1 Chapter 2: Understanding the Environments of Business External Environment: everything outside an organizations boundaries that might affect it. Economic Environment: conditions of the economic system in which an organization operates. Business Cycle: pattern of short term ups and downs (expansions and contractions) in an economy. Four recognizable phases: peak, recession, trough, and recovery Recession: period during which aggregate output, as measured by real GDP, declines. Depression: particularly severe and long lasting recession. Aggregate Output: total quantity of goods and services produced by an economic system during a given period. Standard of Living: total quantity and quality of goods and services that a countrys citizens can purchase with the currency used in their economic system. Gross Domestic Product (GDP): total value of all goods and services produced within a given period by a national economy through domestic factors of production.