Textbook Notes (362,755)
Canada (158,052)
MGTA01H3 (583)
Chapter 2

MGTA03 Chapter 2 Notes.docx

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

MGTA03 Introduction to Management Chapter 2—Understanding the Environments of Business The Economic Environment  the external environment of a business consists of everything outside an organization’s boundaries that might affect it, it plays a major role in determining the success or failure of an organization  the economic environment refers to the conditions of the economic system in which an organization operates  the three goals of Canada’s economic system are economic growth, economic stability and full employment, the main threats to economic stability are inflation and unemployment Economic Growth  the business cycle is the pattern of short-term ups and downs (expansions and contractions) in an economy, has four recognizable phases: peak, recession, trough and recovery  recession is the period during which aggregate output, as measured by real GDP, declines  depression is a severe recession that has lasted for a prolonged period  aggregate output: total quantity of goods and services produced by an economy during a given period  an increase in aggregate output is economic growth and when output grows more quickly than the populations does the output per capita (the quantity of goods and services per person) increases and that means there are more goods and services than people need and therefore the standard of living rises  standard of living: total quantity and quality of goods and services that a country’s citizens can purchase with the currency used in their economic system  gross domestic product (GDP): total value of all goods and services produced within a given period by a national economy through domestic factors of production  an increase in GDP means that a country is experiencing 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 the factors of production are located  the Genuine Progress Indicator (GPI) treats activities that harm the environment or our quality of life as costs and gives them negative values  the real growth rate of GDP adjusted for inflation and changes in the value’s currency is what counts, growth depends on output increasing at a faster rate than population  GDP per capita is the GDP per person and is derived by dividing total GDP by the total population of a country  real GDP is adjusted GDP in which GDP is calculated to account for changes in currency values and price changes  nominal GDP is GDP measured in current dollars or with all components valued at current prices  purchasing power parity is the principle that exchange rates are set so that the prices of similar products in different countries are about the same  productivity is a measure of economic growth that compares how much a system produces with the resources it needs to produce it  if products are being produced with fewer factors of production the prices of the products go down and less of a currency is required to purchase those products, that increases the standard of living in regards to those products and if the entire economic system increases productivity then your overall standard of living improves  standard of living improves only through increases in productivity  balance of trade is the total of a country’s exports (sales to other countries) minus its imports (purchases from other countries)  positive balance of trade: country exports more than it imports, helps economic growth, creditor nation  negative balance of trade: country imports more than it exports, inhibits economic growth, called a trade deficit, debtor nation  national debt is the amount of money that the government owes its creditors  budget deficit is the result of government spending more in one year than it takes in during that year  taxes are one way a government raises money  can also sell bonds which are securities through which it promises to pay buyers certain amounts of money by specified future dates, are extremely safe investments  the more money the government borrows through the sale of bonds the less money is available for private borrow
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