Chapter 22.1

*Types of Business

*Vocab – Unit 213. Civilian Labor Force14. Unemployment Rate15. Fiscal Policy16. Inflation17. Consumer Price Index (CPI)18. Central Bank19. Federal Open Market 20. Committee (FOMC)21. Monetary Policy22. Discount Rate Reserve23. Open Market Operations

1. Sole proprietorship2. Financial capital3. Partnership4. Articles of Partnership5. Corporation6. Charter7. Stock 8. Stockholder9. Board of Directors10.Cooperative11.Real GDP12.Business Cycle

4 Elements of Business1. Expenses

• What you need to start & continue a business

2. Advertising• Introduction and reminder of your

business3. 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.

*Business Types

*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

*Sole ProprietorshipAdvantages*Receive all profits*Quick decisions because no consultation *Relatively low taxes

Disadvantages*Unlimited liability*Handle all decisions*Time consuming*Rely on own funds*Business depends on 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 Partnershipo Partners are not equalo General Partner – has majority of controlo 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 Ventureo temporary partnership to do a job

*PartnershipAdvantages*Losses are shared*More efficient than proprietorships*Pay taxes on share of profit*Easier to borrow money

Disadvantages*Profits are shared*Unlimited liability, most of the time*Must reach agreements*Committed partners

*3 Types of Businesses cont.3. Corporation

a.Owned by manyb.Started by a founderc.Owned by Stockholdersd.Run by a Board of Directorse.State government issues a charter to

run the businessf. Complicated structureg.Business has the same rights as an

individualh.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.

Duties of Corporate Role Payers*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

*CorporationsAdvantages*Owners do not have to devote time to make money. *Stockholders have limited liability; they only lose what they put in. *Individuals trained in specific areas make decisions.

Disadvantages *Decisions are slow. Interest of the board may differ from the stockholders. *Double taxation. Govt. taxes corporate profit then individual shares. *Stockholders have little or no say in how business is run.

*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

*Stocks*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

*Stocks*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

*Role of Business

Chapter 22.3

*Roles of Business

*1. Responsibilities to Consumers*2. Responsibilities to Owners*3. Responsibilities to Employees*4. Responsibilities to the Community

• Sell products that are safe• Products should work as

promised• Be truthful in advertising• Treat all customers fairly

Responsibilities to Consumers

*Responsibilities to Owners

*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.

* Responsibilities to the Community

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?

*Business Cycle

*The Business Cycle

The Business Cycle (AKA The Economic Rollercoaster)

The ups and downs of the economy

Alternating periods of growth & decline

*4 Economic PhasesProsperity(Expansion)Boom

Economy is improving Economic activity peaksBusiness activity is increasing Businesses work at full capacityBusinesses hire more Stores sell at record workersamountsConsumers buy more *Peak: High point of boomDecline RecessionEconomy slows down Lowest period for productionProduction is cut down High unemploymentWorkers are laid off Low consumer spending *Trough: Low point of recession Depression: Severe recession

* Business Cycle

Expansion/ Prosperity

Decline/Recession

Boom

Recovery/Prosperity

Peak

Trough

Recession

*Business Cycle

*What is the highest point in the business cycle?

1. Boom2. Trough3. Expansion4. Peak

*Fiscal Policy*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.

*Monetary Policy*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.

*Inflation

*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.

*Consumer Price Index(CPI) *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.

*Implicit GDP Price Deflator

*Takes inflation away for year.*The base year used for comparisons is 1987.

*Gross Domestic Product*The total dollar value of all final goods and

services produced and sold in the nation during a single year.

*Value is always expressed in terms of the dollar.

*Final means only finished goods.

*Only new items are counted. Anything bought used is not counted.

*GDP Categories*Consumer Goods: 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 and Tight Money* Loose Money

1.Easy to borrow2.Consumers buy

more3.Business

Expansion4.Employment

increases5.Spending

increases

This can lead to inflation

* Tight Money1.Difficult to borrow2.Consumers buy

less3.No business

expansion4.Unemployment

increases5.Production

decreasesThis can lead to a

recession

*Fractional Reserve Banking*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.

*Struggles in the Economy

http://www.learner.org/courses/amerhistory/units/18/video/

*Great Depression*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

*New Deal *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.

*Financial Reform *Glass-Steagall Act (1933): Banks could not invest in the stock market. Created the FDIC to insure deposits.

*Federal Securities Act (1933): No stock market fraud.

*FDR’s Fireside Chat*First Fireside Chat

*Unemployment*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.

*Types of unemployment

*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!

*How Banks Operate

*Ch 24.3

*Banking Services

*What do Banks do?*Accept Deposits*Make Loans

*What Banks do*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.

*What Banks Do*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.