> Q: In your compilation of study sheets for the final exam, you have not
> included any material for the first term.  Does this mean that no
> material from term #1 - including diagrams, will be part of the exam?

A: That is correct!




 
> Q: How do you distinguish between an account and an elment of the
> accounting equation?

The elements are the three broad categories under which all accounts
must fall, ie. Assets, Liabilities, and Owner's Equity.

Accounts are tools used to record inflows to, and outflows from, similar
groups of items, ie. Cash, Equipment, Bank Loan, Hydro Expense, Capital, etc.





> Q: How are liabilities supposed to be listed?

A: In the order which they are to be paid. Any demand loans (ie. bank loan)
are listed first, then accounts payable, and then mortgages payable.
 



> Q:  Can you please send me the diagram of the stock price sequence (I
> don't have it)

A: I'm afraid I do not have this diagram on my present computer. The
sequence is basicallly this:

Positive          Increase in         Increase in          Increase in 
Event in the ---> the profit    --->  Demand for     --->  price for 
Real Economy      of corporation      company's stock      company's stock

The reverse would occur if a negative event took place. 





> Q: What is the definition of the financial economy?

A: The economy associated with the ownership of the corporate assets in the
real economy. 






> Q: What is straight selling?

A: Normal selling of stock which one owns. (As opposed to short selling, where
one sells stock which they have borrowed.)






> Q: What are the various risks associated with consuming, as well as the
> general forms of consumer protection available?

A: This is more than can be answered in an email. I might suggest that you
read the chapter on consumerism.






> Q: Can you please tell me what a few simple consumer skills which one
> can use to limit risks in the market place

A: Don't worry about these, they were not on the test, ergo they are not on
the exam.






> Q: What is the law of large numbers?

A: The larger the statistical sampling, the more accurate the statistical
inference.






> Q:  Can u pls tell me how to read the stock listings of bid and ask?
> Thanx you very much!

A: Actually, you cannot see the bid and the ask within stock listings. The
"bid" (highest price anyone is willing to pay for a stock) and the "ask"
(the lowest price anyone is willing to accept) will eventually combine
to form the "quote" (the range of prices on which the buyers and sellers
can agree upon - and thus trade their stock). The day's "close" shows
the last price at which the stock was traded. Thus, the close is our
most accurate indicator of the most recent quote for a particular stock.







>Q:  Could u please tell me the definitions of stock name,volume 

A: These are explained on page 275 of your text.


> Q: and
> straight selling. 

A: Straight selling refers to the standard sale of stock which someone owns (as
opposed to short selling - where one sells stock which they have
borrowed with the intention of buying it back later on.)






> Q: could you explain the relationship between the TSE 300
> and Dow Jones. Thanks!

Both these indexes follow the same trends, as they represent stock
markets which exist within highly interdependent societies. (ie. Canada
and the U.S.)






> Q: I've read over the black monday handout 3 times, but I still can't find
> a definite description of what happened. I understand that it was a huge
> stock market crash, but...
> 1) Why did it happen?
> 2) What was the result, other than the stocks crashing?
> 
> I do understand how the real and financial economies (and all the other
> sub-topics,)tie in to the handout, but as I said I can't find a concrete
> description of what really happened.
> 
> Thanx,

A: You have identified a prime weakness in the article Lucia. You almost
have to read between the lines or you miss the explanation of why the
market fell and what the results were. Take a look at these excerpts
from the article:


Question #1 - Why did it happen?
---------------------------------------------------

[Coming back to the link between real economic activity and financial
markets, we can see that one should
expect some correlation between the price of a company's stock in the
financial market and the performance of
the company in real markets. October 19th, 1987, however, was an
indication of how these two economies -
the real economy and the financial economy - can get out of sync. 

The two economies becoming out of sync with each other will often cause
an "overvaluation" to develop in the
stock market. Basically, this means that the value of a company, as
represented by the price of the stock, is
higher than what is judged to be the true "real" value of the company.
Hence, there is a perceived need for a
correction to take place in the market to bring the "market value" in
line with the "real value". 

The last point to cover prior to examining why the stock market plunged,
is to discuss what a stock market
"index" is. ...


Therefore, when the Dow Jones index fell by more than 500 points on
Black Monday, it was a clear indication
that, on average, an overwhelming number of stocks declined in price
compared to those that rose. However,
be aware that even on Black Monday some stocks increased in price.
None-the-less, an index usually gives a
good overall indication of trends in the markets and the extent of
increases or decreases in stock prices.]

