Current Events:
Issued today following a two-day meeting on monetary policy was the Fed's statement.
Voting against the policy was Thomas M. Hoenig. Mr. Hoenig believed the risks of additional securities purchases outweighed the benefits. Mr. Hoenig also was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy."
CNBC: Fed's Big Gamble--What Could Go Wrong?
CNBC—Nov. 3, 2020— http://www.msnbc.msn.com/id/39985108/...
Former Fed Governor Larry Meyer discusses what could go wrong in the Fed's controversial plan to purchase more bonds.
Copyright CNBC 2010
What could possibly go wrong?
Here's What Could Go Wrong:
It could make the weak dollar even weaker and lead to trade disputes with other countries. It could lead bond traders to believe that higher inflation is on the way, and they could derail the Fed's efforts by pushing rates higher.
Many investors argue that it may create bubbles as hedge funds and other speculators borrow cheaply and make even bigger bets on stocks, commodities and markets in developing countries like Brazil.
"It's a desperate act," says Jeremy Grantham, co-founder of the investment firm GMO. Grantham says it's a clear message from the Fed to the rest of the world: "The U.S. doesn't care if the dollar weakens."
Speaking of the 90's, David Ader, head of government bond strategy at CRT Capital, stated: "If the Fed's efforts fail we suddenly look like Japan," Ader says. "Japan started off wimpishly, then did it again, and again and then they wound up losing a decade."
Chapter 3
Business Organizations, p. 60
Section 1 Forms of Business Organization, p. 61
Most businesses operate in search of profits. Others are organized and operate like a business, although profits are not their primary concern. There are three main forms of business organization. The first is the sole proprietorship, which is a business owned and operated by one person. The second is the partnership, which is a business jointly owned by two or more persons. The third is the corporation, which is recognized as a separate entity having all the rights of an individual. The proprietorship is the most common and most profitable form of business organization. The corporation is the largest and most visible.
One is a sole proprietorship which one individual, the sole proprietor, exercises complete control over the business. Another is a partnership in which two or more individuals combine their efforts and share the profits of the business. Under both business forms, the business is an asset owned by the owner or owner, it has no existence separate from them, and any financial or legal problems encountered by the business are their responsibility. All of the owners’ assets, even those not involved in the business, are at risk. Liability is unlimited.
Chapter Three Spotlight Video
Content Vocabulary
Some Real Examples
Some Final Basics
Why It Matters Today
Corporations and Stocks game
Cf. http://www.shmoop.com/corporations-stocks/game.html
Main types of business
Types reviewed and advantages and disadvantages
In-class assignment: what are the types reviewed, what are their respective advantages and disadvantages?
Sole Proprietorship, p. 62
Partnerships
Forming a Partnership, p. 65
Introduction to Shark Tank, 3:49
Cf. http://www.youtube.com/watch?v=G9BGc3yxJ8Q&p=FB2A2A6F9312F01B&playnext=1&index=13
Shark Tank - Season 1 Episode 1 Part 1/5, 9:49
In-class assignment: how many "sharks" are there on the panel? We will divide the class into the same number of members in a small group. You have two tasks: one, do you think the "shark" you are representing will want to partner with the presenter? Two, would you want to partner with the presenter? We will go around the room and you can offer your assessment.
We need at least five people in each group. Each individual person should represent each one of the sharks. If your group has more than five members, more than one person can be "Barbara," or "Kevin O."
Please note that the shark you pick may drop out early in the first episode that you will see. Thus, you have to then remaining shark or sharks. The trick of course is to predict what each shark will do.
This is a brief introduction to each of the sharks. The actual show will introduce them in a bit more detail.
From right to left:
1) Robert
Internet
2) Barbara
Real estate
3) Kevin O.
Software
4) Daymond
Fashion
5) Kevin H.
Infomercials
Advantages
Disadvantages, p. 66
Reading Check
Contrasting
What are the differences between a general partnership and a limited partnership?
