+ 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. $ $ $7 6. $ $ $23 9. $ $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