Textbook Notes (363,688)
Canada (158,529)
MGTA01H3 (583)
Chapter 02

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Management (MGT)
Chris Bovaird

Chapter 2 Understanding the Environments of Business The Economic Environment External Environment – everything outside organization’s boundaries that may affect it - managers need accurate understanding of environment company facing to operate & compete in it - no single firm can control it, but manager should try to influence it - global, political-legal, economic, technological, socio-cultural & business environments, emerging challenges & opportunities (outsourcing, viral marketing, business process management) Economic Environment – conditions of economic system organization operates - moderate unemployment – most ppl can afford to eat out, company pay higher wages to attract employees - low inflation – relatively constant $ for supplies, company can’t increase $ Economic Growth - half of pop of Canada was involved in producing food => now < 2.5% of pop works in agriculture - agricultural efficiency improved b/c devised better ways of producing products & invented better tech to get job done - agricultural production grown b/c able to increase total output in agricultural sector Business Cycle – pattern of short-term ups & downs (expansions & contractions) in economy - 4 phases: peak, recession, trough, recovery Recession – period when aggregate output by GDP declines Depression – severe & long-lasting recession Aggregate Output – total Q of G&S produced by economic system during given period - increase in output = economic growth - grow more quickly than pop: output per capita (Q of G&S per person) increases & system provides more G&S ppl want → higher standard of living Standard of Living – total Q & quality of G&S country’s citizens buy w/ currency in economic system Gross Domestic Product (GDP) – total value of G&S produced w/in period thru domestic factors of production - increase = economic growth Gross National Product (GNP) – total value of G&S produced w/in period no matter where factors of production from - profits from Canadian companies abroad include in GNP, but not GDP - profits from foreign firms in Canada included in GDP - GDP & GNP useful measures of economic growth b/c track economy’s performance over time - Redefining Progress proposed more realistic measure to assess economic activity: Genuine Progress Indicator (GPI) – treats activities that harm environment / quality of life as costs & gives negative values Real Growth Rates – growth rate of GDP adjusted for inflation & changes in value of country’s currency - growth depends on output increasing @ faster rate than pop - growth rate of GDP > rate of pop growth, standard of living improving GDP per capita – GDP per person → total GDP ÷ total pop of country - GDP per capita better measure than GDP for economic well-being of average person Real GDP – GDP calculated to account for changes in currency value & $ changes Nominal GDP – GDP measured in current $ / w/ all components valued @ current $ Purchasing Power Parity – principle, exchange rates sets so $ of similar products in different countries about same - gives better sense of standards of living around world Productivity – measure of economic growth, compares how much system produces w/ resources needed to produce it - standard of living improves only thru increases in productivity - real growth in GDP reflects growth of productivity Balance of Trade – total of country’s exports (sales to other countries) minus imports (purchases from other countries) - positive when country exports more than imports (creditor nation) => helps economic growth - negative (trade deficit) when country imports more than exports (debtor nation) => inhibits economic growth National Debt – total amt of $ gov’t owes to creditors Budget Deficits – result of gov’t spending more in 1 yr than it takes during that yr - gov’t sells bonds – securities promised to pay buyers certain amts of $ by specified future dates – to individuals, households, banks, insurance companies, industrial corporations, non-profit organizations, gov’t agencies @ home & overseas Economic Stability Stability – condition in economic system where amt of $ available & Q of G&S produced are growing @ about same rate Inflation – occurrence of widespread $ increase thruout economic system - amt of $ injected into economy outstrips increase in actual output - ppl have more $ to spend, prices go up, high prices erase increase in amt of $ injected into economy - harmful to consumers b/c decreases purchasing power of $ Consumer Price Index (CPI) – measure of prices of typical products purchased by consumers living in urban areas
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