Economic Environment Learning objectives Assignment PDF

MGMT 1101 – Week 6 Lecture Notes
The Economic Environment
Learning objectives:
- To understand the relevance of demand factor conditions to
international business
- To assess the economic development of countries
- To analyse and compare national economies in terms of
risks/attractiveness

Gross Domestic Product
GDP is the market value of all final goods and services produced within a
country in a given period of time
- Market value = market prices people are willing to pay
oPrices of G+S
- Comprehensive and includes everything produced and sold in the
economy, but excludes things that do not enter the ‘legal’ market
- Intermediate goods vs. final goods  the price of final goods include
the value of intermediate goods, unless intermediate goods are
added to inventory
- Currently produced = used car sales do not count...
- Within a country (boundary)
- Given period: usually in a year or quarter
Components of GDP
i) Consumption
- Spending on G+S by households with the exception of purchases of
new housing
- Spending on education is all seen as consumption, not investment
ii) Investment
- Purchase of goods to be used in the future production of goods and
services
iii) Government purchases
- Include things like salaries for government employees
- But transfer payment not part of government purchases
iv) Net exports
- Total exports minus total imports
GDP = Consumption + Investment + Government Purchases + Net
Exports
Real vs. Nominal Gross Domestic Product
- One of the objectives of economic development is to facilitate a rise
in GDP at a high rate
- 2 reasons for the rise in GDP
o1. Producing more output of G+S
o2. Higher prices
- Real GDP – the production of G+S valued at constant prices (that is,
holding prices constant at some base year)

- GDP deflator (Nominal GDP/Real GDP *100) measures the change in
nominal GDP that cannot be explained by a change in real GDP
What is GDP good for?
What are the problems associated with GDP?
GDP does not measure:
Quality of life
- Leisure or how much do citizens work
- Happiness
- Health
Things that take place outside markets
- Produced at home
- Child care by parents at home
- Volunteer work
Quality of the environment
- GDP excludes the damage to society
- Productive, economic activities that are not environmentally
sustainable
Distribution of income
- Inequality
- Fairness and justice
GDP is good as a measure of economic well-being and volume of
economic activities, but there are limitations, particularly with regards to
human well-being and sustainability