Understanding the Environments of Business
Gross Domestic Product (GDP)
GDP / Capita
Importance of the economic environment to business and identify the factors used to
evaluate the performance of an economic system.
Everything outside an organization’s boundaries that might affect it.
*Managers must therefore have an accurate understanding of the environment.
Conditions of the economic system in which an organization operates.
* i.e. Mcdonald’s operates in an economic environment where there are, Moderate
Growth, Moderate unemployment, and Low inflation.
Moderate Employment: Most people can afford eat out, but it also means that it must pay
higher wages to attract employees.
Low inflation: it pays relatively constant prices for its supplies, but it also means that it
can’t really increase the prices it charges consumers.
3 key goals of Canadian Economic system
- Economic growth
- Economic stability (threat: inflation/unemployment)
- Full employment.
Measurement of Economic growth:
- Aggregate output
- Standard of living
- Gross domestic product
- Productivity Economic Growth
- It is said to be grown when it is able to increase total output.
The Business Cycle
Pattern of short-term ups and downs (expansions and contractions) in an economy.
4 Recognizable phases: peak, recession, trough, recovery.
Period during which aggregate output (Measured by real GDP) declines.
If Recession lasts for a prolonged period, it is called Depression.
Aggregate output and the Standard of Living.
Aggregate output (총생산량 )
The total quantity of goods and services produced by an economic system during a given
An increase in Aggregate output = Economic Growth
When output grows more quickly than the population, two things follow
Output per capita: the quantity of goods and services per person /goes up
- The system provides relatively more of the goods and services that people want.
- When these two things occur, Standard of living goes up
- Standard of living means total quantity and quality of goods and services that they can
purchase with the currency used in their economic system.
- Economic growth = Higher Standard of living 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.
- 삼성이 중국에 공장에 있다해도 국내생산이 아니기 때문에 해당안됨 )
- 중국의 입장에서는 삼성소유 중국내 공장이 GDP 에 해당됨 )
Gross national product (GNP)
- The total value of all goods and services produced by a national economy within a given
period regardless of where the factors of production are located.
- 이 경우 삼성의 중국내 공장 Profi이 GNP 에 해당됨 )
-이는 Factor of Product이 다르기 때문 (i.e Labor = Chinese, Capital = Korean)
GDP / GNP helps to track an economy’s performance over time.
GPI (Genuine Progress Indicator)
- Oil spill
Real Growth Rates
The growth rate of GDP adjusted for inflation and changes in the value of the country’s
currency. If the growth rate of GDP exceeds the rate of population, S of Limproves.
GDP per Capita (GDP/T Population)
Is better measurement for the average person’s economic well-being.
GDP measured in current dollars or with all components valued at current prices.
GDP calculated to account for changes in currency values and price changes.
Purchasing Power Parity
Principle that exchange rates are set so that the prices of similar products in different
countries are about the same. - To make adjustments, account for Real GDP and Purchasing Power Parity.
Amajor factor in the growth of an economic system is productivity.
A measure of economic growth that compares how much a system produces with the
resources needed to produce it.
Standard of living improves only through increases in productivity.
Hinders of Economic growth.
- balance of tra