Textbook Notes (369,126)
Canada (162,403)
Management (865)
MGM101H5 (376)
Chapter 5

Chapter 5 Notes.docx

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Dave Swanston

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Chapter 5 Notes – The Business Environment Canada’s Economic System - G7/G8; a quasi-organization comprising the world’s major fully developed economies. Consists of USA, Japan, Germany, Great Britain, France, Italy, and Canada o Transferred to G7/G8 with inclusion of Russia o Heads meet once annually to discuss major economic, political, and societal issues challenging global marketplace - Canada’s economy moved from primarily agriculture to diversified system - Strong economic factors o Productivity gains o Strong business investment o Technological innovation o Moderate wage increases o Favorable currency exchange rate - Products that drive Canada’s economy; crude oil, wheat, canola, gold and nickel, and sulphur Contributing Factors to Economic Development - Growth of economic system relies on current and future economic activity o Ability to provide stable environment for economic growth o Ensure required business and economic management systems to support organized economic development - Factors essential to economic vitality o Sufficient levels of investment, absence of corruption, comparative advantage o Low inflation, effective legal system o Manageable levels of national debt, national monetary policy and banking system o Established factors of production o Political stability - Comparative Advantage; ability of country to produce or supply goods or services at lower cost than other countries or to possess resources or unique services that are unavailable elsewhere - Foreign Direct Investment (FDI); when company or individual from one country makes investment into business within another country. Investment can reflect physical ownership of productive assets or the purchase of significant interest in operations of business o Approximately 53% comes from USA Economic Model - In order for economic system to grow, balanced relationship also needs to be established o Law of supply and demand o Allowance for private ownership, entrepreneurship, and wealth creation o Extent of government involvement in influencing economic activity and direction Law of Supply and Demand - Law of Supply and Demand; refers to ability of market, independent of external influences, to determine price for which product or service will be bought and sold - Demand reflects number of consumers willing to pay for product/service - Supply reflects how much product producers are willing to provide the market Allowance for Private Ownership, Entrepreneurship, and Wealth Creation - Refers to openness of market to support, encourage, and promote concepts of private enterprise, personal ownership, entrepreneurship, and wealth creation - USA and Canada support these concepts - Developing economies such as China and India allowing greater access - North Korea less likely to provide strong support Government Involvement in Influencing Economic Activity and Direction - Relates to various roles in market o Can act as customer; purchase of goods and services o Can act as regulator; restricting access or defining competitive protocols o Can act as manager; powers grant to Crown organizations (Bank of Canada) o Can act as economic stimulation; via subsidy programs, infrastructure development o Can act as competitor; providing services in direct competition of private-sector businesses - Open System; refers to economic system that adheres to principles of economic freedom o Governed by law of supply and demand o Provides full and open access to principles of private ownership, entrepreneurship, and wealth creation o Possess absence of regulation on part of government o Foreign trade and movements in labour largely unrestricted - Controlled System; refers to economic system where fundamentals of law of supply and demand, private ownership, entrepreneurship, and wealth creation are largely restricted or absent. o Government fully controls economic direction and activity o Operate without or experience minimal external trade - No system is completely open - USA closest example of open system - Mixed Economic System; refers to an economic system that contains components of both open and controlled systems. Includes core principles of economic freedom, with some degree of centralized economic planning and government regulation and involvement Canada: A Mixed Economic System - Economy allows law of supply and demand - Principles of ownership, entrepreneurship, and wealth creation are present and supported - Government, attempts to manage and influence economic activity through cooperative/competitive model The Economy in Simple Terms - Four Fundamental factors o Expenditures; purchases you make in support of day-to-day economic activity that are deemed to be of value in meeting sustenance needs and in improving overall quality of life. Clothing, food, housing, transportation o Savings; dollars set aside that will support economic activity and wealth creation in future. RRSP and GIC are examples o Capital Asset Investments; investments you are making today to further expand your capacity to conduct and expand productivity and overall economic capacity. Investments in real estate are an example o Credit; borrowing of dollars to support expenditures or investments being made - Economic Activity = Expenditures + Savings + Investment + Credit Economic Growth Cycle - GDP; refers to total market value of goods/services (economic output) a nation produces domestically over period of time (usually per annum) o Generated by individuals, businesses, and government - Factors that contribute to total GDP o Goods and services produced and purchased domestically for consumption o Business investments within the economy o Goods produced for export purposes o Government spending - Recession; period of time that marks contraction in overall economic activity within an economy. Typically believed to occur when economy experiences two or more quarters of negative GDP movement - Other factors that affect GDP movement o Natural resources (mining, forestry, agriculture) o Technology sector o Energy industry (Oil and natural gas) - Movement of Economic Activity o Growth in economy via GDP factors (mainly consumer spending in USA and Canada) results in increase in corporate revenue and profits and government tax revenue o As a result, both business and government will possess increased capacity to invest in new infrastructure and new product/services. Investments expand economic infrastructure o Increased business activity requires more employees, resulting in expansion of employment opportunities
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