Download B200 TUTORIAL WEEK ONE

B200
TUTORIAL WEEK TWO
By the end of the Environments module you
should be able to:
• recognise key phenomena in business
environments
• use appropriate models and concepts to analyse
them
• recognise and interpret the values underlying
different analyses of business environments
• understand the complex relationship between
the behaviour of businesses and their
environments
• identify some of the methods businesses adopt
for dealing with their environment.
The Economy
• This area of environments is covered by
your study of Chapters 4, 5, 6, 8 and 9.
Chapter 4
Conservative
Governments and
the economy
by Wilks.
• This chapter relates closely to the UK economic
and political scene.
• The traditional goals of economic policy were
fourfold:
low inflation, high growth, low unemployment
and trade balance.
• Wilks distinguishes between macro-economic
policy (deals with structure, behaviour, national
economy as a whole and focus on national
income, unemployment, inflation, investment
and international trade)) and micro-economic
policy (the management of markets and
industries within the economy, (where the
individuals, households and firms make
decision to allocate limited resources in market)
• Wilks associates successful economic performance
with an absence of Government interference in
corporate business decision making. He prefers
microeconomic policy because of liberal view of
economy.
• Also Wilks’ approve of privatization and asserts the
role of company autonomy (freedom) as a key to the
UK relatives economic success during the period.
Four major policies were implemented since 1981 by
the conservative governments:
1) The privatization and deregulation of the utilities
(firms)
2) The "inward investment" policy that succeeded in
attracting best companies in the world to UK.
3) Help and encourage small businesses to start,
expand, and innovate.
4) Improve the qualification and productivity of
workers by training and education.
Also, there are some factors that help to made
more efficient corporation: introduce tax law,
reduction of labour regulation and remove of
exchange control.
Chapter 5
Finance Unbound
by Hutton.
• His work is a critical analysis of “right wing”
free market economics.
• He criticises the Conservative Government’s
policies.
• After II WW there are some changes
happened around the world, change in
currency exchange, lower export and import,
less global demand for goods and services.
• He believes on Keynesian economic (discuss
later – government rule)
• The economic growth during 1980 – 1990
period was explosion in credit availability,
and increase in consumer spending which
followed by deregulation of UK banks and
industries.
• Hutton felt that this type of growth was
temporary – and was a “privatisation” of
the cycle of “boom and bust” economics
characterised by harsh recessions
(previously driven by fluctuations in
Government spending).
Open Questions
• How would you compare and contrast the
views of Wilks and Hutton?
• Which do you agree with? Why?
Chapter 6
The
Management
of UK Economy
by Coates
• This chapter looks at a clear model of
the economy known as the circular flow
of income model.
• Key terms are aggregate demand and
the multiplier effect.
• The chapter considers Keynesian
economics in more detail and cover
monetarism.
We want to understand how to make sense of
complicated pattern of government policy and
economic performance?
The model of economy help us to understand how
economy exchange between householders and
firms. Household supply workers to firms, firms
supply goods and services to householders.
The circular flow of income, or simply the circular
flow, is a simple economic model showing the
relationship between money income and spending
for the economy as a whole
Circular Flow of Income Model
• There are many different examples of this
model – see pages 56 – 58 of the reader.
See diagrams 6.1, 6.2, 6.3, 6.4, 6.5
Government economy policy has some objectives:
high & stable employment, rising living standard,
price stability, and healthy balance of payment.
See diagram 6.6
The government can use different ways to influence
economic performance: taxes, expenditure by use of
funds generated by taxes, interest rates, exchange
rate, ….others
On the other hands, Keynes said, the government can
improve the economy through increase flow of
demand (increase aggregate of demand) in the
economic system, the expansion will be through but
not begin with:
•Encourage export
•increase consumer demand so the firms will sell
more and employ more staff but the consumer
demand will increase when
•investment goods will improve and expand
which occur through
•government injection and stimulation. Which
should begin with. (MPC)
Agregate demand
• Following the examples in the text book
pages 56-58:
• Agreggate demand = c (consumer
demand) + I (investment demand) + g
(Government spending + x (revenue from
exports) – m (revenue spent on imports)
• Keynes argues that the task of increasing
agregate demand fell to Government.
The Multiplier Effect
The Simple Multiplier Process.
(mpc=marginal propensity to consume)
• The marginal propensity to consume (MPC) refers to
the increase in personal consumer spending
(consumption) that occurs with an increase in disposable
income (income after taxes and transfers). For example,
if a household earns one extra dollar of disposable
income, and the marginal propensity to consume is 0.65,
then of that dollar, the family will spend 65 cents and
save 35 cents.
• Monetarism is a school of thought with a belief that the
•
•
•
•
•
prime task of Government was to control the supply of
money.
Monetarists believe that control of the money supply is key
to price stability, economic growth and full employment.
A set of views concerning the determination of national
income and monetary economic. It focus on the supply of
goods and demand for money as the primary means by
which economic activities regulated.
This theory focus on money supply and on inflation as
effect of the supply of money being longer than the demand
for money.
The monetarists broadly criticized the Keynesian economy
They are linked to the liberal stance that prefers private
economic activity to public regulation.
