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MGTA01H3 (583)

MGTA03-ch 2.docx

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

• External environment ◦ everything outside an organization's boundaries that might affect it ◦ plays a major role in determining success/failure of an organization ◦ this is why manager's need to have an accurate understanding of the environment that their company is in AND they need to be able to influence it • economic environment ◦ refers to the conditions of the economic system that an organization operates in ◦ 3 goals of Canadian economic system: ▪ economic growth ▪ economic stability ▪ full employment • there are several standard of measuring economic activity ◦ aggregate output ◦ standard of living ◦ GDP ◦ productivity • Economic Growth ◦ fact: before, half the population of Canada worked in producing food, today less than 2.5% works in agriculture ◦ agricultural production has grown because there is an increase in total output • business cycle ◦ pattern of short-term ups and downs in an economy ◦ has 4 phases ▪ peak ▪ recession ▪ trough ▪ recovery ◦ recession: ▪ period where aggregate output declines ◦ depression ▪ recession that lasts for a long period of time ▪ severe form of recession • aggregate output ◦ total quantity of goods and services produced by an economic system during a given period ◦ main measure of growth in a business cycle ◦ increase in aggregate output is economic growth ◦ when output grows more quickly than population, 2 things usually happen: ▪ output per capita increases ▪ system provides more goods and services than people want ◦ when these 2 things happen, the standard of living gets higher • standard of living ◦ total quantity and quality of goods and services that citizens can purchase with the currency used in their economic system • how much your standard of living is improving is how much the nation's economic system is growing • GDP ◦ total value of all goods and services produced in an economy ◦ if GDP is going up, the nation is experiencing economic growth ◦ e.g. profits earned by a foreign firm in Canada are included in GDP • gross national product ◦ total value of all goods and services produced by a national economy regardless of where the factors of production are located ◦ e.g. profit earned by a Canadian company abroad are included in GNP, but not in GDP • genuine progress indicator (GPI) ◦ treats activities that harm the environment or quality of life as costs and gives them negative values ◦ GDP has been increasing for many years, GPI has been falling since 1970s • Real growth rates ◦ real growth rate of GDP ▪ adjusted for inflation and changes in the value of the country's currency ◦ GDP per capita ▪ per person ▪ divide total GDP by total population of a country ▪ GDP per capita is a better measure of a person's economic well- being for the average person ▪ USA has highest GDP per capita, then Ireland, Switzerland and Canada ◦ real GDP ▪ has been adjusted ▪ calculated to account for changes in currency values and price changes ▪ nominal GDP ▪ measured in current dollars or with all components valued at current prices ◦ purchasing power parity ▪ principle that exchange rates are set so that the prices of similar products in different countries are about the same ▪ gives a better idea of what people can buy with financial resources allocated to them by their respective economic systems ▪ gives better sense of standards of living • Productivity ◦ measure of economic growth ◦ compares how much a system produces vs. the resources needed to produce it • Factors that help or hinder economic growth: ◦ balance of trade ◦ national debt • Balance of trade ◦ total of a country's exports minus it's imports ◦ positive balance ▪ helps economic growth ▪ Canada usually has this ▪ ends up being a creditor nation ◦ negative balance ▪ hinder economic growth ▪ aka trade deficit ▪ USA usually has this ▪ ends up being a debtor nation ▪ negative impact because the money flows out of the country's economy and cannot be used to invest in productive enterprise • National debt ◦ total amount of money that the government owes its creditors • Budget deficits ◦ result of government spending more in 1 year than it takes in during the year ◦ Canada used to always be in deficit and in 1997, the first surplus in many years occurred ◦ currently, Canada is the only highly industrialized country that continues to have a budget surplus • Bonds ◦ gov't raises money by selling bonds ◦ promises to pay buyers certain amounts of money by a specific date ◦ sells bonds to ▪ individuals ▪ banks ▪ insurance companies ▪ industrial corporations ▪ Non-profit organizations ▪ gov't agencies ◦ secure, the gov't will not default on them ◦ bonds affects economic growth ▪ more money the gov't borrows, the less is available for private borrowing and investment • Economic Stability ◦ condition where the amount of money amount of money available and the quantity of goods and services produced are growing at around the same rate ◦ 3 factors threate
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