Chapter 6 - Economic Environment Flashcards
Why is a universal assessment of economic environments difficult?
- it is difficult to find a definitive indicator to estimate the performance/potential of a country’s economy
- today’s measures = may not work tomorrow
- interdependencies complicate interpreting elements of an economic environment
What factors affect international business operations?
- economic freedom
- economic systems
- economic indicators
What is economic freedom?
the fundamental right of every human to control his or her own labor and property
- affects growth rates, productivity, income levels, inflation, employment rates, political openness
What are economic systems?
refers to the mechanism that deals with the production, distribution, and consumption of goods and services
Types of economic systems
1) market economy (individuals make most economic decisions, capitalism, laissez-faire = no gov. interference)
2) command economy (production, investment, prices, and incomes are determined by gov)
3) mixed economy (market driven & private ownership, socialism - focus on
social equality and a fair distribution of wealth)
Developing countries
- largest number of countries
- low per capita income
(Africa)
Emerging economies
- fast growing, relatively prosperous
(BRICS – Brazil, Russia, India, China and
South Africa)
Developed countries
high per capita income and standard of
living
(U.S., Japan, France, Australia)
GNI (Gross National Income)
total value of all final goods and services
produced within a nation in a particular year,
(+ income earned by its citizens abroad - income earned by foreigners from domestic production)
GDP (Gross Domestic Product)
the total market value of goods and services
produced by a domestic or foreign-owned
company within a nation’s border
What should GNI data be adjusted for?
- the growth rate of the economy
- the number of people in a country
- the local cost of living
Green economics
gauge economic performance in terms of the effect of current choices on long-term sustainability
Sustainable development
meet the needs of the present without
compromising the ability of future generations to
meet their own needs
Happynomics
importance of emotional prosperity in addition to financial prosperity
What is human development index? (HDI)
emphasizes people and their capabilities
should be the ultimate criteria for assessing the
development of a country (not economic growth
alone)
3 dimensions: living a healthy life, being knowledgeable, standard of living
What are the main features of an economy that managers should consider?
- inflation
- unemployment
- debt
- poverty
Inflation vs deflation vs reflation
- a measure of the increase in the cost of living
- when prices for products go down not up
- increase money supply & reduce taxes to
up economic activity
Misery Index
sum of a country’s inflation and unemployment
rates
What is debt and what are the two types?
total of gov. financial obligations (internal and external debt)
Income distribution
estimates the proportion of the population that
earns various levels of income
GNI coefficient
measures the extent to which the distribution
of resources deviates from a perfectly equal
distribution
Extreme poverty vs Moderate Poverty
- less than $1.25 a day
- less than $2.00 a day
The world pop. is ______ poor ______ middle income & ______ rich
80%, 10%, 10%
Balance of payments
reports a country’s trade and financial
transactions with the rest of the world
current account
tracks merchandise trade
capital account
tracks loans given to foreigners and loans received by citizens