 


Question #2 - What was the result? 
---------------------------------------------------

[So, over the four years up until Black Monday, you had $500,000.00 in
stock rise to be worth $900,000.00 and
then fall to $600,000.00. You, at one point, had a gain of $400,000.00 -
on PAPER. You now have a gain of
only $100,000.00. 

Understanding this "paper" profit and loss phenomenon is important,
because it is linked to the implications for the real economy of stock
market plunges that tend to occur, such as that of October 19th, 1987. 

Does the loss of that $300,000 have dramatic effects for the real
economy? That depends. Were you going to
sell your stock and use the funds to buy a new house, car, boat, etc.?
If that was the plan, then that $300,000 loss will represent a loss of
$300,000.00 in spending in the real economy. 

However, if you had no intention of selling the stock in order to use
the funds for purchases, then the
$300,000.00 loss may not affect the real economy at all. The losses many
investors incurred on Black Monday
were the losses of funds that they held in a working investment
portfolio. Many of the funds were not targeted for immediate use in the
economy. Rather, they were set aside for investment purposes to try to
realize gains for future use and benefit. Whether or not the loss of
these funds will affect the real economy will depend on the extent to
which they can be gained back by the time the investors are planning to
use them for purchases in the real economy.]

I think your original service idea is easier than your manufacturing idea for three reasons:

1. You've done hair streaking before, so you know exactly what is involved;
2. The expenses and assets required are far easier to estimate; and
3. You won't have to compete with megacorporations like Clairol.

• package deal prices
• prices
• streaks/highlights procedures
• Ingredients
• Lightening products (Sadly, no prices.)
• All kinds of hair products (Sadly, no prices.)

Monthly Income:

We hope to provide 30 services per month for $35.00 each: = $1,050.00

Monthly Expenses:

        Phone:                  $80.00
        Internet:               $20.00
        Supplies:              $300.00
                                ------
        Total Expenses:        $400.00

Net Income:                                           $650.00          




> (Q: Re Trade Show) Do we have to include the rent in the charts?

Yes you do!


> If yes, which category do
> we put it under?

Rent is an expense. It is typically called "Rent Expense." It is an
owner's equity account BUT it does NOT appear on the Balance Sheet
directly. Rather, it is placed on the Income Statement under "expenses."
Once "Net Income" is calculated on the Income Statement then it is moved
on to the Balance Sheet under Owner's Equity. (Net Income actually
combines BOTH "revenue" AND "expenses" into one figure, then we can just
add this figure to Capital.)




> (Q: Re. the trade Show Project) When calculating the cost of phone expenses, 
> I do not have an exact cost for a monthly bill.  Should I just round off the cost 
> and estimate the expense?  Also, did you say that we did not have to include 
> taxes in our expenses?

A reasonable estimate of expenses is all we can ask for. You just need
to show that you have considered all of the details that will cost your busines 
money - you are not exprected to predict EXACTLY what these expenses will cost.

(P.S. Don't worry about income tax - that's OAC level material.)


> Q:  When estimating the total fees that our business will earn, should
> we somehow show on paper how we came to that estimate, or should we just
> be ready to answer to the investors if they ask that particular
> question?

You should have a rough calculation showing how you arrived at your
estimated income. For example:

We hope to sell 100 units/month for $10.00 each: = $1,000.00

Predicted expenses (per month):

        Phone:                  $80.00
        Internet:               $20.00
        Input Materials:       $200.00
                                ------
        Total Expenses:        $300.00

Net Income:                    $700.00          




> Q:  I wonder if we could spend a bit of time in class in preparing a Business Plan
> when we have the work period for Financial Analysis.  I have an appointment
> with our bank manager to see if we (Kate and I) would qualify for a Small
> Business Loan for our project.
> 
> The manager is going to meet with me and wanted me to put together a Business
> Plan and I think I know what I have to include but I don't want to miss
> anything.  I got a quote from IBM and Dell Computers and from a programmer for
> equipment costs but I am not sure what else to include.


A: Wow, you sure are pulling out all of the stops! I have to tell
you, going to see a bank manager is a great step towards investigating
how others will perceive your business concept. However, you don't need
to see if you could get a loan, because that is the function which the
investors at the trade show serve. (The investors would provide the cash
required to get your "hypothetical" business started.)

