Textbook Notes (369,072)
Canada (162,366)
MGTA01H3 (583)
Chapter 2

Management Chapter 2 Notes

13 Pages
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Department
Management (MGT)
Course Code
MGTA01H3
Professor
Chris Bovaird

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Description
Chapter Two: Understanding the Environments in Business The Economic Environment - All businesses, no matter size, operate within a larger external environment - External Environment: everything outside an organization’s boundaries that might affect it o Plays a major role in determining success - Managers must have accurate understanding of environment - No single firm can control the environment o However managers should not simply react to change Should be proactive - Economic Environment: conditions of the economic system in which an organization operates o Ex: McDonalds is functioning within an environment that has moderate growth, moderate unemployment and low inflation Means most people can afford to eat out but must pay higher wages Low inflation means it pays constant price for supllies - Three keys goals of Canadian economy Economic growth, economic stability and full employment Economic Growth The Business Cycle www.notesolution.com - A fundamental question how do we know whether economic system is growing? - Business Cycle: pattern of short-term ups and downs (expansions and contractions) in an economy o It has four phases peak, recession, trough + recovery - Recession: a period during with aggregate output declines, as measured by real GDP - Depression: particular severe and long-lasting recession - Periods of expansion + contraction vary several months to years Aggregate Output and the Standard of Living - Main measure of growth in business cycle aggregate output - Aggregate output: total quantity of goods and services produced by an economic system during a given period o An increase in aggregate output is economic growth - When output grows more quickly, TWO THINGS HAPPEN o Quantity of goods and services per person goes up o System provides more of the goods and services people WANT - When these two things occur higher standard of living - 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 - 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 www.notesolution.com - Is GDP is going up nation is experiencing 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 o Outputs not produced domestically o The profits earned by a company ABROAD are included in GNP not GDP - Profits earned by foreign firms in Canada included in GDP - An organization called Redefining Progress proposed a more realistic measure to asses economic activity o GPI Genuine Progress Indicator Treats activity that harm the environment/quality of life as costs + gives them negative values - GPI has shown us GDP has been increasing for many years Real Growth Rates - GDP + GNP differ slightly - GDP is preferred method of calculating national income and output - REAL GROWTH RATE OF GDP the growth rate of GDP is adjusted for inflation and changes in the value of the country’s currency o This is what counts - Growth rate depends on output increasing at a FASTER rate than population o Then our standard of life should be improving GDP per Capita - GDP per person – better measure than GDP www.notesolution.com - Dividing total GDP by total population of a country - US has highest GDP – Canada is fourth - Real GDP - ‘real GDP’ – means GDP has been adjusted - Nominal GDP: GDP measured in current dollars or with all components valued at current prices - We should not be middle into believing an economy is doing better than it is Purchasing Power Parity - Real GDP: GDP calculated to account for changes in currency values and price changes o When we do this – we account for GDP and purchasing power parity - Purchasing power parity: principle that exchange rate are set so that the prices of similar products in different countries are about the same o Gives us a much better idea of what people can buy o Gives us better sense of standard of living Productivity - Productivity: measure of economic growth that compares how much a system produces with the resources needed to produce it - if entire economic system increases its productivity – overall standard of living improves - several factors have help or stop growth of an economic system o balance of trade o national debt www.notesolution.com Balance of Trade - balance of trade: the total of a countries exports (sales to other countries) minus its imports (purchases from other countries) o a POSITIVE balance of trade when a country exports more than it imports helps economic growth o a NEGATIVE balance of trade when a country imports more than it exports inhibits economic growth - negative balance of trade trade deficit o the money that flows our of country can’t be used to invest in productive enterprises - Canada usually has positive balance of trade we are a CREDITOR NATION - US has a negative balance of trade they are a DEBTOR nation National Debt - National debt: the total amount of money that the government owes its creditors - Budget deficit: the result of the government spending more in one year than it takes in during that year - Canada is the only highly industrial country that has budget surplus - How does national debt effect economic growth? o Government sells useful bonds to individuals and corporations o The more money government borrows, the less money is available for investment Economic Stability - Chief goal of an economic system is stability www.notesolution.com - Stability: conditions in an economic system in which the amount of money available and the quantity of goods and services produced are growing at about the same rate - Certain factors threaten stability inflation, deflation, unemployment Inflation - Inflation: occurrence of widespread price increases throughout an economic system - Inflation occurs when amount of money injected in economy – outstrips the increase in actual output o People will have more money to spend o There will be the same quantity of products available to buy o Prices go up as they compete with eachother o High prices will erase the increase in amount inject o Purchasing power declines - Inflation can be harmful to consumers decreases purchasing power of your money Measuring Inflation: the CPI - We can measure inflation by measuring price increases - Consumer Price Index: measure of the prices of typical products purchased by consumers living in urban areas o Measures changes in a cost of a “basket” of 600 different goods and services Deflation - Deflation: a period of falling prices www.notesolution.com - When deflation occurs the Bank of Canada reduces interest rates o In an attempt to increase consumer demand - Prices may fall because o Prod
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