GMS 522 Lecture Notes - Lecture 4: Economic Integration, Effective Demand, Exchange Rate
6 May 2018
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GMS522 LECTURE 4 NOTES- The Economic Environment
Income levels- people must have effective demand ie- the money to buy your product. Apart
from income you need to think about how that income is distributed.
GINI index is used to calculate income distribution.
Exchange rate- the price of a currency in terms of another currency. \
BoP- Base of Income Pyramid. 4 billion out of 7 billion of people are poor.
Backward innovation- strip out innovation (bells and whistle) from a product to make it more
affordable.
Engel – As your income goes up the percentage that you spend on food decreases. Rent stays
the same. Saving and other purchases go up.
National Bureau of Economic research- Officially marks the beginning and end of recessions.
2008- first time in history that Microsoft had massive layoffs (5000 jobs)
You cant be a capitalist on the way up and socialist on the way down.
Government loans to companies in trouble- creates a moral hazard. The companies might feel
like the government will always be there to bail them out.
What caused the financial crisis? – Started in southern US who could not pay their mortgage.
People were getting mortgages who did not have a job, good credit history or even a bank
payment. Liar Loans
Economic integration- a tendency of countries to come together for economic purposes.
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Income levels- people must have effective demand ie- the money to buy your product. Apart from income you need to think about how that income is distributed. Gini index is used to calculate income distribution. Exchange rate- the price of a currency in terms of another currency. 4 billion out of 7 billion of people are poor. Backward innovation- strip out innovation (bells and whistle) from a product to make it more affordable. Engel as your income goes up the percentage that you spend on food decreases. National bureau of economic research- officially marks the beginning and end of recessions. 2008- first time in history that microsoft had massive layoffs (5000 jobs) You cant be a capitalist on the way up and socialist on the way down. Government loans to companies in trouble- creates a moral hazard. The companies might feel like the government will always be there to bail them out.
