+

The economic environment

+Question…

Is Hong Kong a rich country?

What does it actually mean for a country to be ‘rich’?

How do we measure it?

+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)

+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)

+So…

Is China the richest country?

Yes…

And no

How come?

+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)

+Find the GDP per capita figures, 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)

+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?

+Economic growth

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

+Find the economic growth rate 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

+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

+Recession

If an economy shrinks for 6 months it is in recession

Consequences?

+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:

1. GDP

2. GDP per capita

3. Economic growth

+How much does each of the following cost?

1. A cinema ticket

2. US University tuition (1 year)

3. A pint of milk

4. A pair of Levi’s

5. A six pack of beer

6. A daily newspaper

7. A new TV

8. A haircut (high end)

9. A bar of chocolate

10. A bottle coke

+

1. A cinema ticket

2. US University tuition (1 year)

3. A pint of milk

4. A pair of Levi’s

5. A six pack of beer

6. A daily newspaper

7. A cup of coffee

8. A haircut (high end)

9. A bar of chocolate

10. A bottle coke

1. $5

2. $9500 (HKD)

3. $0.50

4. $38.75

5. $7

6. $0.38

7. $0.75

8. $23

9. $0.35

10. $1.5

Cost in 1964

So, why the difference?

+Inflation

An increase in the general price level

This is caused by either:

1. Too much demand (think of eBay)

2. An increase in costs for business (which they pass on to their customers)

+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

+Find the inflation rate for 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

+Zimbabwe – hyper inflation

At one point Zimbabwe’s inflation reached an impossible-to-imagine:

955,000,000,000%

+Is any country experiencing deflation

Is this a good thing?

+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:

1. The rate of inflation for both of the countries you chose

+Unemployment

What does it mean to be unemployed?

+Unemployment

Those willing and able to work that cannot find a job

So, who would this not include?

+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

+Find the unemployment rate for 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

+What are the consequences of unemployment for

1. Individuals

2. Firms

3. The country

+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:

1. The unemployment rate of both of the countries you chose

+The exchange rate

The price of one currency compared to another currency

E.g. 10HKD = 1 euro

Spanish Holiday worksheet

+Strong vs. weak currency

Exporters want a weak currency so that their items seem cheap to foreign buyers (think of Maria)

Importers want a strong currency so the items they buy from abroad are cheap (just like when you go on holiday)

+But the most important thing is…

Stability

A stable currency lets businesses plan

+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:

1. The exchange rate for the last 5 years for both of your countries

+

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

+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

+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

+Savings

When you save money in a bank, you are really lending them the money

This is why they give you interest back

+Find the interest rate for 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

+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

+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:

1. The interest rates for the 2 countries you chose

+

Section 2

+The economic environment includes:

GDP – size of the economy

GDP per capita – how rich the nation is

Economic growth (GDP growth rate) – how well the economy is doing

Inflation – what is happening to prices

Unemployment – the number of people who are willing and able to work but can’t find a job

Exchange rate – the price of your currency to foreigners

Interest rates – the cost of borrowing money

+The question now is how these impact upon business activities:

1. Recruitment and selection

2. Product design

3. Purchasing and production

4. Sales

TASK

Choose 3-4 areas economic factors

For each one, explain how it might effect the 4 business activities for HSBC

Compare HSBC operating in HK to it operating in your second country

See Mr. Cornes’ website for a template

+

Bringing it all together

+Merit – compare the challenge HSBC will face operating in these two environments See Mr. Cornes’ website for a template