The economic environment

1. The economic environment

2. Question… • Is Hong Kong a rich country? • What does it actually mean for a country to be ‘rich’? • How do we measure it?

3. We measure how rich a country is… • By calculating the value of the goods and services produced in that nation during 1 year • Economists call this ‘Gross Domestic Product’ (or GDP for short) (Gross = all Domestic = within the country Product = goods and services)

4. Find the GDP figures for the following nations and rank them in order • Hong Kong • China • Qatar • Syria • Brazil • Thailand • Russia • Greece • Germany • Zimbabwe • CIA World Fact book • Select the country • Choose ‘Economy’ • Look for GDP (purchasing power parity) • (PPP is just a way of getting rid of the effect of exchange rates)

5. So… • Is China the richest country? • Yes… • And no • How come?

6. GDP • Although GDP is an important measure of how rich a country is, the relative size of its population is very important too • This is why economists tend to prefer: GDP per capita (Per capita = per person)

7. Find the GDP per capitafigures, rank them and compare the order to the last task • Hong Kong • China • Qatar • Syria • Brazil • Thailand • Russia • Greece • Germany • Zimbabwe • CIA World Fact book • Select the country • Choose ‘Economy’ • Look for GDP per capita (PPP) • (PPP is just a way of getting rid of the effect of exchange rates)

8. So what matters most? • It is not the raw figures that most governments really care about, but rather the economy’s rate of growth • (In other words, how much more goods and services were produced this year compared to last year) • Why do you think this is the most important measure for most governments?

9. Economic growth • Economic growth is simply given as a % increase in GDP from last year

10. Find the economic growthrate for each country and rank them. Compare to the last two exercises. • Hong Kong • China • Qatar • Syria • Brazil • Thailand • Russia • Greece • Germany • Zimbabwe • CIA World Fact book • Select the country • Choose ‘Economy’ • Look for GDP – real growth rate

11. Economic growth - consequences • Businesses have a higher potential for profits • People will find it easier to gain jobs / pay increases • Higher standards of living • More taxes paying paid = more public services • Prices may increase

12. Recession • If an economy shrinks for 6 months it is in recession • Consequences?

13. For your coursework • You need to compare the economic environment of HK with a contrasting country: • Greece • Thailand • China • Russia • Brazil • Zimbabwe • Syria TASK • Go to Mr. Cornes’ website • Scroll down to the last unit • Go to Assignment 3 • Open the first template • Complete the following for HK and one contrasting country: • GDP • GDP per capita • Economic growth

14. How much does each of the following cost now? • A cinema ticket • US University tuition (1 year) • A pint of milk • A pair of Levi’s • A six pack of Budweiser • A daily newspaper • A new TV • A haircut • A bar of chocolate • A bottle coke

15. Cost in 1964 • A cinema ticket • US University tuition (1 year) • A pint of milk • A pair of Levi’s • A six pack of beer • A daily newspaper • A cup of coffee • A haircut (high end) • A bar of chocolate • A bottle coke • $5 • $9500 (HKD) • $0.50 • $38.75 • $7 • $0.38 • $0.75 • $23 • $0.35 • $1.5 So, why the difference?

16. Inflation • An increase in the general price level This is caused by either: • Too much demand (think of eBay) • An increase in costs for business (which they pass on to their customers)

17. Why is inflation bad? • Fall in the value of money • Potential fall in the standard of living • Inflationary noise – businesses can’t tell whether prices are going up because people love their products or if its simply inflation • Uncertainty • Inflation causing inflation • Loss of international competitiveness

18. Find the inflation ratefor each country and rank them. • Hong Kong • China • Qatar • Syria • Brazil • Thailand • Russia • Greece • Germany • Zimbabwe • CIA World Fact book • Select the country • Choose ‘Economy’ • Look for Inflation rate – consumer prices

19. Zimbabwe – hyper inflation • At one point Zimbabwe’s inflation reached an impossible-to-imagine: 955,000,000,000%

20. Is any country experiencing deflation • Is this a good thing?

21. For your coursework • You need to compare the economic environment of HK with a contrasting country: • Greece • Thailand • China • Russia • Brazil • Zimbabwe • Syria TASK • Update the template you started with: • The rate of inflation for both of the countries you chose

22. Unemployment • What does it mean to be unemployed?

23. Unemployment • Those willing and able to work that cannot find a job • So, who would this not include?

24. The unemployment rate • The most commonly used measure is called the unemployment rate • This is the % of country who are willing and able to work, but cannot find a job

25. Find the unemployment ratefor each country and rank them. • Hong Kong • China • Qatar • Syria • Brazil • Thailand • Russia • Greece • Germany • Zimbabwe • CIA World Fact book • Select the country • Choose ‘Economy’ • Look for Inflation rate – consumer prices

26. What are the consequences of unemployment for • Individuals • Firms • The country

27. For your coursework • You need to compare the economic environment of HK with a contrasting country: • Greece • Thailand • China • Russia • Brazil • Zimbabwe • Syria TASK • Update the template you started with: • The unemployment rate of both of the countries you chose

28. The exchange rate • The price of one currency compared to another currency • E.g. 10HKD = 1 euro • Spanish Holiday worksheet

29. Strong vs. weak currency • Exporters want a weak currencyso that their items seem cheap to foreign buyers (think of Maria) • Importers want a strong currencyso the items they buy from abroad are cheap (just like when you go on holiday)

30. But the most important thing is… • Stability • A stable currency lets businesses plan

31. For your coursework • You need to compare the economic environment of HK with a contrasting country: • Greece • Thailand • China • Russia • Brazil • Zimbabwe • Syria TASK • Update the template you started with: • The exchange rate for the last 5 years for both of your countries

32. Why is it better to borrow money from your parents than from the bank?

33. The interest rate • The cost of borrowing money • Normally expressed as the % you get charged each year • So, if you borrowed $100 at a rate of 5% • You’d have to pay back an extra $5 for each year you had the loan

34. Central banks • Each country has a ‘central bank’ • These don’t ever deal with customers like you and me • They lend one the other banks • This makes them the most important banks in any country as the interest rate they charge the other banks directly influences how much they charge their customers

35. Savings • When you save money in a bank, you are really lending them the money • This is why they give you interest back

36. Find the interest ratefor each country and rank them. • Hong Kong • China • Qatar • Syria • Brazil • Thailand • Russia • Greece • Germany • Zimbabwe • CIA World Fact book • Select the country • Choose ‘Economy’ • Look for central bank discount rate

37. What is the effect of a high interest rate on businesses? CUSTOMERS • Many customers have mortgages, loans or credit bills – a high interest rate will mean more of their money goes on paying them off • It will put them off taking out new loans = less spending • It is better for customers to save their money BUSINESSES • Businesses need loans to invest – high interest rates will put them off • Businesses often have high debts – high interest rates will make these harder to pay back

38. For your coursework • You need to compare the economic environment of HK with a contrasting country: • Greece • Thailand • China • Russia • Brazil • Zimbabwe • Syria TASK • Update the template you started with: • The interest rates for the 2 countries you chose