Page 27 - Business Principles and Management

Unit 1

1.3 The Contributions of Business

Goals Terms
• Identify two ways a nation measures • gross domestic product • franchise
its economic growth and prosperity. (GDP) • franchisor
• Describe the benefits of business • underground economy • franchisee
ownership to the nation and indi- • entrepreneur • intrapreneur
viduals.

Business Growth and Prosperity

Overall, the United States is a prosperous nation. Much of its prosperity is due
to business growth. Around the world, people admire and envy this country’s
economic strength. Let’s look at two ways in which a nation measures its eco-
nomic wealth and its benefits to citizens.

GROSS DOMESTIC PRODUCT
The chief measure of a nation’s economic wealth is the gross domestic product
(GDP). The GDP is the total market value of all goods and services produced in
a country in a year. Whenever products or services are purchased, the total dollar
amount is reported to the federal government. The GDP of the United States is
compared from year to year and is also compared with the GDP of other coun-
tries. These comparisons provide an ongoing measure of economic success.
Certain types of transactions, however, are never included in the GDP. These
transactions are not recorded because they are unlawful or do not occur as part
of normal business operations. For example, when a student is hired by a home-
owner to mow lawns, formal business records are not normally prepared and the
income is usually unrecorded. Some adults work part- or full-time for cash and
never report that income or pay taxes on it. When drugs or counterfeit merchan-
dise are sold illegally, such transactions are of course unreported. Income that
escapes being recorded in the GDP is referred to as the underground economy.
Business transactions that occur in the underground economy have increased in
recent years in relation to the total GDP. Estimates range between 5 percent of
the GDP during a brisk economy to 20 percent during a slow economy. The size
of the underground economy concerns government officials due to its illegal
nature and because the activities are not taxed although the people involved
still require government services.
In 2005, the total known and recorded GDP for the United States reached the
staggering $12.4 trillion mark, as shown in Figure 1-2. As a comparison, the GDP
of the United States is slightly more than the combined total GDP of the 25 coun-
tries that make up the European Union (EU). The only single country that comes
close to America in terms of GDP is China. That country’s rapidly growing econ-
omy produces a GDP now totaling over $8 trillion. The rate of growth and the cur-
rent size of the U.S. GDP indicate, in a rather striking way, its economic strength.

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