Unit 1: The Context of Business
This unit covers basic concepts which provide a context for business. We explore economic and historical information governments use to make decisions, which provides a foundation for future decision-making. You will learn about productivity, the business cycle, the impact of business on society, economic trends and policies, and elements of global business. We will examine the financial meltdown of 2008, including the government bailout of AIG and General Motors, and the collapse of Lehman Brothers, which provide teachable moments in economic policy and business cycles.
Completing this unit should take you approximately 16 hours.
Upon successful completion of this unit, you will be able to:
- identify foundational business practices;
- describe economic indicators;
- identify positive and negative impacts of business on society;
- use economic indicators to describe the state and health of an economy;
- identify and explain current economic trends;
- identify the four phases of the business cycle in real-life situations;
- use economic indicators to predict where a business is heading in the business cycle;
- describe global trade restrictions;
- identify factors affecting the success of businesses;
- evaluate the feasibility of doing business in a foreign country;
- describe methods for business entry into the global marketplace; and
- identify trade facilitators.
1.1: Business Basics
1.1.1: Foundational Business Practices
Read each section for an overview of basic business concepts. These sections will provide you with a solid foundation for the course material to follow. While the goal of business is to make a profit, there are many other goals, as well. These sections will explain the various types of goals, how they are assessed, the markets they serve, and the impact on society. As you read these pages, make sure to click on any embedded hyperlinks for additional definitions and explanations of the concepts.
1.1.2: Factors Affecting the Success of Business
Read Section 1.2 in Exploring Business to learn about internal and external factors that affect the success of businesses. Pay particular attention to Figure 1.2 to gain an understanding of where each of these factors fall.
1.1.3: Impact of Business on Society
It probably goes without saying that businesses provide a value to society in the form of creating products that society needs, providing employment, and paying taxes that lead to a better quality of life for everyone. However, businesses can also negatively impact society, whether it be through damage to the environment or the devastation that can be left behind when a business closes.
1.1.3.1: Positive Impact of Business on Society
Read section 2.5 in Exploring Business, paying particular attention to the sections on communities, financial contributions, volunteerism, and supporting local causes, to learn more about the positive impact of businesses.
1.1.3.2: Negative Impact of Business on Society
Read section 2.6 in Exploring Business to gain an understanding of environmental impacts of businesses and the importance of sustainability.
Read this article for an interesting look at the environmental impact that changes in industry can have. While many would argue that the shift away from coal as an energy source is good for the environment, one must also consider the lasting impact that coal plants can have on the environment even after they have closed.
Next, read this article from Futurism, which helps show what can happen when businesses that once employed many people in an area begin to advance technologically and rely more on automation. Pay special attention to the "Sleeping Through a Wake Up Call" section of the article, which describes the negative effect that shifts to automation in the manufacturing industries can have on the labor force.
1.1.3.3: Case Study
Now that you’ve read about some of the positive and negative impacts of businesses, complete the Global View Activity in Section 2.8 of Exploring Business, "Was Nike responsible for compensating Honduran factory workers?".
Consider how Nike impacted society, and determine whether you think their impact was positive or negative.
1.2: Productivity and the Business Cycle
1.2.1: Productivity
Read Module 1 on pages 51–74 for an explanation of the United States economy.
American workers are considered some of the most productive in the world. Productivity is your final output after you have considered the hours worked. Our productivity in this country has grown because technology has lowered the cost of producing goods and services.
As you read these pages, please note that for this first section, you are focusing on macroeconomics which includes gross domestic product, unemployment rate, and price indexes.
Try your hand at the individual and team assignments on pages 85–147.
1.2.2: The Business Cycle
- Review pages 74–76 of Introduction to Business to learn about the characteristics of the business cycle and its relationship with the GDP. The combination of expansion and contractions is called the business cycle.
Read the article below. Pay particular attention to the items listed under Key Points, Terms, and Examples.
After reviewing this section, summarize what you consider the three most viable causes of business cycles.
1.3: Economic Indicators as Components of Economic Stability
1.3.1: Economic Indicators
Review pages 81–84 of Introduction to Business.
For this activity, you should research three economic indicators: leading, coincidental, and lagging. Discuss what the data seems to be showing in the results of your research. Rank, or order, the economic indicators you consider most important. Write a 2 to 3 page essay that explains your findings, especially in terms of what the indicators say about the economy. In your conclusion, share where you believe the economy is going.
1.3.2: Consumer Price Index
Go to the CPI Inflation Calculator and perform two calculations:
- Compute what a pair of denim jeans cost the year you were born, if they cost $80 today.
- Compute what a car cost the year you were born, if it is selling for $23,000 today.
Please feel free to explore the inflation rate of interest by performing additional calculations on this calculator.
- Compute what a pair of denim jeans cost the year you were born, if they cost $80 today.
1.3.3: Rate of Inflation
Read this article about the pattern of U.S. price and inflation rates from 1913 to the present. Pay particular attention to the charts that show the comparison between U.S. rates and those of other countries around the world.
1.3.4: Gross Domestic Product
Read this section, which provides an explanation of Gross Domestic Product.
