BUS 100 Chapter Notes - Chapter 2: Gross Domestic Product, Purchasing Power Parity, Global Recession

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Thomas Davies Business 100
1
Chapter 2 The Business Environment
Organizational Boundaries and Environments
1) Organizational Boundary separates organization and environment
a) Physical (walls, doors)
b) Delivery etc. or agreements blur the boundary for customer
2) Organizations exists in multiple environments local and global
a) Global recession has affect, local weather/unemployment does too
b) Political, socio-cultural, technology, etc.
The Economic Environment
1) The economic environment refers to conditions of the economic system in which the organization
operates
2) Canada currently in „moderate growth/unemployment‟ and „low inflation‟
a) Means most people can eat out, but restaurants can‟t change prices due to competitive
pressures
3) Economic Growth
a) Simply, economic growth = increase in production of goods (GDP)
b) Aggregate Output/Standard of Living (SOL)
Aggregate output = total goods/services produced by system in a period
If aggregate output grows more than pop., the per capita goes up
This causes higher standard of living (total quantity of goods/services that citizens
can purchase)
c) Business cycle = regular growth/contraction
Standard cycle: peak recession trough recovery
Recession considered two consecutive quarters where economy shrinks
Depression occurs when the trough lasts 2+ years
d) Gross Domestic Product (GDP) & Gross National Product (GNP)
GDP = total value of all goods/services produces by domestic factors
Replaced GNP, where all Cnd. ownership considered
(1) Cnd. owned company in Brazil counts for GNP, but not GDP
(2) French company in Canada counts for GDP, but not for GNP
GDP is key factor in growth, but not exclusive (debt another factor)
Real growth rate is GDP adjusted for inflation/currency changes
Real GDP means that GDP has been adjusted for above factors
(1) When not adjusted, called nominal GDP (in current $)
GDP per capita is GDP per person
Purchasing power parity = principle that exchange rates set so that the prices of
similar products in different countries are about the same
e) Productivity has major impact on growth
Is comparison production vs. resources required (workers, money, time, materials)
Increased productivity allows prices to decrease necessary for SOL increase
f) Balancing Trade and National Debt
Balance of trade = exports imports
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Document Summary

Aggregate output = total goods/services produced by system in a period. If aggregate output grows more than pop. , the per capita goes up. This causes higher standard of living (total quantity of goods/services that citizens can purchase: business cycle = regular growth/contraction. Standard cycle: peak recession trough recovery. Recession considered two consecutive quarters where economy shrinks. Depression occurs when the trough lasts 2+ years: gross domestic product (gdp) & gross national product (gnp) Gdp = total value of all goods/services produces by domestic factors. Replaced gnp, where all cnd. ownership considered (1) cnd. owned company in brazil counts for gnp, but not gdp (2) french company in canada counts for gdp, but not for gnp. Gdp is key factor in growth, but not exclusive (debt another factor) Real growth rate is gdp adjusted for inflation/currency changes. Real gdp means that gdp has been adjusted for above factors (1) when not adjusted, called nominal gdp (in current $)

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