Corporations, p. 67
Main Idea
What is a Corporation?, 7:15
In-class assignment:
According to this video, what is a corporation? What is it composed of? What sort of characteristics are typical of a corporation?
Forming a Corporation
A corporation is a very different type of business organization. Most significantly, a corporation is a business entity legally separated from its owners. When business owners decide to incorporate they secure a charter from the state government. This charter is like a birth certificate, establishing the existence of a new and separate legal entity. Once incorporated, the corporation can buy and sell property, enter into contracts, sue, and be sued... just like a living, breathing person.
In fact, that's what a corporation is: a legal "person." (The word "incorporate" shares the same root as "corpse"; it means something like "to give it a body.") The idea is that the corporation is a fictitious person, with many of the same rights under the law as a real person.
For the sole proprietor turned corporation, there are several benefits. Most importantly, his personal assets (home, car, boat, iPod) are no longer at risk should the corporation have problems. If the corporation is sued, only its assets are at risk. If the corporation goes broke, its creditors can only go after the corporation’s assets. As there is a legal barrier separating the corporation and its owners, the owners enjoy limited liability.
There are other benefits as well. To finance expansion, corporations may sell stock. Most corporations, in fact, do not sell stock to the public; all of the stock is privately owned. But if a company decides to expand its capital base by “going public” it issues an initial public offering or IPO. People buying the stock acquire partial ownership in the corporation. And the more shares they buy, the larger percentage of the corporation they own. Of course, this also means that the original owners also have to share profits. These may be distributed to the shareholders quarterly in the form of dividends.
Corporations may also raise money by selling corporate bonds. Like governments, corporations may issue bonds that promise repayment over a specified period at a certain interest rate.
Another benefit of turning a sole proprietorship or partnership into a corporation is that the business becomes more durable—that is, it is no longer so tied to the health of the founder. If the founder dies, the corporation lives on. Similarly, a corporation is less dependent on the talents of its founders. As corporations grow, they are governed by a board of directors elected by the shareholders. This board selects a president or CEO (chief executive officer) to manage the corporation. A sole proprietorship may have a technically brilliant but, from a business point of view, inept founder. He may turn the business over to his even more incompetent children. But the governing structure of corporations allows management to be handed over to professionally trained executives.
Why It Matters Today
Are corporations people?
The common-sense answer is no. A corporation is not, to state the obvious, actually a living human being.
But in the eye of the law, the answer is essentially yes. A series of Supreme Court decisions in the 1800s expanded the rights of corporations, eventually extending to them the crucial rights to substantive due process included in the 14th Amendment. As recently as January 2010, the Court reaffirmed that corporations have most of the rights of real people, overturning a campaign finance law on the grounds that it violated corporations' (and unions') right to free speech.
Corporate Structure
In Motion Corporate Structure
Cf. http://glencoe.com/sites/common_assets/socialstudies/in_motion_08/epp/EPP_p68.swf
Advantages, p. 68
Financially, corporations benefits from being allowed to raise capital by selling stock. In purchasing stock, stockholders become partial owners of the corporation and are entitled to a share of the profits. Corporations can also raise money by selling bonds like a government. Legally, corporations benefit from limited liability. Since the corporation is a legal entity separate from its owners, the owners’ personal assets are not placed at risk by any action taken by the corporation. Should the corporation be sued or have financial problems, only corporate assets can be seized.
Disadvantages, p. 69
Through what is commonly labeled “double taxation,” corporate profits are taxed and then, if distributed in the form of dividends, these same profits are taxed again along with the rest of the shareholder’s income.
Reading Check, p. 70
Evaluating
Why do many business owners prefer corporations over other forms of business organizations?
Entrepreneur, p. 71
Profiles in Economics
Andrea Jung
On Charlie Rose - Andrea Jung, 2:20
Proprietorship - owned and run by a single person.
Partnership - jointly owned by two or more persons.
Corporation - business organization recognized by law as a separate legal entity with all the rights of an individual.
