UNIVERSITY OF TORONTO AT SCARBOROUGH
MGTA03 - INTRODUCTION TO MANAGEMENT I
Mid-Term – Friday, November 5, 2010
SHORT ANSWER QUESTIONS
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Lecture
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1. Please write all answers in PEN and as clearly and neatly as possible. If you need
additional space, turn the pages over and write on the back of the sheet.
2. Make sure your name, student number and lecture number are correctly entered, above.
3. Failure to accurately follow instruction 2 will cost you 5 marks!
4. You must answer Question 1 and 2. Then, you write either Question 3 or 4.
5. You have 90 minutes to write the exam.
Do not write below – for marking purposes only.
Question 1 / 8
Question 2 / 7
Question 3 / 10
Question 4 / 10
SAQ Total / 25 MGTA03 Introduction to Management – Midterm – November 5, 2010
You must answer Question 1 and Question 2.
Question 1 (8 marks)
The Canadian Dollar is now equal to approximately UK£0.61 (61 British pence) and also
equal to US$0.98 (98 American cents). Assume that over the next year the Canadian
Dollar will change in value to be worth UK£0.50 and worth US$1.10. What would you
expect to be the effect upon the following: (Explain and justify all of your answers).
1. Canada’s balance of trade with the United Kingdom? 2 marks
If the value of the Canadian dollar goes from being worth UK£0.61 (61 British pence)
to UK£0.50 over the next year, the Canadian dollar is depreciating, i.e. it is worth less.
The weaker Canadian dollar will make it more expensive for Canadian businesses and
Canadian consumers to buy products and services which are made in the UK.
Therefore, we will probably buy fewer British cars, fewer wool sweaters, and less
Scotch whiskey. Possibly we will, instead, buy more Canadian made cars, Canadian
made clothes, and Canadian whiskey.
Conversely, the pound sterling (UK£) is stronger. UK£1 can buy more in Canada.
Therefore, business and consumers living in in London, Glasgow, Liverpool etc. will
probably buy more Canadian goods and services. The British will import more
Canadian maple syrup and more Canadian-made hockey sticks.
Because we can afford to import less from them, and the British can afford to import
more from us Canada's balance of trade with the UK (at the moment, slightly
negative) will improve, i.e. the deficit will get smaller. The deficit might become a
surplus.
More Canadians will find more work making maple syrup and hockey sticks for export
to the UK market.
Page 2 of 10 MGTA03 Introduction to Management – Midterm – November 5, 2010
2. Canada’s balance of trade with the United States? 2 marks
If the value of the Canadian dollar goes from being worth US$0.98 (98 US cents) to
US$1.10 over the next year, the Canadian dollar is appreciating, i.e. it is becoming
worth more.
The stronger Canadian dollar will make it less expensive for Canadian businesses and
Canadian consumers to buy products and services which are made in the US.
Therefore, we will probably buy more US cars, and more US-made hot dogs.
Conversely, the US$ is weaker. US$1 can buy less Canada.
Therefore, business and consumers living in New York, Boston and Chicago will
probably buy fewer Canadian goods and services. The US will import less Canadian
maple syrup and fewer Canadian-made hockey sticks.
Because we can afford to import more from them, and the Americans can afford to
import less from us Canada's balance of trade with the US (already slightly
negative) will get worse, i.e. an existing deficit will get larger.
3. Canada’s overall balance of trade? 4 marks
Canada trades significantly more with the US than it trades with any other country.
Our exports to the US typically represent about 70% of all of our exports. The US is
the source of about 60% of our imports.
The UK is a significant trading partner to Canada, but the scale of trade to the UK Britain
is dwarfed by the scale of our trade with the US. We trade 20 – 30 times as much with
the US as we do with the UK.
In the scenario above: While a weaker Canadian dollar (relative to the UK£) means our
balance of trade with the UK is likely to improve, this will be hugely offset by a
deterioration in our balance of trade with the US.
While a few job may be created in firms that export primarily to the UK, the scenario
above (the Canadian dollar weakening against the pound, but strengthening against the
US$) would be bad for Canadian business and bad for the Canadian economy.
Page 3 of 10 MGTA03 Introduction to Management – Midterm – November 5, 2010
You must answer Question 1 and Question 2.
Question 2 (7 marks)
A recent survey noted that Luxembourg is the world’s most productive economy. Norway
placed second. The United States ranked 5 and Canada ranked 11 . th
a) What makes the economy of one country more productive than the economy of
another? (2 marks)
Productivity is a ratio. The productivity of a country is measured by dividing the
aggregate output of an economy (GDP) by the population (GDP per capita) or the
number of workers (labour productivity).
A productive economy will have cheaper, easier, and more abundant access to more and
better factors of production. In other words, a productive economy will have:
capital - lots of money with which to buy newer, better, more sophisticated technology
labour – lots of well educated, highly trained, hard-working, efficient and skilled people
resources – lots of easy to obtain, and valuable, natural resources
Finally, a country will have a society, culture or political climate that encourages the
creation of businesses, rewards entrepreneurs, and makes it easy for people to start, operate
and grow their businesses (entrepreneurial climate).
Page 4 of 10 MGTA03 Introduction to Management – Midterm – November 5, 2010
b) Suggest some reasons why Luxembourg would be the highest ranked economy.
(2 marks)
Although a tiny country with limited natural resources, Luxembourg is located in the very
middle of Western Europe. With easy transportation links to the major capitals and
financial centres of Europe, Luxembourg has set itself up as a banking and financial
centre.
Luxembourg therefore attracts many of the brightest and best educated bankers, lawyers,
accountants, and other highly educated professionals. The organisations they work for
need to have the most modern and efficient technology for banking, investing, and foreign
exchange trading.
Luxembourg's GDP per capita is very high (i.e. it is "productive) because, included in its
relatively small workforce is a disproportionate number of bankers, lawyers, economists,
and accountants. There highly educated, highly trained people have access to some of the
finest technology in the world, and deal with huge sums of money making very large
profits.
c) Why would Canada rank below the United States in productivity? (3 marks)
The simple theoretical answer would be that Canada (Canadian business) has less access
to, or make less effective use of the various factors of production.
More specifically, our people are no lazier or more stupid, but perhaps our workers receive
less
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