External environment:
Everything outside an organization’s boundaries that might affect it.
a. Organizational Boundaries: that which separates the organization from its environment. Today boundaries are becoming increasingly complicated and hard to pin down.
b. Multiple Environments: include economic conditions, technology, political‐legal considerations, social issues, the global environment, issues of ethical and social responsibility, the business environment itself, and numerous other emerging challenges and opportunities.
THE ECONOMIC ENVIRONMENT
Economic environment—Conditions of the economic system in which an organization operates.
c. Economic Growth
i. Aggregate Output and Standard of Living
1. Business cycle—Pattern of short‐term ups and downs (expansions and contractions) in an economy
2. Aggregate output—Total quantity of goods and services produced by an economic system during a given period
3. Standard of living—Total quantity and quality of goods and services that a country’s citizens can purchase with the currency used in their economic system
ii. Gross Domestic Product
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
Gross national product (GNP)—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
1. Real Growth Rate—the growth rate of GDP adjusted for inflation and changes in the value of the country’s currency.
2. GDP per Capita—GDP per person and reflects the standard of living.
3. Real GDP—GDP calculated to account for changes in currency values and price changes versus Nominal GDP, GDP measured in current dollars or with all components valued at current prices.
4. Purchasing Power Parity—Principle that exchange rates are set so that the prices of similar products in different countries are about the same.
iii. Productivity—Measure of economic growth that compares how much a system produces with the resources needed to produce it.
There are a number of factors which can inhibit the growth of an economic system including:
1. Balance of Trade—the economic value of all the products that a country exports minus the economic value of imported products.
a. Trade Surplus —A positive balance of trade results when a country exports (sells to other countries) more than it imports (buys from other countries).
b. Trade Deficit—A negative balance of trade results when a country imports more than it exports.
c. National Debt—Amount of money that a government owes its creditors.
d. Economic Stability
Condition in an economic system in which the amount of money available and the quantity of goods and services produced are growing at about the same rate. Factors which threaten stability include:
i. Inflation—Occurrence of widespread price increases throughout an economic system Measuring Inflation:
The CPI—Measure of the prices of typical products purchased by consumers living in urban areas
ii. Unemployment—Level of joblessness among people actively seeking work in an economic system. Unemployment may be a symptom of economic downturns.
1. Recessions and Depressions
Recession—Period during which aggregate output, as measured by real GDP, declines
2. Depression—Particularly severe and long‐lasting recession.
e. Managing the U.S. Economy
i. Fiscal policies—Government economic policies that determine how the government collects and spends its revenues
ii. Monetary policies—Government economic policies that determine the size of a nation’s monetary supply
iii. Stabilization policy—Government policy, embracing both fiscal and monetary policies, whose goal is to smooth out fluctuations in output and unemployment and to stabilize prices.
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