1 Thing People Buy for the Holiday Is Airplane Tickets

Intro To Business Day 4

2017.9.18

GDP: sum of all goods & services produced in the country. Tells us how well the economy is going.

#1 thing people buy for the holiday is airplane tickets.

INPUT #1

Recession: 2 quarters of negative GDP. Recession is natural. (NOT TRUE WE NEED REAL GDP)

Growth: GDP growth. (NOT TRUE WE NEED REAL GDP)

Cycle: a pattern that repeats itself.

Why do we have recessions?

Because things can’t grow forever. Especially if you grow too quickly you start to close branches of the business.
Then you get back to where you make good profits & you start to grow again.

You crash you’re in the desert & you have water. What is it worth? What you’re willing to pay for it. Someone has a cap. What is it worth? What you’re willing to pay for it.

On the second day is the water worth more? The money you’ve got. Since you got an extra $100 in your pocket the 2nd dollar. We now have inflation.

Inflation: when prices go up we have inflation. The reason we have inflation is because we have more money.

Today inflation is 2%. If you paid $1 for apples. Next year the apple will cost $1.02.
Historically the inflation average is 4%.
1981 the inflation was 12%.
Who cares about inflation? Wages has to go up or match the inflation rate. Only some people’s wages go up. Fixed incomes don’t go up. So people who retired whose pensions are fixed will be hit.
Who gets helped by inflation? So basically the banks get hurt. Because they loan the money and they get paid back in cheaper dollars. People who borrow money do well.
Rule of 72: . 72/2=36 yrs prices will double. 72/4=18 yrs prices will double. 72/12=6 yrs prices will double.
Zimbabwe their inflation rate was 1000%. It’s basically worthless. 10 billion dollar note.
Venezuela is over 7000% inflation. They can’t even print money because nobody will take their money.
If we have inflation what happens to GDP?  Basically, GDP should go up. But is the economy really growing? NO. We want to take out inflation with measuring GDP.

Hyperinflation: when inflation gets super high.

When you’re in a place with hyperinflation. What do you do with your $10,000 you buy as much as you can because in 2 days the money will be worth less because of hyperinflation.

PPI or Producer price index: measures the inflation for businesses. Their prices for things are different such as gas prices, minimum wage labor, bulldozer, or etc. Function; measures the inflation for businesses. If businesses their prices go up then consumer prices will go up.

Types;

Demand pull: consumer wants more stuff. Income goes up we want to buy more things. Demand curve shifts to the right.

Cost push: cost of things to produce goes up. Cost of gas or corn.

Real Gross Domestic Product or Real GDP:

Nominal: sticker price.

Real: take out inflation.

Nominal = real + inflation.

Real = nominal - inflation.

Real raise = 10% - 12% = -2% you lost money. You can buy 2% less.

How to find real home prices? Real home prices = nominal price - inflation.

INPUT #2

If for more than 100 years our home prices were stable. And they sharply spiked it’s expected to go down.

The Spanish were looking for gold. To take back to Europe. But they doubled the supply of Europe. So the prices of things in Europe went up there was inflation. There was more money prices went up. Not just the worth of gold went down.

Consumer price index or CPI: measures prices that we the consumer buy like gifts, education, food, or etc. Nobody cares about the number. You care whether prices are going up or down. Function; measure of inflation.

Index: a number we invent to measure something. We want to make up a number. Stock index.

In business if you want to know how something is doing. WE HAVE TO MEASURE IT.

We have to calculate real GDP. Subtract out inflation.

Recession: real GDP going down for 2 quarters.

Growth: real GDP growth.

Unemployment: people who don’t have jobs AND you’re looking for jobs. There are people looking for this number.

Today unemployment rate is 4.4%.
The average since 1949 is about 4%.

INPUT #3

Depression: no technical term when you are in it you know it.

In the great depression the unemployment rate was 25%. A lot of people gave up. A lot of people wanted to work.
In 2008-2009 the unemployment rate was >10%.
4% is a good target because it’s mostly frictional unemployment.

Underemployment: people who would like to work but have given up. Who could be working would like to.

Types of unemployment;

Seasonal unemployment: when your job is tied to seasons so when the season is over you’re unemployed.
Cyclical unemployment: has to do with the business cycle of the company. When the company is doing worse you close operations & lead to unemployment.
Structural unemployment: you don’t have the skills to work anymore.
Frictional unemployment: idea that it takes time to find a job. You have the skills & you want to find a job. But it takes time.

After Christmas most people spend the most money on Halloween.

Unemployment goes up. We start going into a recession.

Government has to step into action.
H. W. Bush the first Bush. He didn’t do anything because it’s the business cycle. He got hammered. Then Clinton won. But Clinton didn’t need to do anything.

2 parts of the government that try to affect the economy;

Monetary policy: controlling the money supply.

When you give consumers money they spend it better economy.

Federal Reserve (Fed) [Central bank]: every currency has a central bank. It’s their job to deal with the money supply.

Janet Yellin controls the money supply for the US. So it sets the tone for the rest of the world.
Federal reserve meets in different places.

Ways Fed controls money;

The Fed controls the money supply with interest rates.
If mortgage rates goes up. Are you more or less likely to buy a house? You’re less likely because the interest is higher.
Interest rates go up. Spending goes down. Because loans go down. Consumers don’t want to spend. So the economy generally goes down.
Interest rates go down. Spending goes up. Then the economy goes up.
If interest rates go down. How does it affect inflation? Inflation goes up.

Basically the problem is right now since unemployment rates are good.

Fiscal policy: government influences econ with taxes & spending.

If government raises taxes. It’ll hurt the economy. You have less money to spend.
US corporate taxes are one of the highest. They want to lower it down to 15-20%. It’ll help businesses with their profits. They’ll use the money to reinvest in other investments to growth their money & help the economy.
Since 2008 they haven’t messed with taxes they’ve used monetary policy.
Governments can spend more money. It should help the economy. The US government now has to borrow it.
George Bush the 2nd one was going into a recession. He gave everyone a tax rebate. It did nothing had no effect on the economy.
Obama came into office. He spent a trillion dollars to invest in the US. It had no effect.