Business English I

1. Economy vs. economics

2. Economics is the science of studying the economy
3. Economics= Macroeconomics vs. microeconomics
Microeconomics = small components of the economy =
consumers and businesses
Why do people spend?
Why do people invest?
Why do people save?

Macroeconomics = studies aggregate demand and aggregate

supply and their effect on inflation and employment
4. Economy: Consumption >> consumers vs. production >>
businesses
Demand (food, clothes, phones, cars….)
Supply
The interaction between demand and supply (or btw consumers
and businesses) creates a system = economy
5. Problem #1: demand goes down = economic crisis
Small economy: 40 consumers and 5 businesses (make phones)
40 consumers need 20 phones in July
5 businesses should produce 20 phones in July
August, only 15 phones are needed by those 40 consumers
The economy is shrinking = problem #1
6. Solution= cut taxes and increase spending (creating jobs,
increasing salaries) >> government >> fiscal policy
7. Classical theory = governments should not intervene + free
market
8. Spending more than revenue = budget deficit
Compensate for the gap btw spending and revenue >> borrow
money
When you borrow money, you create public debt

Planned economies = government

Market economies = The invisible hand

Laissez-faire economics
1776 = the wealth of nations
1929-1930s = the great depression
1936 = the general theory of employment, interest and money
2008 = the great recession

Monetary policy = central bank = change interest rates + change

money supply
Interest rates (go up/down)
1000 dh (loan) principle = 1000 dh + interest (10%) 100 dh 1100 dh
Printing money (go up/down)

Problem #2 demand goes up = high inflation = more than 4%

(hyperinflation)

2
 40 consumers are demanding 100 phones
5 businesses 60 phones – prices will go up

Austerity measures = cutting spending, increasing taxes

Recession: decline in economic activity

Negative Mismatch between demand and supply
Economic crisis = stagnation, recession, depression
Wars, pandemics, natural disasters
Problem in supply: scarce natural resources (e.g. oil…
inflation
Psychology

Money = tool for doing business

Store of Value (intrinsic value & use value)
1. barter (exchanging goods and services)
2. money = currency (gold, silver…)
3. money = currency (gold/silver reserve)
4. fiat money (quantity)
If you print more money, its value will go down/decrease
(inflation)
People will be inclined to spend it faster
If you print less money, its value will go up/increase (deflation)
People will be more inclined to save money

3
 Fed= federal reserve (central bank)
Inflation
Demand (higher wages, cheap credit, increased gvt. Spending)
Supply (cost of doing business is higher)
Monetary policy (interest rates are low)

Heated economy = high inflation

Credit = an abstract form of money

Transaction
Debit card vs Credit card

Production:
1000 $ to produce 100 kg of apples (2020)
Sell it for 1500 $
150 kg (2021) 2000 $ (growth by production)

1000 $ + 1000 $ = 200 kg = 3000$ - 1000 $ - 200$ = 1800 $

Profit maximization (growth by credit)

4
 Microeconomics
Demand and supply: classical microeconomics vs. behavioral
microeconomics

Bounded rationality
Lack of information
Marketing to manipulate people’s decisions
Bubbles

Ultimatum game: fairness & justice

Framing effect: 25% less fat vs. 75% fat
1 winner out of 1000 vs. 999 losers
Psychological pricing: 99.99 $ 100$

Nudge theory = Richard Thaler (2008)

School cafeteria
Risk – loss aversion

Economic bubbles

• Literally: weak, unstable, easy to burst, hard to see

• Local or global
• Specific (one market = car market, housing market...) or
general
• Price of an asset far exceeds its intrinsic value

5
 • A rapid expansion followed by a sudden contraction
• Speculation = change in collective judgment

• Tulip mania / craze 1630 (Netherlands)

• Dot.com bubble (1990s) – asset(websites)
• Stock market bubble (company shares)
• Credit bubble (the great depression) – 1930s
• Housing bubble (the great recession) – 2008

• Car market = company 1 and company 2

Housing bubble (the great recession) – 2008

• The big short - Margin call - Too big to fail

• Morgan Stanley, JPMorgan chase, Goldman Sachs, Bank of
America
• Lehman Brothers, Bear sterns, Merill lynch
• Mortgage = house loan
• Prime vs. Sub-prime (prime)
• Default = defaulting borrower
• Foreclosure
• NINJA loans
• Housing market = asset/ houses
• Deregulations = government

6
 • Credit rating agencies (Moody’s, Standard and poor’s and
Fitch)
• Insurance companies (AIG)
• Trading
• Securities
• Bailout

Stock market
• Sell or buy = shares, commodities (oil, gold, silver…),
currencies, bonds (loans, mortgages) bank – borrower - you
• Risky vs. safe
• Very profitable vs. not so much profitable
• Hedge funds
• Mutual funds
• Government owned companies, Private companies vs.
public companies (Fb, Apple, Amazon…)
• IPO = initial public offering
• Diversify your portfolio
• Dividends = shareholder
• Investor vs. speculators
• Warren Buffet
• Indexes – Dow Jones industrial – S&P 500 – NASDAQ – CAC
40 – DAX – NiKKei – FTSE
• Market valuations
• Bull market vs. Bear market
• Pyramid vs. Ponzi

7
 • Gross Domestic product: the total value of ALL goods and
services produced inside the borders of a country during
one year (by national or international companies)
• GDP per capita: measures standard of living
• GDP per working-age-adult: measures productivity
• Gross National product: the total value of all goods and
services produced by national companies inside and
outside a country

• Nominal GDP C+I+G+NE (inflation included)

• Real GDP (C+I+G+NE) – (inflation)