Write one key takeaway per chapter. Write at least 100 words for each chapter summary.
Chapter one starts off with talking about how understanding economics can help business owners and leaders understand the reason behind an increase or decrease of sales output and costs. Then it goes into creating forecasts and making decisions based on those forecasts. The author talks about how about Engineers used to make forecasts based on fixed relationships, but economists can help managers form a better understanding of the future. The author also talks about how you should ignore the specific numbers but instead on the broad magnitudes of changes. So focusing on the broader changes in the market can help businesses make better decisions. Key Takeaway: My Key take away from that chapter would be it to focus on the more widespan changes than the little details.
So, Chapter two starts off talking about the historical experience of the United state’s economy after World War 2 and how recessions in this period have ranged from six to sixteen months. Along with that we learn that recessions occur occasionally, and no individual recession in guaranteed but they usually happen every ten to twenty years. Then we go into consumer spending and how consumer service is the most table part of the economy, but it still is not recession proof. Along with that Business capital spending is very volatile and government spending is not. Finally, you should look at your business and see how much the US economy affects it or is it another economy. Key Takeaway: My Key Takeaway from this chapter is you must understand how volatile and sensitive your industry is and whether you typically lead or lag the overall economy.
In Chapter 3 we learn that the economy will not ever be perfect, there will always be something wrong with it, but typically those problems will not trigger a recession. Supply shocks usually happen due to oil price increases; they typically tend to be a secondary cause of recession. When looking at past recessions error in monetary policy tends to be the most popular cause of a recession. A number of factors can hurt the economy, but most don’t have the strength to in itself cause a recession, but if several of these factors are added together it can trigger one. Key Takeaway: A Business Manager’s key questions should be 1. Is a Supply shock occurring? 2. Is it severe enough to significantly affect the economy? 3. What will be the result of the shock?
In Chapter 4 we learn about in inflation. We first learn that price inflation for goods is more unstable than services, but service inflation tends to be higher. Also, that there is no tradeoff between inflation and unemployment so there is nothing politicians can exploit here to lower unemployment. Businesses need to understand the price volatility of their main raw materials, and an early warning system to be in place to monitor conditions. The Consumer Price Index is not perfect, but it does do a solid job of showing changes inflation. Long term contracts should have well drafted price-adjustment clauses to make sure that both parties benefit over the wildest of possibilities. Key Takeaway: Focus on the price adjustment on key goods are necessary to your company.
In chapter five we learn that managers and company leaders need to ask themselves “How vulnerable is our company to recession or a slow down in sales?” Then they should create a vulnerability assessment, and then sketch out a continency plan and depending on the vulnerability assessment they will only add little flexibility into their operations. Others on the other side if they face serious risk, will make a more in-depth plan and incorporate as much flexibility into the company as possible which may take as long to a year in order to do so. It can be acquired easily once senior executives start looking for options. Key Takeaway- Build flexibility into your company after going over the contingency plan.
In chapter six we learn, people have a hard time accepting that things will not always go as planned. People tend to hold onto previously held views and opinions even if there is evidence proving it wrong. The best managers tend to be open to evidence of to changing conditions. They also to intensely evaluate market conditions, then they like to discuss these findings with someone else. Then review the economic data monthly. Another key to success is being familiar with the data, it will pay massive dividends to be understanding of the ever-changing economic environment which we do business in. Key Takeaway- Do your homework, look at the economic data, familiarize yourself with it and review it.
In chapter 7 we learn that there are 3 steps Easy, Moderate and Survival. Easy is if the early warning system begins to flash a warning, start to review and renovate the continency plan, start limiting new hires to only vital positions. Cut capital spending plans. Monitor inventories, set up additional lines of credit. The moderate steps include reviewing employment, financing, capital spending, and fully inform lenders of the situation. Survival includes stopping all capital spending and potentially selling assets, employment must be cut as much as possible, keeping inventories lean and hoarding cash. If survive use the boom to get your finances in check. Key Takeaway: New capital equipment can often be purchased at bargain as well and watch for competitors existing a business.
In chapter eight we learn that in less developed countries, economic changes are more varied. Countries whose economy is primary based on only one or two sources of revenue are a lot more prone to boom-bust cycles. Companies who do business in other countries need to focus on exchange rate fluctuations as it can result in more or less dollars. Production-oriented companies should consider buying an offshore facility for every different region of the world they plan on doing business in. Just because there are risks in offshore business should not mean it should be ignored. If the economic risks are understood, watched carefully and built into the plan it can very profitable. Key Takeaway: Doing business internationally can have it risks and benefits like all businesses, do not let the risks scare you away.
In chapter 9 we learn about how each state in the United States as its own different economy with some being very similar to the national economy and others are not. It is important for business leaders to understand where their company is located in order to understand how similar it to the national economy to make the according business decisions. The overall national economy has the business effect on a region than any other factor. A state’s economy can accelerate or decelerate based on changes in a states or region’s growth rate. Along with that state or local economic policy has no much effect in the short term. One Key Takeaway: Regional producers are hurt by local economic strength and benefit from a weak local conditions.
In Chapter 10 we learn about how decisions to spend money on equipment to lower running costs need to be made with thoughtful decision, as there might be a loss of flexibility as result. Capital intensive industries are susceptible to cycles of overinvestment in volume, which causes extended lengths of time of unprofitable operations. For companies that are capital intensive they must have an early warning system that include indicators or new capacity being added to the industry. In profitable times, don’t increase capacity, instead hoard cash cause when the industry in a recession or downturn you’ll be able to buy out your weak competitors. Key Takeaway: When the industry is having a downturn, take the opportunity to add capacity when it’s inexpensive and before it’s needed in other words buy low.