Warm up

Questions

  • What is New Economy? What is or are its important feature£¨s£©?
  • Is there any difference between new economy and traditional economy? What is the difference between them?
  • What may contribute to economic growth in the era of new economy?
Background
  • Mr. Peter Coy, an economist editor of BusinessWeek. This article was published in Businessweek August 20-27 2001 and the author seems to be a firm believer of New Economy.
Important terms
New Economy£º
  • Also known as the "Digital Economy". New economy is a term often used in the media to describe the changes that have taken place in the world of business since the widespread adoption of Internet technology. Coined in the late 1990s, it referred to the new, digital economy driven by industrial information technology, much of which is related to telecommunications such as the Internet technology that, many argue, has a huge potential to transform the engineering industry. In the new economy, production and distribution systems are automated, computer-based systems. The old economy, classical or traditional, is undergoing sweeping changes through the speed and efficiency brought by applications of information technology and the Internet.
  • The basic idea behind the new economy was that computer and Internet technology had fundamentally changed the typical way of doing business. Analysts and investors alike focused on technology adoption and stock price valuation rather than revenues and long-term business plans when evaluating companies. As a result, high-tech startup firms staged public stock offerings before they had turned a profit and still attracted huge numbers of eager investors. Employees gave up the stability of traditional firms to work long hours at dot-coms in hopes of achieving a windfall in stock options. The workplace at high-flying tech companies evolved to include rooms full of toys and games to encourage employee creativity.
Business Cycle
  • The recurring and fluctuating levels of economic activity with effects on inflation, growth, and employment, which an economy experiences over a long period of time £¨about two and one-half years on the average£©. The four stages of the business cycle are recovery £¨expansion£©, peak, recession £¨contraction£©, and trough. At one time, business cycles were thought to be extremely regular, with predictable durations. But today business cycles are widely known to be irregular - varying in frequency, magnitude and duration.
  • All modern, industrialized countries have fluctuations in their rates of economic activity, leading to the observation that one nation's economy is "booming" while another economy is in a "recession." When an economy goes from a positive to a negative rate of growth, it is said to have reached a "peak" and entered a recession. When an economy goes from a negative to a positive rate of growth, it is said to have reached a "trough" and entered a "recovery."
Blue Chip
  • The name "blue chip" came about because in the game of poker the blue chips have the highest value. A blue chip is a nationally recognized, well-established and financially sound company. Blue chips generally sell high-quality, widely accepted products and services.
  • Blue-chip stock is seen as a less volatile investment than owning shares in companies without blue-chip status because blue chips have an institutional status in the economy. Blue chip stocks are often viewed as long-term investment instruments. They have low risk and provide modest but dependable return. Examples are International Telephone and Telegraph and Minnesota Mining and Manufacturing. Blue chip may also refer to a high-quality bond that is secure and stable in price and interest payments.