand pushes low demand pushes down the price; down the price; thusly, demand affects thusly, demand affects stock pricesstock pricesThe main factors influencing demand for a The main factors influencing demand for a stock are corporate finances, investor stock are corporate finances, investor expectations and external forcesexpectations and external forces

Determining Stock Prices Determining Stock Prices

Corporate finances: profits and losses Corporate finances: profits and losses depicted on published quarterly and annual depicted on published quarterly and annual earnings reports. earnings reports. When investors are When investors are confident that a corporation produces high-confident that a corporation produces high-quality products and has good long-term quality products and has good long-term prospects, investors will buy those “blue prospects, investors will buy those “blue chip” stocks, which are in high demand chip” stocks, which are in high demand during both upswings and downswings in during both upswings and downswings in the marketthe market

Investor ExpectationsInvestor ExpectationsExternal FactorsExternal Factors

Determining Stock Prices Determining Stock Prices

Bull and Bear Markets Bull and Bear Markets

The Dow Jones Industrial Average records The Dow Jones Industrial Average records changes in stock prices of a select group of changes in stock prices of a select group of 30 major industrial companies. Steady rise 30 major industrial companies. Steady rise over a period of time: bull; steady drop in over a period of time: bull; steady drop in prices: bearprices: bear

Treasury Bonds, Bills and NotesTreasury Bonds, Bills and NotesTreasury BillTreasury Bill Treasury NoteTreasury Note Treasury BondTreasury Bond

Short-term U. S. Short-term U. S. government securitygovernment security

Medium-to-long-term Medium-to-long-term US government US government securitysecurity

Long-term U. S. Long-term U. S. government securitygovernment security

Maturity ranging from Maturity ranging from 3 months to 1 year3 months to 1 year

Maturity ranging from Maturity ranging from 1-10 years1-10 years

Maturity ranging from Maturity ranging from 10-30 years10-30 years

Liquid and safeLiquid and safe SafeSafe SafeSafe

Minimum order: Minimum order: $1,000$1,000

Minimum order: Minimum order: $1,000$1,000

Minimum order: Minimum order: $1,000$1,000

Denomination: $1,000Denomination: $1,000 Denomination: $1,000Denomination: $1,000 Denomination: $1,000Denomination: $1,000

Yield rate usually Yield rate usually lower than long-term lower than long-term securitiessecurities

Pays at stated Pays at stated interest rate interest rate semiannuallysemiannually

Pays at a stated Pays at a stated interest rate interest rate semiannuallysemiannually

Price fluctuation Price fluctuation usually lower vis-à-vis usually lower vis-à-vis gov secgov sec

Redeemed at face Redeemed at face value at maturityvalue at maturity

Redeemed at face Redeemed at face value at maturityvalue at maturity

FuturesFutures

Daniel, I just got $1,000 and my Daniel, I just got $1,000 and my mom says I have to invest it. You mom says I have to invest it. You

know, we live in a cattle know, we live in a cattle community so I was thinking community so I was thinking

about about investing in cattle futuresinvesting in cattle futures. . What do you think?What do you think?

Well, Erik, let me ask you a Well, Erik, let me ask you a question or two before I give question or two before I give you an answer. Are you an you an answer. Are you an expert on raising cattle and expert on raising cattle and

cattle trading?cattle trading?

Uh, I know the difference Uh, I know the difference between a bull and a cow, but between a bull and a cow, but that’s about it. Actually, one that’s about it. Actually, one

time I tried to milk a bull—that time I tried to milk a bull—that was nasty!was nasty!

OK, Erik, OK, Erik, futures trading futures trading carries a high risk and carries a high risk and investors must have investors must have

specialized knowledge of specialized knowledge of whatever commodity they are whatever commodity they are tradingtrading. I’d stick to something . I’d stick to something

less risky.less risky.

OK, you boneheads, OK, you boneheads, it’s time for a little q it’s time for a little q and a about Figure and a about Figure 9.7. 9.7. Which of the Which of the

laws shown required laws shown required the return of money the return of money or property acquired or property acquired in an illegal manner?in an illegal manner?

The Insider Trading The Insider Trading Sanctions Act of 1984 Sanctions Act of 1984 is correct. is correct. Number 2: Number 2: what is the role of the what is the role of the

Securities and Securities and Exchange Exchange

Commission?Commission?

The correct answer isThe correct answer is: : to enforce the to enforce the

requirements of and requirements of and to investigate alleged to investigate alleged

violations of the violations of the Federal Securities Act, Federal Securities Act, to take punitive action to take punitive action against violators, and against violators, and

to regulate the to regulate the procedures for the procedures for the

trading of securities. trading of securities. That’s enough for That’s enough for

now.now.

Amy, now Amy, now that I’m that I’m heading heading away to away to college I college I

want to get a want to get a credit card. credit card. The best I The best I

can find has can find has an an APR of APR of

18%. 18%. What What do you think?do you think?

Oooooo, I Oooooo, I don’t don’t know, know,

Maddie. Maddie. Let’s ask Let’s ask

an an expert. I expert. I do know do know that a that a credit credit

card will card will let you let you

buy a lot buy a lot of cool of cool stuff. stuff.