Chapter 8
Living without
borders
by Rastogi
Rastogi identifies the main cause of
globalisation as the growth in volume of
investment which is now conducted
internationally. This is supported by the
development of new technology which first
makes the capital funds needed for investment
easier to transfer across the world. It then helps
financial decision makers calculate profit if the
investment is successful and even the
probability of its success or failure. His
interpretation of the economy is that it is
increasingly dominated by a growing financial
sector.
Rastogi’s view.
• Rastogi is a Vice President of a leading
international banking corporation.
• His view is a liberal supply-side view.
• Rastogi does not take full account of the
influence of Governments in the global
economy.
• Rastogi uses a single model of the
economy to predict the future
(determinism).
Rastogi’s assumptions
• Everyone will have equal access to funds, equal
access to market information and that everyone
will behave with the same type and degree of
rationality.
• BUT in reality the market would be heavily
influenced by those with the most funds, the best
access to market information and ability to work
out financial outcomes easily (large corporate
organisations).
There are 3 majors forces in financial markets have
caused a truly global market to form:
1- increase in international capital flows because of
staff towards deregulation (free) of trade and
financial market around the world.
2- Explosive advance in technology lead to
tremendous (huge) growth in the scale and
complexity of financial market.
3- financial management innovation have produced
number of derivatives and extraordinary number
of innovations.
Open economics, growth of technology and the
innovation in financial markets lead to build on
each other and drive further growth. Of course
these trends effecting the financial market players
as following:
1)
Savers: who are the providers of funds or credit in
the economy. Their primary goal is to minimize
risk-adjusted return while preserving their capital.
2)
Institutional investors: such as banks funds
managers, insurance companies. Their objective
is to maximize risk-adjusted returns companies –
their objective is to maximize risk-adjusted returns
for the savers who use their services, based on a
state of investment objective.
3) Users of funds: corporations, governments,
and individuals use funds to finance real
investment and current consumption. Their
objective is to minimize their cost of capital
within acceptable risk parameter.
4) Broker / Dealer Intermediaries: they are all
the go – between transferring funds from
savers to users of funds. The play the role of
financial counselor, create new financial
products
Borderless world help growth of financial market and
members. How??
The rate of return will improve for savers because of better
risk return relationship, lower management expenses
and reduce transaction costs , People become more
educated in financial market, institutions and funds try to
be unique and differentiate them self by tracking specific
industries or provide special financial technique.
But there are some barriers affect borderless world and
slow the globalization of financial market : legal systems,
taxes differences, and not all countries have free market !
Chapter 9
Global
cooperation or rival
trade bloc?
By Junne
• Junne rejects the inevitable onset of the global
economy. He widens the debate by examining
potential scenarios for the development of
regional or supranational trading blocs.
• Junne constructs 3 possible scenarios based on
established research.
• We can conclude that (according to Giddens in
Chapter 1) Junne is a sceptic – he asserts that
‘globalisation’ in the liberal economic sense of
the word does not describe what is happening.
Instead he examines the forces that drive
particular countries into global trading which
help maintain a world of separate economies
with definite boundaries.
Junne’s scenarios
• The past 3 decades have seen a significant shift
toward deregulation of trade and financial
markets around the world resulting in increased
capital flows.
• Explosive advances in computing and
communication technology have provided the
platform for tremendous growth in the scale and
complexity of financial markets, thereby meeting
the need for international flows.
• Significant innovation in financial management
have produced an unprecedented number of
innovations in securitization and derivatives.
We will examines whether the world will continue to move towards a
liberal , multilateral world trade system or will fail apart into rival
trade blocs?
CPB (Central Planning Bureau) Scenarios (Liberal Scenario)
Balanced Growth
Global Crisis (problem)
Entire world will tend to innovate,
introduce many technologies
expand and grow economically for a long
time to come. Growth and Prosperity to
all nations lead to be more open and
Cooperation.
US and European economies
are unable to cooperate with economic
problems result in economic recession
and stagnation (failed). Far east economic
Will innovate and grow successfully.
Global Shift Scenario
Europe Renaissance (growing)
Asia and Japan will adopt free market,
USA will increase productivity.
European integration favours business and
Economic growth, Asia countries will
Cooperate with Europe while Us will flatters.
BRIE (Berkeley Round table on the International Economy)
Managed Multilateralism
Powers between government
& liberal
In the same nation
Regional Rivalry (competitive)
Protectionist behavior, and restrictive
measures will be adopted instead of
collaboration and coordination
between great powers
Benign Regionalism
Nations and regions live
separately from each others.
Amsterdam Scenarios
Managed Multilateralism
New technology lead to
New economy growth and
Increase nation trade.
Regional Rivalry (competitive)
Slow economic growth combine with
Highly confliction relation among
Trading blocs.
Greening of business
Worldwide development,
Economic restructured to be
Less environment harmful.
Activities
• Activity 4 (page 20 of the Study Guide)
• Activity 6 (page 25 of the Study Guide)
READING TO BE COMPLETED BY NEXT WEEK
• Please read pages 18 – 22, 25 - 27 of the Study Guide to refresh
your study of Chapters 4, 5, 6, 8, and 9.
• Please read Chapters 10, 12, 14 and 15 of the Text book before the
next tutorial (NB you do not need to read Chapters 11 or 13 – these
are optional readings).