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MGTA01H3 (583)
Chapter 2

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University of Toronto Scarborough
Management (MGT)
Bill Mc Conkey

MGTA03 – READING NOTES – CHAPTER 2  External environment: everything outside an organization’s boundaries that might affect it o Plays a major role in determining the success or failure of any organization  Economic environment: conditions of the economic system in which an organization operates o Ie. McDonald’s Canadian operations are functioning in an economic environment characterized by moderate growth, moderate unemployment, and low inflation  ECONOMIC GROWTH o Business cycle: pattern of short-term ups and downs (expansions and contractions) in an economy  Four phases: peak, recession, trough, and recovery o Recession: period during which aggregate output, as measured by real GDP declines o Depression: particularly sever and long-lasting recession o Aggregate output: total quantity of goods and services produced by an economic system during a given period  An increase in aggregate output is economic growth o Standard of living: total quantity of quality of goods and services that a country’s citizens can purchase with the currency used in their economic system  Growth makes possible higher standard of living o Standard of living is improving, when the nation’s economic system is growing o GDP (gross domestic product): total value of all goods and services produced within a given period by a national economy through domestic factors of production  If the growth rate of GDP exceed the rate of population growth, then the standard of living should be improving o GN[ (gross national product): 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 GDP per capita = total GDP divided by the total population of a country o “Real GDP” means that GDP has been adjusted  Nominal GDP: GDP measured in current dollars or with all components valued at current prices o Real GDP: GDP calculated to account for changes in currency values and price changes o Purchasing power parity: Principle that exchange rates are set so that the prices of similar products in different countries are about the same  Gives us a better idea of what people can actually buy with the financial resources allocated to them by their respective economic systems  PRODUCTIVITY o Definition: measure of economic growth that compares how much a system produces with the resources needed to produce it o Standard of living improves only through increases in productivity  Real growth in GDP reflects growth in productivity o Balance of trade: the total of a country’s exports (sales to other countries) minus its imports (purchases from other countries)  A positive balance of trade results when a country exports more than it imports (helps economic growth)  A negative balance (trade deficit) of trade results when a country imports more than it exports (inhibits economic growth) o National debt: the total amount of money that the govt owes its creditors o Budget deficit: the result of the government spending more in one year than it takes in during that year  The more money the govt borrows, the less money is available for the private borrowing and investment that increases productivity  ECONOMIC STABILITY o Stability: condition in an economic system in which the amount of money available and the quantity of goods and services produced are gowing at about hte ame rate o Inflation  Definition: occurrence of widespread price increases throughout an economic system  Occurs when the amount of money put into an economy outstrips the increase in output. (people will have more money to spend, but there will still be the same quantity of products available 
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