A manager needs to monitor:
A manager would need to know that crude material prices are highly volatile, but they have low average-growth rates. Oil, steel and agriculture have large fluctuations and fuels, processed foods and cold-rolled steel are milder with smaller effects on consumers than a company. Labor imtensive prcesses become more expensive faster compared to less-labor processes.
The Phillips Curve shows an inverse correlation between (Inflation) and (Unemployment) using data from 1861 - 1958. It implies the Fed could achieve low unemployment at the cost of high inflation.
The Phillips Curve broke down in the 1970s when Lyndon Johnson inaugurate Great Society social programs while the Fed kept interest rates low.
So is there a tradeoff between inflation and unemployment? Milton Friedman and Edmund Phelps says:
Describe major takeaways briefly. There is long term cost to high inflation, high inflation rates leads to volatile inflation rates which makes it harder for business planning based on trends. Banks are hesitant to lend out money fearing what inflation will be after a length of time. Just as business owners and factories don’t know what to sell products at due to changing inflation. When inflation is unstable, the growth that could occur is not as fast.
prices of inputs and outputs
It’s easier to pass on costs increases when the following is true:
Describe major takeaways briefly. A long term contract for harvesting energy or larger things paid overtime usually include an extra percentage based upon the inflation rates, while product prices may increase or decrease depending on the inflation where a contract is not signed. A business and a consumer will reach this agreement to protect the business and make sure they have the money back, while also reducing the risk for the consumer. ## How accurate are our measures of inflation?
Describe major takeaways briefly. The CPI os not always compltely accurate but the picture shown is always pretty relative to the change in inflation. They post a range of numbers like 2-5% change in order for business owners to assess and change prices or figure something else while also informing a consumer if they should buy that new fridge or to wait on it due to inflation. ## Summing up
A business for whom raw materials constitute a major cost should hedge against the risk of sharp increases in the price of raw materials by:
Explan each of the following terms in your own words. The author explains the terms in the textbook. If necessary, you may also Google the term on the Web. Good resources include:
Explain the terms in your own words briefly.
An increase in prices while the value in the dollar decreases. ### Consumer Price Index (CPI) The prices of an average market based on goods and services purchased by households. ### Producer Price Index (PPI) A measure in the change of selling prices by the producers of goods and services overtime. ### The Phillips Curve An economic model, showing correlation in unemployment vs inflation
This rate measures percentage of an company or the economies potential output to see how well the company is reaching in potential. The Actual output over the maximum possible multiplied by 100 is how you achieve these rates.
The appearance of low growth in the economy, while seeing both inflation and unemployment increase simultaneously
Describe the characteristics of the following events briefly.
The author writes the Phillips Curve broke down in the 1970s. Elaborate.
A stagflation that had occurred which meant the Phillips curve had been proven to be incorrect, this meant that both inflation and unemployment went up at the same time. Economists then believed that there was no tradeoff between the unemployment and inflation.