BUS 200 Lecture Notes - Lecture 2: Gross Domestic Product, Business Cycle, Corporate Social Responsibility
8 Dec 2017
School
Department
Course
Professor
Environment of Business
Growth Cycles
• External environment- everything outside the organization
• Organizational- separates the organization from the environment
• Stakeholders
o External- suppliers, consumers, competitors, investors
o Internal- CEOs, employees,
o Three levels of stakeholders: (using SFU as an example)
o Primary-students, faculty, government
o Secondary- competitors, other campuses, vendors,
o Tertiary- have an interest, families in the area, international organizations
The Organization
Consists of these environments: economic, technological, political-legal, socio-cultural, business,
emerging challenges and opportunities, and the global business environment
Economic Environment
Economic Environment- conditions of the economic system in which an organization operates
Aggregate Output- the total quantity of goods and services produced by an economic system over a
given period
• When output grows more quickly than the population, the quantity of goods and services per
person (output per capita) increases
• People benefit from a higher standard of living (more and better goods and services can be
purchased)
Business cycle- the growth and contraction of the economy
• Peak
• Recession- two consecutive quarters when the economy shrinks (starts after peak is reached
and ends as trough is reached)
• Trough
• Recovery
• Expansion-
• Depression- trough of the business cycle extends two or more years (negative growth)
• Ripple effect (companies lose money, people lose jobs, can’t afford to buy as much,
companies suffer)
Gross Domestic Product (GDP)
• Total value of goods and services produced over a period within the country (solely within a
nation’s borders)
• National economy through domestic factors of production
• When GDP rises the nation experiences economic growth
Gross National Product
• Within a company and all its affiliates in other countries (McDonald’s is American. So all of its
American stores and all of its stores in other countries)
• Total value of goods and services produced over a period regardless of where production is
located
• National economy
Real Growth Rate
• Adjusts for inflation and true value of currency
• Growth depends on output increasing faster than the population
• If higher growth rate then standard of living is higher
GDP per capita
• GDP per person
• Divide total GDP by population
Real GDP
• Calculated to account for changes in the currency values and price changes
Purchasing Power Parity:
• The theory aims to determine the adjustments needed to be made in the exchange rates of two
currencies to make them at par with the purchasing power of each other. In other words, the
expenditure on a similar commodity must be same in both currencies when accounted for
exchange rate. The purchasing power of each currency is determined in the process
• Exchange rates are set so that the value of two similar items in different countries is the same
o If laptops end up being cheaper in Europe than in the states (due to exchange rate) then
americans will buy laptops from there. This drives the price of European laptops up and
American ones down. They equalize
o The demand for euros to buy the laptops make the euro value go up
o American consumers desire German laptops as they are cheaper. So they go to
an exchange rate office and sell their American Dollars and buy German Euros.
This will cause the German Euro to become more valuable relative to the U.S.
Dollar.
o The demand for computers sold in the United States decreases, so the price
American retailers charge goes down.
o The demand for computers sold in Germany increases, so the price German
retailers charge goes up.
o Goes back to supply and demand
Measuring Economic Growth
• Productivity: measure of economic growth that compares production with the resources
required
• The balance of trade equals the economic value of all the products that a country exports minus
the economic value of the products it imports.
• Positive balance of Trade: sending out more, than importing in (trade surplus)