None-the-less, if you are interested in visiting your bank manager to
get some preliminary input on your business idea, and you wish to
prepare a buisness plan (which, by the way, is a huge undertaking) then
you might want to visit the following site:

http://www.enterprise.org/enet/library/busplan.html

Good luck!

P.S.

Remember, you have a lot of work that you still have to do this
term for business and for your other courses, so I would caution you
against investing a lot of time in preparing a formal business plan.



> Q: How are trademarks, slogans, jingles, and brand labelling used in
> marketing? Is it easy to remember and to memorize?

A: Allow me to direct you to your textbook, pages 520 - 521. 

Yes, these do make the product easier to remember.
These marketing tools (slogans, trademarks, brands) also  become associated with
the product and it's image, or differential advantage. For example, when
you hear the name HEINZ ketchup, you think of the ORIGINAL, the only
REAL ketchup. When you think of Pepsi, you think of the new, the fresh and exciting, 
the choice for a younger generation. 
 


> Q: Would you define and give an example of brand labelling?

A: Heinz, Pepsi, Coke, Nike, etc. Any product where you might pay for the
name implies the influence of brand labelling.
 


> Q: Should we know "logos" in the method of questions three and four? You
> taught us that but it is not on the outline.

A: Yes, you should know logos.
 


> Q: Promotional media: example of types are direct mail advertising, flyers,
> and transit advertising?

A: Yes. Also: television, radio, the world wide web, newspapers, and
magazines. 



> Q: What is an example of repetitive advertising?

A: Any ad that repeats information over and over again. 
    ie. 967-11-11, call Pizza Pizza, hey hey hey.
            967-11-11, call Pizza Pizza, hey hey hey. 
               967-11-11, call Pizza Pizza, hey hey hey.
                  967-11-11, call Pizza Pizza, hey hey hey.



> Q: I have some question on the test.  What is an example of
> distrubution channel?

A: Allow me to direct your attention to your textbook, pages 496 - 497



> Q: What is promotional media?

A: Pages 515 - 517



> Q: How have  advertisements have evolved and changed developed scince their initial
> creation? 

A: They used to just talk about their product and how proud they were of
it. Now they place the consumer at the center of the commercial - making
the consumer the hero, showing how the consumer's life is made better by
the product.



> Q:What is the basic phychological approach advertisers use in order
> to persuade the consumer to buy a particaular product?

A: First they study their market in order to discover what the consumer REALLY wants in life. 
The they associate their product with the consumers TRUE goals or values. For
example, Nike associates running shoes (something we do not necessarily need or want)
with popularity, recognition, acceptance, and success (definitely things we REALLY want).



> Q: For the business test when it says explain the various activities
> involved in marketing ie. storage I don't get what to study for that!

A: I assume you are speaking of the following activities:

          - package design, 
          - storage, 
          -  transportation, 
          - advertising, 
          - promotion, 
          - research, and 
          - sales. 

I expect only that you are aware of the above activities as being part
of a marketing effort. You do not need to explain any of the activities
in detail - I only expect that you know what they mean in relation to
marketing. For example, if you are going to market stereos, then you
must be able to:

          - create a stereo package design, 
          - store your stereos until they are sold, 
          - transport your stereos from the manufacturer to your store, 
          - advertise your stereos, 
          - promote your stereos (ie. publicity, sales promotions) 
          - research your market of stereo buyers, and 
          - sell your stereos. 

Answer: The C.P.I. (Consumer Price Index) is a measurement of the price of goods and services across Canada. Similar items from eight different categories are constantly being measured by Statistics Canada. (Please see the C.P.I. handout at:)

http://www.xe.net/isnet/hts/academic/bib1w/bibho14.htm

When we measure these prices every month, we can easily see how much the prices have increased. The PERCENTAGE by which they have increased since the same time last year is the rate of inflation.

Thus, if the entire C.P.I. average for December of last year was 124.5, and this year it is 136.95, then the rate of inflation can be calculated as follows:

The rate of inflation

= (this year's CPI - last year's CPI) / last year's CPI

= (136.95 - 124.5) / 124.5
= 12.45 / 124.5
= .1 (or 10%)

Question: Could you give me a definition for "SCARCITY?"

Answer: Scarcity refers to any resource which is limited in supply, or which is inadequate in supply. Basically, ALL resources are scarce, because society has UNLIMITED needs and wants, but our resources are always LIMITED.

Question: What is the different between co-operative and corporation?