The GDP is the dollar value of goods and services produced in a given country in a year. Please be thorough in answering the following question: what is the significance of GDP as an economic indicator?
1.3.5: Nominal and Real GDP Growth
- Review Module 1 of Introduction to Business, which you read in subunit 1.2. Go back to this reading and focus on the section titled "Economic Growth", which begins on page 55. The United States' high GDP allows Americans to have a high standard of living.
- Read section 1.6 of Exploring Business to understand more about economic and growth. Looking at GDP alone does not give much of an indication of the health of an economy. It is the change in GDP that is relevant. If GDP goes up, the economy is growing. This positive movement is what we want as we leave behind the most recent recession. Complete the exercises at the end of section 1.6.
1.3.6: GDP Per Capita
Carefully review this chart, which compares the GDP per capita of several countries around the world. Note the date of information provided, and compare this to the charts provided on pages 66 through 69 of Introduction to Business. Studying GDP per capita will allow you to compare one country to another.
As you review this resource, answer the following questions:
- Why is the U.S. GDP per capita higher than China?
- How is GDP per capita found?
- Why is the U.S. GDP per capita higher than China?
1.3.7: Inflation & Consumer Spending
Read this section for an in-depth look at the relationship between inflation, the economy, and how we spend our money.
As you read this material, consider the effect of inflation on your own purchasing power and buying habits. As the rate of inflation increases, there is a decline in your purchasing power as a consumer, but a decrease in inflation and lower prices can also affect what we buy. For example, as gas prices decline, we see an associated decline in the rate of hybrid car purchases.
List three ways that inflation might affect your life.
Refer back to page 70 in Leslie Lum’s Introduction to Business.
The graph entitled "Inflation rate" at the top of the page shows the direction inflation has gone from 1914 to 2007. Review this graph and read the text below it. High interest rates can hurt businesses because consumers are less likely to buy when interest rates are high. Additionally businesses find it expensive to purchase equipment and other overhead they may need to prosper.
1.4: Components of Economic Policy
1.4.1: Budget Deficit (Expenses Exceed Revenues)
Please re-read the section titled "Fiscal Policy" on page 77 and review the graph on page 78 to learn about the definition of the budget deficit.
In the year of an election, the candidates promise to reduce government spending. Usually this does not happen. The deficit in the United States is growing with the continuation of the wars in Iraq and Afghanistan. The yearly deficit continues to add to the national debt. Some U.S. citizens think that government spending helps the economy grow. Others think that government spending comes out of the hands of consumers and business owners, thereby slowing growth.
After reviewing the text, write a paragraph that expresses your thoughts on this argument.
1.4.2: Budget Surplus (Revenues Exceed Expenses)
Read this entire section, particularly focusing on the selection under the heading of "The National Debt" to learn about budget surplus. It is quite unlikely that the United States will see a budget surplus in the near future. This situation is present when the tax revenues collected are greater than the expenses of the United States government. Complete Exercise 1 at the end of the section.
1.4.3: Government Regulation
Introduction to Business covers monetary policy and the Federal Reserve in Module 1.
Review the graphic and text on page 79 to learn about the monetary policy. (Monetary policy manages the money supply under the control of the Federal Reserve Board.)
1.5: Doing Business Globally
1.5.1: Feasibility of Doing Business in a Foreign Country
- Review pages 56–69 of Introduction to Business to learn about the importance of international business.
Read Boundless Business' “The Drive for International Trade,” to learn about why businesses are going global, as well as the difference between imports and exports.
1.5.2: Methods for Business Entry into the Global Marketplace
There are a variety of methods businesses can use to enter the global marketplace. Some carry heavier risk than others, and some require businesses to give up some of their control.
Read about the types of international business and rate them based on risk and control.
1.5.3: Global Trade Restrictions
While international trade seems like a win-win situation for businesses, many governments impose trade restrictions such as tariffs or quotas as a way to control how much foreign product is introduced into their country. Often, these trade restrictions are put in place to protect domestic industries or insure a working population.
Read about the trade restrictions and reflect on what would precipitate a government imposing one trade restriction rather than another.
1.5.4: Global Trade Facilitators
- It can be daunting to start a business in the United States. One must learn how to navigate through the bureaucratic red tape. Can you imagine how much more difficult it must be to navigate the bureaucratic red tape for more than one country? Luckily, for a business entering the global marketplace, there are organizations such as the World Bank and International Monetary fund, trade agreements such as GATT and NAFTA, and economic communities, which make the process easier to navigate.
Unit 1 Activities
These TED talks will provide information on the 2008 financial crisis in the United States. Click on the first video for Didier Sornette’s views of how early warning signs for a financial crisis can be plotted. Then, watch the second video, which provides William Black’s insider view of how banking practices led to the 2008 financial crisis.
After you have viewed these resources, integrate this information with the material you have learned throughout Unit 1. In a 3 page paper, summarize the factors that led up to the financial crisis, and the impact it had on the US economy as it relates to the U.S. GDP, employment, money supply, and the other economic factors covered throughout the Unit.
Unit 1 Assessment
Take this assessment to see how well you understood this unit.
- This assessment does not count towards your grade. It is just for practice!
- You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
- You can take this assessment as many times as you want, whenever you want.