MGTA03 Chapter 2 notes

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Management (MGT)
Mc Conkey& Bovaird

Management I, C2 THE ECONOMIC ENVIRONMENT [1] EXTERNAL ENVIRONMENT = eth outside organization's boundaries that may have an influence on it - all businesses operate w/in this larger envirnmt, regardless of their size, loc, or mission - is major determinant as to whether an organization will succeed or fail - no single company can control envirnmt - managers - should be proactive; taking a'xn by causing change, & not merely reacting t change when it occurs - should attempt to influence enivnrmt - must have accurate comprehension of envirnmt their company is situated here, and aim to operate and compete in it [2] ECONOMIC ENVIRONMENT = condition of economic sys in which organization runs - ex. McDonalds Canada - runs in economic envirnmt w/ the following characteristics - moderate growth - moderate unemployment => most ppl can eat out at this restaurant, but restaurant has to pay higher wages to attract employees - low inflation => for supplies it offers, the restaurant pays relatively constant prices => can't incr. prices charged to consumers [3] Recall: ECONOMIC SYSTEM = way by which nation distributes its resrouces among its civilians - 3 key goals of Canada's economic system 1) economic growth 2) economic stability 3) full employment - tools to measure economic growth ex. - aggregate output - standard of living - GDP (gross domestic product) - productivity - main threats to economic stability - inflation - unemployment ECONOMIC GROWTH [1] (ex) Agriculture - at one period, over 50% of Canadian popn involved in some way at producing food - today, less than 2.5% do - why has agricultural efficiency improved though? - have better technology to incr. total output [2] The Business Cycle - how do we know whether or not economic sys is growing or not? - can depict via BUSINESS CYCLE = pattern of ST-ups (expansions) and downs (contractions) in economy 4 Recognizable Phases of Business Cycle 1. PEAK 2. RECESSION = interval where aggregate output (summed up amt of output), which is measured by real GDP, declines - DEPRESSION = prolonged and particularly severe recession 3. TROUGH 4. RECOVERY - intervals for contraction and expansion vary for how long they occur - ex. during end of 1990s, CA Economy continually expanded, and ppl started to ignore the business cycle as being outdated, typically for those ppl who invested high-tech stocks - in 2000, the economy went "down" as tech stocks crashed in 2000 [3] Aggregate Output & Standard of Living AGGREGATE OUTPUT = total amt of goods & services prod'ed by economic sys. during given interval - main measure of growth in business cycle - if AO incr's => growth (aka economic growth) has occurred - two things usually come after an output grows faster than popn 1) output per capita = amt of goods and services per individual - this incr's 2) system provides more goods & services that ppl demand ^- when the above 2 happenl, ppl living in economic sys benefit from higher STANDARD OF LIVING = total amt & quality of goods & services that country's civilians can buy with currency used in economic sys. [4] One thing that makes possible higher standards of living = growth => need to know to what extent nation's economic sys. is growing to find out how much standard of living is improving [5] Gross Domestic Product GDP = total val. of goods & services prod'ed in given interval by national economy thro. domestic factors of prod'ion - nation is experiencing economic growth if GDP incr's - includes profits earned by foreign companies that're situated in Canada - ex. CA GDP - in 2005, 1.3 trillion [6] Gross National Product GNP = tot. val. of goods & services prod'ed by national ecnomy w/in given period irrespective of where factors of prod'ion located - diff. from GDP - GNP includes profits or losses that Canadian economy gets which has chains situated abroad (ie. in other countries ) (ex) Canada-owned manufacturing plant in Brazil - profits that factory earns included in GNP, not GDP - not GDP b/c output is not prod'ed domestically (ie. it is not prod'ed IN CANADA, but instead in a foreign country (ie. Brazil in this ex.)) => GDP for Brazil has profits from this Canada-owned company situated in Brazil included in GDP, but not in GNP Note - GNP requires that the national economy prod. it (ie. they have to be Canadians, or they have to be Brazillians, but it does not matter where factors of production are situated) - b/c of diff. factors of prod'ion, GNP and GDP calcuations become quickly complicated - ex. labour for company will be majorly Brazillian - ex. capital for company will be majorly Canadian => Brazillian GNP counts in wages paid to Brazillian workers of the Canadian company, but does not include profits of Canadian company - that is included in Canada's GNP - b/c workers are a subset of the Brazillian nation [7] - b/c they permit us to follow an economy's performance over time, GNP and GDP are useful measures of economic growth GPI = Genuine Progress Indicator - Redefining Progress, an organization that proposed that GPI is a more realistic measure to assess economic activity - treats activities that harmed envirnmt or quality of life of humans as costs, and assigns them -ve val's
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