I’ll try to answer that one, I’ll try to answer that one, ladies. Yes, Amy, Maddie can ladies. Yes, Amy, Maddie can

get a lot of stuff and do a lot of get a lot of stuff and do a lot of cool things. And a credit card cool things. And a credit card will help her will help her establish a credit establish a credit historyhistory. But remember, . But remember, if you if you

can’t pay off your monthly can’t pay off your monthly balance in total, you incur a balance in total, you incur a finance chargefinance charge, and finance , and finance charges can add up. On the charges can add up. On the

next slide, Simoncini will show next slide, Simoncini will show some statistics about college some statistics about college

students and credit cards.students and credit cards.

That’s right, Justin. That’s right, Justin. This is an issue I’ve This is an issue I’ve

been concerned with been concerned with for a long time.for a long time.

The average college undergraduate in 2008 had The average college undergraduate in 2008 had $3,173 in credit card debt, up from $2,169 in $3,173 in credit card debt, up from $2,169 in 20042004In 2008, college seniors with at least 1 credit card In 2008, college seniors with at least 1 credit card graduated with $4,138 in credit card debt, up graduated with $4,138 in credit card debt, up 44% from 200444% from 200456% of undergrads: first credit card by age 1856% of undergrads: first credit card by age 18By graduation, 91% at least 1 card and 56% have By graduation, 91% at least 1 card and 56% have 44Source: Source: USA Today,USA Today, 2009 2009

There is a high number of defaults by There is a high number of defaults by credit credit card userscard usersBanks et al provide extended credit Banks et al provide extended credit requiring requiring limited or almost no collaterallimited or almost no collateralCredit card “loans” carry high processing Credit card “loans” carry high processing costs costs compared to other types of loans compared to other types of loans

““Some critics claim that the interest rates Some critics claim that the interest rates on credit card balances are too high.” How on credit card balances are too high.” How do banks and credit card companies do banks and credit card companies counter that claim?counter that claim?

BankruptcyBankruptcy

I’m so bummed! Hats for I’m so bummed! Hats for Hotties had to declare Hotties had to declare

bankruptcybankruptcy. Is there any silver . Is there any silver lining to this cloud? lining to this cloud?

It’s bad, Justina, but maybe not ALL bad. It’s bad, Justina, but maybe not ALL bad. I’m sure your making that move was a I’m sure your making that move was a last resortlast resort. This bankruptcy will . This bankruptcy will remain remain

on your credit history for 14 years, on your credit history for 14 years, so you so you will have will have trouble borrowing money or trouble borrowing money or

receiving creditreceiving credit. But, the . But, the business can business can start anew and rebuildstart anew and rebuild. Of course, you . Of course, you could marry a wealthy man. Hey! I’m could marry a wealthy man. Hey! I’m

available.available.

It’s time for more q It’s time for more q and a, this time about and a, this time about Figure 9.8. Figure 9.8. Which of Which of

the laws shown the laws shown protects consumers protects consumers against inaccurate against inaccurate

credit reports?credit reports?

The Fair Credit The Fair Credit Reporting Act of 1971 Reporting Act of 1971 is correct. is correct. Number 2: Number 2:

which of the laws which of the laws prohibits prohibits

discrimination in discrimination in granting credit granting credit

because of things like because of things like race, gender or race, gender or

religion?religion?

The correct answer isThe correct answer is: : the Equal Credit the Equal Credit

Opportunity Act of Opportunity Act of 1974 and 19771974 and 1977. .

Number 3: Number 3: which of which of the laws shown the laws shown

forbids lenders from forbids lenders from rejecting a home loan rejecting a home loan application because of application because of the applicant’s race, the applicant’s race,

national origin, national origin, religion or sex? religion or sex?

The correct answer isThe correct answer is: : the Civil Rights Act of the Civil Rights Act of

19681968. Number 4: . Number 4: which of the laws which of the laws

shown establishes a 3-shown establishes a 3-day cooling off period day cooling off period

during which during which consumers can cancel consumers can cancel most credit contracts most credit contracts

except first-home except first-home mortgages? mortgages?

The correct answer isThe correct answer is: : the Truth in Lending the Truth in Lending

Act of 1968Act of 1968. Last one: . Last one: which of the laws which of the laws

shown prohibits bill shown prohibits bill collectors from collectors from

making harassing making harassing telephone calls to telephone calls to

consumers and their consumers and their families and friends families and friends

and from using other and from using other methods of methods of

intimidation? intimidation?

The correct answer isThe correct answer is: : the Fair Debt the Fair Debt

Collection Practices Collection Practices Act of 1977Act of 1977. Good . Good job! Let’s finish up job! Let’s finish up

this chapter.this chapter.

Credit and the U. S. EconomyCredit and the U. S. Economy

Supply increasesSupply increases

Demand increasesDemand increases

Businesses use Businesses use borrowed borrowed

money and money and credit to credit to buy buy capital goodscapital goods

Consumers use Consumers use borrowed borrowed

money and money and credit to credit to buy buy

consumer consumer goodsgoods

Government Government uses borrowed uses borrowed

money and money and credit to credit to pay pay

for public for public goodsgoods

Financial institutions Financial institutions lend lend money and extend credit to money and extend credit to consumers, businesses, and consumers, businesses, and

government government

Individuals and businesses Individuals and businesses savesave money in financial institutions money in financial institutions