Textbook Notes (367,900)
Canada (161,484)
MGTA01H3 (583)
Chapter 2

Notes for Chapter 2 of Business, Vol. 1, 2e

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Management (MGT)
Chris Bovaird

MGTA03 – Business, Volume 1 R. Griffin, R. Ebert, F. Starke Chapter 2 – Understanding the Environments of Business The Economic Environment All businesses operate within a larger external environment (which includes everything outside an organization’s boundaries that might affect it; strong determinant of the success or failure of an organization) Managers must strive to operate and compete within the environment facing their company; they should not just react to changes, but be proactive and try influencing the environment Economic environment: conditions of the economic system in which an organization operates Goals of the Canadian economic system: economic growth, economic stability, and full employment Economic Growth o The Business Cycle: pattern of short-term ups and downs in an economy 4 phases: peak, recession (period when aggregate output declines; prolonged recession = depression), trough, and recovery o Aggregate Output and the Standard of Living Aggregate output: main measure of growth; total quantity of goods & services produced by an economic system in a given period Increase in aggregate output = economic growth When output grows faster than the population, output per capita increases and the system provides relatively more of the goods and services people want; a higher standard of living also results Standard of living: total quantity and quality of goods and services that individuals can purchase o Gross Domestic Product (GDP) www.notesolution.com GDP: total value of all goods and services produced within a given period by a national economy through domestic factors of production Increase in GDP = economic growth Gross national product (GNP): total value of all goods and services produced by a national economy within a given period regardless of where factors of production are located • i.e. GNP would include the profits of a Canadian company earned abroad, but the GDP would not GDP and GNP allow a nation to track an economy’s performance Genuine progress indicator (GPI): measure of economic activity; more realistic than GDP/GNP; gives negative values to activities that harm the environment or quality of life Real Growth Rates: growth rate of GDP adjusted for inflation and changes in the value of the country’s currency • GDP is preferred when calculating national income and output GDP per capita = total GDP/total population of a country • Measure of economic well-being of the average person Real GDP = adjusted GDP that accounts for currency changes and price changes • Nominal GDP: GDP measured in current dollars or with all components valued at current prices Purchasing Power Parity: principle that exchange rates are set so prices of similar products in different countries are about the same • Provides a better sense of standards of living around the world o Productivity: measure of economic growth that compares how much a system produces with the resources needed to produce it Standard of living improves through increases in productivity Balance of Trade: a country’s exports minus its imports • Positive balance of trade = country exports more than imports • Negative balance of trade = country imports more than exports www.notesolution.com • Negative balance of trade = trade deficit, countries with a negative balance of trade are called debtor nations, as opposed to creditor nations National Debt: amount of money that the government owes to its creditors • Governments have revenues and expenses, when a government spends more money than it takes in, it creates a budget deficit • National debt and economic growth: governments sell bonds (securities through which it promises to pay buyers certain amounts of money by specific future dates) to households, banks, individuals, etc. and by doing so, is therefore competing with every other potential borrower for loanable money; the more money being borrowed by the gov’t, the less money available for private borrowing that increases productivity Economic Growth Chief goal of an economic system = stability (condition in which the amount of money available in an economic system and the quantity of goods/services produced in it are growing at about the same rate) Factors that threaten stability: inflation, deflation, and unemployment o Infla
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