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MGTA01H3 (583)
Chapter 2

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Management (MGT)
Chris Bovaird

Chapter 2 Understanding the Environment of Business This chapter helps you to understand: How well is an “economic system” working? How well is Canada’s economic system working? How we measure performance? Purpose of an Economic System  Assemble / organize resources;  Make things people want;  So people will buy them;  Creating profits for businesses;  So everyone will be better off Business cycle: pattern of short- term ups and downs in an economy; has four phases: peak, recession, trough, and recovery (page 23)  Recession is a period during which aggregate output (measured by real GDP) declines  If lasts for a prolonged period, it is called a depression Aggregate output: total quantity of goods and services produced by an economic system during a given period (main measure of growth)  An increase in aggregate output is growth (economic growth)  When output grows more quickly than population, output per capita (quantity of goods and services per person) goes up and the system provides relatively more that people want Is Economy Producing Things? Gross Domestic Product (GDP): Value of all goods and services produced in a country in one year  The larger the GDP: more workers, using more resources, are producing more things of value.  Big/crude; it is one big crude number/ measure  Domestic: here at home (Canada)  Stuff that gets made  A really big crude simple number that tells us how many stuff got made in Canada  If GDP is going up, the nation is experiencing economic growth  Sometimes use the term 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 locates  Profits earned by Canadian companies abroad are included in GNP, but GDP  Profits earned by foreign firms in Canada are included in GDP  Ex. Factory for Canada in Brazil, profit is Canadian GNP b/c it’s output is not produced in Canada, but is Brazil’s GDP because it is in Brazil Countries with Largest GDP - 2010 1 United States $ 14,582 billion 2 China 5,878 billion 3 Japan 5,497 billion 4 Germany 3,310 billion 5 France 2,560 billion 6 United Kingdom 2,246 billion 7 Brazil 2,087 billion 8 Italy 2,051 billion 9 India 1,729 billion 10 Canada 1,574 billion Doesn’t tell us what they’re making, if they’re making a big enough US is a quarter of entire world economy Economies Should Grow Growing GDP: more people, making more stuff.  If it is growing, people are working harder, smarter, better access to better technology, or better stuff to make  If growth rate of GDP exceeds the rate or population growth, then our standard of living should be improving Falling GDP: fewer people, making less stuff; called “recession”  Falling, fewer have fewer jobs, working less hours, couldn’t get enough material, less money to hire, technology isn’t working, economy is shrinking  US Economy is growing feebly  Recessions: Total GDP and economy falls for two consecutive quarters  If it shrinks March, then fails again a April, May, June (second quarter) then it is a recession USA GDP Growth 2006-2010  Economies should grow – sometimes they don’t.  Double dip recession: economy shrinks, recovers weakly, then shrinks again GDP Growth – Long Term Canada: 1 - 4% US, UK, Germany, France: 1 - 4% China and India: 8 – 10% GDP Growth – Major Economies Fast Growing GDP – 2011 1. Mongolia 17.50 2. Turkmenistan 14.70 3. Ghana 14.40 4. Qatar 14.10 5. Solomon Islands 10.70 6. Timor- Leste 10.60 7. Panama 10.60 8. Zimbabwe 9.40 9. China 9.20  Poor countries have the greatest capacity for growth.  They start from a low base Slowest Growing GDP – 2011 218. Libya - 59.70 217. Yemen - 10.50 216. Anguilla - 8.50 (2009 est.) 215. Greece - 6.90 214. Puerto Rico - 5.80 (2010 est.) 213. Antigua and Barbuda - 5.50 212. Cote d’lvoire - 4.70 211. Sudan - 4.50 GDP Per Capita GDP = total size of an economy “per capita” = “per person” GDP per capita:  GDP per person  A measure of relative wealth of “average citizen”  Total size of economy/ Dividing it by number of people who live there  Canada GDP= $1.5 trillion/ 33 million GDP / Capita – Richest 2010 Rank Country GDP / capita 1. Luxembourg $ 108,921 2. Norway $ 84,840 3. Switzerland $ 66,934 4. Denmark $ 55,988 5. Sweden $ 48,832 6. United States $ 47,184 7. Netherlands $ 47,159 8. Canada $ 46,148  Europe has the highest GDP  Luxembourg has a small denominator of people, taxes are low (bankers move there), therefore work in money industry  Half of the bankers don’t actually live there, so no one lives there but many work there GDP / Capita – Poorest 2010 (In Africa) Country GDP /capita Sierra Leone $ 325 Liberia $ 247 Congo $ 199 Burundi $ 192 Somalia $ ??? Zimbabwe $ ??? Productivity Some countries are richer than others. Why? Answer: “Productivity” Productivity = outputs (pro
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