Answer: A corporation is a business which has been registered with the governemtn as an INDEPENDENT citizen. It is literally an individual in the eyes of the law.

A cooperative is a business which is owned by its customers. The customers of a cooperative are usually a group of people who all have a specific need or want for a particular product or service in common. The more one purchases from a cooperative, the greater a percentage of its profits they are entitled to.

Question: In the Samples of "Short Long Questions" you asked on question #2 "Given what you know on the topics of demand and the exchange rate, could you describe any possible link which might exist between the demand for Canadian goods and services and the value of our dollar?"--

I really don't understand this question.What is ment by the value of a dollar and ... also could you describe any possible link which might exist between the demand for Canadian goods and services and the value of our dollar?

Answer: The value of the dollar can have three possible meanings:

i) How much does it cost to buy a dollar? (exchange rate)
ii) How much does it cost to borrow a dollar? (interest rate)
iii) How much value in goods and services can one buy with a dollar? (inflation rate)

In the above question we are referring to the exchange rate - in other words, how much it costs to buy a Canadian dollar with another currency. (This is usually given in American dollars, as that is the international standard used for measuring the value of currencies around the world.)

The link in this question is fairly direct. The more Canadian goods and services other countries are purchasing, then the more Canadian dollars are being purchased by other currencies. (Remember, you can only buy a Canadian product with a Canadian dollar. So if you are an American and you want to buy something Canadian, you have to first buy Canadian dollars!) The more Canadian dollars are being purchased, then the greater the demand is for Canadian dollars. Thus, the increase in demand for Canadian money will cause the cost of Canadian money to increase. That is why the exchange rate will go up if more people buy Canadian made products or services.

Question: I don't understand why economic expansion cannot continue indefinitely; why a recession must always follow a time of economic prosperity.

Answer: Economic expansion doesn't continue forever because of the various characteristics which accompany economic expansion. As we have learned, when employment becomes high personal incomes also increase. Once people are earning more money, they tend to spend more money. Also, when people are earning more money, their ability to borrow money increases (banks will only give consumer loans to people with steady income) and thus the demand for borrowed money also increases.

So, what we have here is an increase in demand for goods and services AND an increase in demand for borrowed money. This creates BOTH high inflation AND high interest rates... and THAT'S where the trouble begins!

Once inflation starts to get TOO high consumers start to reduce their spending. Ironic isn't it? An increase in consumer spending CAUSED inflation in the first place, but after a while the very inflation it caused will start to REDUCE consumer spending.

In addition, the high interst rates will become so high that they will start to discourage further borrowing. Thus, capital investment in business will suffer, and consumer spending on "big ticket" items (ie. houses, cars, appliances) will decrease as well.

As you can see, the reduced borrowing and the reduced spending - all inspired by the increase in inflation and interest rates, will cause economic prosperity to come to an end. But don't worry, it will come around again - right after the next recession!

Question: Sir I can not find out what Equlibrium is? Can you tell me?

Answer: Equilibrium is the point where the demand curve intersects the supply curve. It is used to describe the price and quantity which the forces of supply and demand determine in a free market system.

You will find a note on this concept here:

http://www.xe.net/isnet/hts/academic/bib1w/bibho11.htm

Question: I am having some trouble understanding what is meant by specialization of Buisnesses, injections, leakages, and opportunity cost. Could you give me a definition of each?

Answers:

Specialization of Busness:

This is a term meant to describe businesses which specialize in the production of only one type of good or service, ie. a car manufacturer, or a hair stylist.

Injections:

This term refers to the inflow of of money TO the active money supply FROM the inactive money supply. ie. Investment, Government Spending, and Exports

Leakages:

This term refers to the ouflow of of money FROM the active money supply TO the inactive money supply. ie. Saving, Taxation, and Imports

Oppurtunity cost:

This term refers to the most lucrative or beneficial alternative which one GIVES UP when they chosses a specific plan of action (in other words, when one makes a decision). Every choice we make involves an opportunity cost. ie. If we decide to go to summer camp we GIVE UP working for the summer. The money which we COULD have made by working that summer is the "opportunity cost" associated with going to camp.

Question: What are the charactersictics of prosperity and the characterisctics of recession?

