PR 529 - Business & Economic Basics

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Questions and Answers

Explain the fundamental difference between raising capital through stocks versus bonds. What does each represent for the investor?

Stocks represent ownership in a company, entitling the investor to a portion of the company's future profits and voting rights. Bonds are a loan to the company, where the investor is promised repayment of the principal plus interest.

Contrast Adam Smith's and John Maynard Keynes' perspectives on government intervention in the economy. Under what conditions would each economist advocate for government involvement?

Adam Smith advocated for minimal government intervention (laissez-faire), believing that free markets best regulate themselves. Keynes argued for government intervention during economic downturns to stimulate demand and stabilize the economy.

In your own words, explain what 'laissez-faire' economics means. How would this philosophy impact business regulation?

Laissez-faire economics means the government should not interfere in the economy. This would lead to minimal regulations on businesses, allowing free markets to dictate prices and competition.

Explain how buying stock in a company can be seen as both an investment and a risk. What are the potential benefits and drawbacks?

Buying stock is an investment because it can provide returns through dividends and capital appreciation if the company performs well. However, it's a risk because the stock value can decline, leading to losses for the investor if the company underperforms or faces financial difficulties. Signup and view all the answers

How did the U.S. government's actions during the 2009 Great Recession reflect Keynesian economic principles?

The U.S. government implemented Keynesian principles by bailing out companies like GM and Chrysler, injecting capital into the economy to stimulate demand and prevent a complete collapse of the automotive industry and related sectors. Signup and view all the answers

Describe a scenario where a company might choose to issue bonds instead of stocks to raise capital. What factors could influence this decision?

A company may choose to issue bonds if they want to avoid diluting ownership (giving up equity) or if interest rates are low, making borrowing more attractive. A company might also do this if they have consistent revenues that ensure they will be able to pay the bond interest. Signup and view all the answers

Explain in a short paragraph, why public relations professionals need to understand basic economic principles.

Public relations professionals need to understand basic economic principles to effectively communicate with stakeholders about a company's financial performance, market position, and impact on the economy. A PR professional may also need this knowledge to understand how different news events may affect a company's stock price or reputation. Signup and view all the answers

How might a company's decision to prioritize short-term profits over long-term sustainability impact its stock price and overall reputation?

Prioritizing short-term profits can initially boost a company's stock price, but if it leads to unsustainable practices or ethical concerns, it can damage the company's reputation and ultimately lead to a decline in stock value in the long run. Signup and view all the answers

Explain how a K-shaped recovery impacts different sectors of the economy, providing an example of an industry that might thrive and one that might struggle.

A K-shaped recovery sees some industries recovering quickly while others struggle. For example, technology might thrive due to increased remote work demand, while the hospitality industry struggles due to travel restrictions. Signup and view all the answers

Describe a scenario where a company might file an 8-K with the SEC and why this filing is important for investors.

A company might file an 8-K if their CEO suddenly resigns. This filing is important for investors because it provides timely information about significant events that could affect the company's stock price. Signup and view all the answers

What role does a PR team play when a company decides to accept cryptocurrency as a form of payment, and why is this important?

The PR team educates consumers about cryptocurrency and manages the risk associated with its volatility and unfamiliarity. This is important for building trust and ensuring a smooth transition. Signup and view all the answers

Differentiate between the information provided in a company's 10-K and 10-Q filings, and explain why both are important for potential investors.

A 10-K is an annual financial report that provides a comprehensive overview of the company's performance, while a 10-Q is a quarterly report offering a more frequent but less detailed update. Both are important for investors to track the company's financial health and trends. Signup and view all the answers

Explain how a high unemployment rate and rising inflation can lead to a bear market, and what this indicates about the overall economy.

High unemployment and rising inflation can signal economic instability and reduced consumer spending, leading investors to sell stocks, thus causing a bear market. This indicates a declining economy. Signup and view all the answers

Describe the difference between money and cryptocurrency, and explain a potential PR challenge associated with promoting a new cryptocurrency.

Money is controlled by banks and governments, while cryptocurrency is decentralized. A PR challenge could be addressing concerns about crypto's volatility and lack of regulation to build trust with the public. Signup and view all the answers

Explain how Gross Domestic Product (GDP) is used as an indicator of a country's economic health, and what a significant drop in GDP might suggest?

GDP represents the total value of goods and services produced in a country; higher GDP indicates a stronger economy. A significant drop suggests economic contraction or recession. Signup and view all the answers

Describe the key differences between V-shaped and U-shaped economic recoveries, and explain which type might be preferable for long-term economic stability.

A V-shaped recovery is a quick drop followed by a quick bounce back, while a U-shaped recovery involves a slower, more gradual improvement. A U-shaped recovery might be preferable as it allows for more sustainable growth and reduces the risk of a double-dip recession. Signup and view all the answers

Explain the relationship between a company's revenue, expenses, assets, and liabilities, and how these are reflected in the income statement and balance sheet.

The income statement shows revenue and expenses, indicating a company's profit or loss. The balance sheet lists assets (what the company owns) and liabilities (what it owes). The income statement reflects performance over a period, while the balance sheet is a snapshot in time. Signup and view all the answers

Describe the role of a PR team when a company's stock price is rapidly declining, and explain why it is important to manage the narrative effectively.

A PR team helps shape the narrative to prevent panic and reassure investors. Managing the narrative effectively can stabilize the stock price by maintaining confidence and transparently addressing concerns. Signup and view all the answers

Flashcards

Stocks

Selling ownership shares of a company to investors.

Bonds

Borrowing money from investors with a promise to repay with interest.