References
Forms of Business Organizations, Tax and Insurance Issues for Small Business, 9:56
Learn: * How to Choose a Form of Business * How it can maximize your protections and future growth potential * Characteristics of a sole proprietorship, general partnership, corporation, limited liability companies and limited liability partnerships * Whether S Corporation Tax election is right for you * What tax issues are important for small business and why * What insurance coverage every small business owner should consider
Panelists
Larissa Buerano, Agent, State Farm Insurance
Rajeev Kaul, CPA, PC.
Joyce Moy, Executive Director, Asian American / Asian Research Institute - CUNY
My Own Business: A course on how to start a business
Chapter 3: Business Organizations
Self-Check Quizzes
Crossword Puzzle
Vocabulary eFlashcards
Show Business is the Federal Reserve Bank of Boston's learning activity on economics and the entertainment industry. The goal is to provide an additional tool for teaching and learning about basic economic concepts, with some economic history snuck in.
Cf. http://www.bos.frb.org/entertainment/index.htm
JA Titan
Test your skills running a business in this ultimate business simulation! As CEO, you will match wits in the competitive, technologically advanced industry of the Holo-Generator™.Cf. http://oldtitan.ja.org/home.php
Corporations and Stocks game
Cf. http://www.shmoop.com/corporations-stocks/game.html
A music video from School House Rock on investing and Wall Street.
Cf. http://www.shmoop.com/corporations-stocks/botw/resources?d=http://www.gamequarium.org/cgi-bin/search/linfo.cgi?id=3797
Preview
Ch. 3 Sec. 2 Business Growth and Expansion
Honors Business Economics Chapter 3 Section 2 Business Growth and Expansion
Guide to Reading
Section Preview
Content Vocabulary
Academic Vocabulary
Reading Strategy
Comparing
Companies in the News
Reinvesting for Monster Growth
Growth Through Reinvestment
Main Idea
Economics and You
Estimating Cash Flows
Reinvesting Cash Flows
Reading Check
Summarizing
What is the benefit of reinvesting cash flow in a business?
The Global Economy and You
Know Your Manners
Growth Through Mergers
Main Idea
Economics and You
Types of Mergers
Reasons for Merging
Conglomerates
Multinationals
Reading Check
Contrasting
How do conglomerates and multinationals differ?
Case Study
7-Eleven
Preview
Honors Business Economics Chapter 3 Section 2 Business Growth and Expansion
Guide to Reading
Section Preview
Content Vocabulary
Academic Vocabulary
Reading Strategy
Comparing
Companies in the News
Reinvesting for Monster Growth
Growth Through Reinvestment
Main Idea
Economics and You
Estimating Cash Flows
Reinvesting Cash Flows
Reading Check
Summarizing
What is the benefit of reinvesting cash flow in a business?
The Global Economy and You
Know Your Manners
Growth Through Mergers
Main Idea
Economics and You
Types of Mergers
Reasons for Merging
Conglomerates
Multinationals
Reading Check
Contrasting
How do conglomerates and multinationals differ?
Case Study
7-Eleven
Figure 3.4 Growth Through Reinvestment, p. 73
Cf. http://glencoe.com/sites/common_assets/socialstudies/in_motion_08/epp/EPP_p73.swf
Money (That's What I Want), 2:36
Barrett Strong recorded this in 1959 for Motown records, it reached number 2 on the R&B charts and 23rd on the US Pop charts making it Motown's first hit. Barrett Strong later went on to become one of Motown's most famous song writers.
http://www.youtube.com/watch?v=z6xkT7FMyTc
Beatles, You Never Give Me Your Money, 3:26
Resources
HW email to gmsmith@shanahan.org or hand in hard copy.
Thursday HW
1. Partnerships, How are partnerships founded ( p. 65)?
2. What disadvantage of general partnerships does the cartoon illustrate (p. 66)?
3. Liability, How do general partnerships and limited partnerships differ (p. 66)?