Answer: The characteristics of prosperity are:

1) high demand
2) high employment
3) high inflation
4) high interest rates, and
5) high exchange rates

However, these very characteristics then cause a recession:

1) low demand
2) low employment
3) low inflation
4) low interest rates, and
5) low exchange rates

Question: One of the sample of long answer questions for the exam that you handed out to us reads, "Given what you know on the topics of inflation and labour unions, could you describe any possible link which might exist between the existence of unions and the occurence of inflation?" However, I don't remember covering this in class. Must we know it for the exam?

Answer: It is true - we didn't cover labour unions directly. These questions are from old exams, and my curriculum changes every year. We WILL be studying orgainized labour later on in the year though. None-the-less, I think you could still answer this question with your basic knowledge of labour unions. Ask yourself this, "What do labour unions do to the cost of labour?" If the cost of labour goes up, then what happens to the prices of goods and services?

Having said that, I wouldn't ask any questions re. labour unions on your exam.

Question: I do not quite undestand the Monetary Policy of the Bank of Canada. Is it important to know?

Answer: No it is not important to know. But just to satisfy your thirst for knowledge, monetary policy refers to ANY policy established by the Bank of Canada with the intent to manipulate the value of our dollar or our country's money supply. Thus, decisions to raise or lower the bank rate, buy or sell savings bonds, or even asking the chartered banks to grant more or fewer loans, are all examples of monetary policy.

Question: What is the difference between innovation and entrepreneurs?

Answer: An "innovation" is a new and improved way of doing something. AS opposed to an "invention" which is something that is completely new and unlike anything else that previously existed.

An entrepreneur is a person who transforms a problem into a business opportunity.

Question: Can you explain how inflation specifically effects interests rates?

Answer: Inflation affects interest rates for two reasons:

Reason #1. Lenders of money must keep their interest rates above inflation or they will LOSE financial value while their money is loaned out. For example, imagine you have $1,000.00 in your hands today. You are deciding between loaning it to your friend, or buying a new Fender Strat guitar for exactly $1,000.00. In the end you decide to loan it to your friend at 5% interest.

One year goes by, and you collect your money, plus the interest, from your friend. Wow! You now have $1,050.00! You quickly dash to the store to buy the Fender Strat that you had your eye on one year ago. However, you are shocked to see that the guitar NOW costs $1,100.00!!! What happened?!

The problem is that while you loaned your money out at 5% interest, inflation was running at 10%! The prices of goods and services were going up faster than the interest on your money. You may have earned money on your loan, but your money DROPPED in value! (If it is any comfort, you can borrow your friend's guitar - she bought the Strat one year ago - for only $1,000.00!)

This is the reason why the rate of interest MUST stay above the rate of inflation. Otherwise, lenders will just lose value as they loan money out. Thus, when inflation goes up, so do interest rates, and when inflation drops down, interest rates follow.

Reason #2. When inflation is high we are in a period of economic prosperity. During economic prosperity most of our money is in the active money supply. When the ACTIVE money supply is high, the INACTIVE money supply is LOW! Remember, the inactive money supply is the nation's source for loans. According to the laws of supply and demand, if the supply of money for loans is low, then the cost of borrowing money will be high!

Question: How does unemployment affect the economy?

Answer: Unemployment affects the rest of the economy because when a few individuals become unemployed they will no longer be earning money, therefore they will not spend as much money as they used to. As a result, the demand for goods and services will drop slightly. In response to this decrease in demand, one or two more people may lose their jobs. Now even more people are out of work, and now even more people are not earning money. The demand for goods and services will continue to drop as more and more people lose their jobs, causing even MORE people to lose their jobs! As you can see, because we all depend on each other's business in an interdependent society, we will ALL be affected when other people lose their jobs!

Question: Can you please give me a definition of taxation and tell me why it hurts the economy or why it is a leakage?

Answer: Taxation is a charge or burden laid upon persons or property for the support of a government.

Specifically, they are a charge laid upon specific things, ie. lands, houses, income, purchases, etc. Taxes can be annual or perpetual, direct or indirect, etc. They are imposed or levied upon the members of a society to defray its expenses.

Taxes are a leakage from the active money supply (money which is actively being used to buy goods and services) because when one is taxed a certain sum of money they can no longer use that particular sum of money to buy goods or services. For example, if you earned $50,000.00 a year you might think, "Wow, I can't wait to go spend that $50,000.00!!!" However, you won't have the opportunity to actually SPEND $50,000.00 because you will be taxed about $15,000.00 in income tax - that's $15,000.00 that you won't be able to spend, therefore that's 15,000.00 less money in the active money supply.