Business Organizations & Economics Notes PDF

 Types of business organizations: 1. Sole proprietorship – business with one owner – simplest form of business organization 2. Partnership – business with two or more owners 3. Corporation – legal construct that is owned by shareholders – exposes busi...

 Types of business organizations: 1. Sole proprietorship – business with one owner – simplest form of business organization 2. Partnership – business with two or more owners 3. Corporation – legal construct that is owned by shareholders – exposes business assets only – many decision makers  S corporation – limited to maximum of 100 shareholders - no corporate tax  C corporation – unlimited number of shareholders – double taxation 4. Limited liability company (LLC) – business with an amalgamation of a partnership and a corporation  Business cycle – recurrent fluctuations in the level of economic activity o Stages of the cycle:  Expansion - or boom – growing economy – low unemployment rates - a nation’s GDP rises significantly  Gross domestic product (GDP) – value of all finished goods and services produced within a country during a year’s time – includes value of goods made by all citizens and foreigners located within that country  Gross national product (GNP) – value of all finished goods and services produced by a nation’s citizens during a year’s time – includes items produced by citizens outside that nation’s borders – does not include items produced by foreigners within the country  Peak – high point of an expanding economy – before declining into a recession – activity is at its highest  Recession – economic decline after a peak – when GDP has two or more quarters of negative growth – significant decline in national economic activity that lasts more than a few months – usually occurs after a war is over  Depression – unusually severe or long-lasting recession  Companies – income decreases – may lay off workers to cut expenses  Trough – lowest point a receding economy reaches before recovering  1 Chron. 29:12 – “Both riches and honour come of thee, and thou reignest over all; and in thine hand is power and might; and in thine hand it is to make great, and to give strength unto all.”  Leading indicator – component of the economy that normally changes before the rest of the economy  Unemployment compensation – little incentive for unemployed to search for work – little incentive for employed to stay employed – burden to support unemployed increases as employment decreases – national productivity goes down  Inflation – too much money is in circulation - prices rise  o Demand-pull inflation – demand becomes greater than the supply – forcing up the prices that consumers must pay – creating shortages o Cost-push inflation – businesses face rising production costs – forcing them to increase the prices they charge for their goods  Consumer Price Index (CPI) – measures the growth of inflation – allows comparison of increase in goods’ cost over time – based on average price consumers pay for specific good and services - compares prices to a base period (serves as a reference point to which prices are compared in the CPI - arbitrarily given the value of 100%)  Stagflation – high inflation is combined with high unemployment – resulting in stagnation of productivity  Ronald Reagan - attempted to lift the U.S. economy out of its slump - implemented policies based on supply-side economics (theory that reduction of taxes makes more money available for private investment in capital and research - thereby increasing productivity – successful in fighting stagflation in ‘70s) o Ronald Reagan: “The government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”  Foreign inflation – normal inflation makes foreign products more expensive – causes less to be bought – will have to charge more for exports – causes foreign countries to pay more for imports  Selfishness & envy – supporters claim these do not exist in command economies – history shows otherwise – government officials take advantage of others’ labor & fill their own purses – common people envy goods of the elite  Abraham Lincoln: “You cannot bring about prosperity by discouraging thrift. You cannot strengthen the weak by weakening the strong. You cannot help the wage earner by pulling down the wage payer. You cannot help the poor by destroying the rich.”  20th century – more economically productive than any other era – great advances in science & technology – allowed people to produce more food & goods than ever before o industrial societies - average people have more conveniences & more comfortable lifestyles than the richest people in earlier ages  Dialectical materialism – nothing but material world exists – material conditions alone determine how someone thinks, acts, feels, & believes o Alexis de Tocqueville – wrote that materialism could never triumph in U.S. as long as Americans stay attached to religious beliefs – religious convictions provide foundation for responsible moral behavior