1. Understanding the United States Business System
Chapter 2

2. Evaluating Economic Systems
Every economic system has three main goals
Stability, full employment, and growth
Threat – recession, depression
Ways to assess performance of goals
Gross Domestic Product (GDP)
The total value of all goods and services produced within a country in one year
GDP per capita
GDP/Total population
Inflation
Widespread price increases that threaten stability
Deflation
Decrease in the general level of prices
Occurs in periods of recession and depression
People have less money to spend on goods and services

3. The Business Cycle—a movement of the economy from one condition to another
Level of Real Output
Recession
*Prosperity
*Prosperity
Recovery*
Recession
Recovery*
*Depression
*Depression
Time

4. What does it mean? Prosperity-Peak of the business cycle
Low unemployment
Good wages
Growth in GDP
Businesses are producing and selling high amounts of goods and services
Recession—economic slowdown
Demand decreases
Businesses lower production
Unemployment begins to rise
GDP growth slows

5. What does it mean? Depression—when recession deepens and spreads
Prolonged period of high unemployment
Weak sales of goods and services
Business failures
GDP falls rapidly
Recovery—move back towards Prosperity
Unemployment goes down
Demand increases
GDP begins to rise

6. Evaluating Economic Systems
Growth
Increase in the total output of goods and services produced by a nation’s resources
Important in maintaining businesses, jobs, wealth, and a desirable standard of living
Unemployment
A situation of joblessness among those who are actively seeking work (% based on govt. survey)
High unemployment indicates that business is performing poorly (recession, depression)
Low unemployment indicates that business is performing well

7. Inflation Inflation – Increase in the general level of prices.
Most harmful on people with fixed incomes.
Causes of Inflation
When the demand for goods and services is greater than the supply.
Large supply of money is spent for goods that are in short supply, prices increase.
Wages never tend to increase during inflation because goods and services rise so fast that the wage center cannot catch up.

8. Other Indicators of Economy Stability
Consumer Price Index
Compares prices of common goods from one year to the next
Examples of CPI
Personal Savings
Stock Market
Debt
Government
Consumer
Business
US Economic Indicators

9. Advantages? What is Absolute Advantage? What is Comparative Advantage?
Can produce a good or service at a lower cost
Ex: South American Counties=Coffee
Ex: Saudi Arabia = Oil
What is Comparative Advantage?
Country specializes in the production of a good or service at which it is relatively more efficient.

10. Trade Import (I) Export (E) Balance of Trade
A product made abroad, but sold in the US
Export (E)
A product made in the US, but sold abroad
Balance of Trade 
Trade Surplus: E > I
More money is flowing into the country than is flowing out
Trade Deficit: E < I
More money is flowing out of the country than is flowing in

11. Using your cell phone…
Find out the top five products that are imported into the U.S.
Find out the top five products that are exported to other countries.

12. International currency
Exchange Rate
Canada
Dollar
England
Pound
Europe
Euros
What are factors affecting currency values
Balance of Payments
Economic Conditions
Political Stability

13. International Trade Barriers
Restrictions to free trade
Quotas
Limit on the quantity of a product imported or exported
Tariffs
Tax on imported products
Embargo
Blocking the import or export of product

14. USA Trading Info. Primary trading partners
China
Mexico
Canada
North American Free Trade Agreement (NAFTA)
Agreement reached by the United States, Canada, and Mexico
Reduce tariffs (taxes) and other trade barriers  

15. Encouraging Free Trade
Free Trade Zones
Products are imported and stored duty free
Common Markets
European Union
Agreement between European countries similar to NAFTA
Developed the Euro currency

16. International Business Environment
Geography
Weather, Temperature, and Access to Ports
Cultural Influences
Language, Religion, Values, Customs, Social relationships
Economic Development
Advancement or lack of in technology, literacy, agricultural dependency.
Political and Legal Concerns
Government system, Business regulations, Political stability

17. Global Market Entry Multinational Company Licensing Franchising
Organization that does business in several countries
Licensing
Selling the rights to use intangible property
Franchising
Selling rights to name, processes, and product
Joint Venture
Agreement between two companies to share business projects