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Understanding the United
States Business System
CHAPTER 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)


GDP per capita


GDP/Total population
Inflation


The total value of all goods and services produced within a country in one
year
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
The Business Cycle—a movement of the
economy from one condition to another
Level of Real Output
THE BUSINESS CYCLE
*Prosperity
*Prosperity
*Depression
*Depression
Time
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
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
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

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
Trade
 Import (I)
 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
International Trade Barriers
 Restrictions to free trade

Quotas


Tariffs


Limit on the quantity of a product imported or exported
Tax on imported products
Embargo

Blocking the import or export of product
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
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

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
Global Market Entry
 Multinational Company
 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