Textbook Notes (369,072)
Canada (162,366)
MGTA02H3 (363)
Chapter 2

Chapter 2.docx

4 Pages

Management (MGT)
Course Code
Chris Bovaird

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Chapter 2 – Understanding the Environment of Business The Economic Environment - External environment: everything outside an organization’s boundaries that might affect it - Economic environment: conditions of the economic system in which an organization operates  Moderate growth  Moderate unemployment  Most ppl can afford to each out  Low inflation  Pays constant price for supplies, but can’t increase price to charge customers - 3 key goal of Canadian Economic System  Economic growth  Aggregate output, standard of living, GDP, productivity  Economic stability]  Treats are inflation and unemployment  Full employment Economic Growth The Business Cycle - Business cycle: pattern of short-term ups and downs (expansions and contractions) in an economy - 4 phases  Peak  Recession  Period during which aggregate output declines  Measured by real GDP  Long-lasting recession = depression  Trough  Recovery Aggregate Output and the Standard of Living - Main measure of growth in business cycle is aggregate output - Aggregate output: total quantity of goods and services produced by economic system during a given period  Output > population  Output/capita (quantity of goods and services per person) goes up  System provides more of goods and services ppl want  All this increase standard of living - Standard of living: total quantity and quality of goods and services that a country’s citizens can purchase with the currency used in their economic system Gross Domestic Product - GDP: total value of all goods and services produced within a given period by a national economy through domestic factors of production - GDP increase = economic growth - 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 located  Ex. Profit earned by Canadian company abroad - GNP and GDP a measure of economic growth, can track an economy’s performance over time - Genuine Process Indicator (GPI) treats activity that harm the environment or our quality of life as cost and gives them negative values - Real growth rate  Growth rate of GDP adjusted for inflation and changes in the value of country’s currency  Growth depends on output increasing at a faster rate than population  Growth rate GDP > rate of population growth = standard of living improving - GDP per Capita  GDP per person = GDP/total pop of country  Measure of economic well-being of average person - Real GDP  Adjusted GDP  Normal GDP: GDP measured in current dollars or with all components valued at current prices  Real GDP: GDP calculated to account for changes in currency values and price change - Purchasing Power Parity  Purchasing power parity: principle that exchange rates are set so that the prices of similar products in different countries are about the same  Gives better sense of standards of living around the world Productivity - productivity: measure of economic growth that compares how much a system produces with the resources needed to produce it - few factors of production used means the price of products will go down  as customer you’ll use less currency so standard of living (regards to products) improve - standard of living improves only through increase in productivity - real growth in GDP reflects growth in productivity - 2 factors help/hinder growth of economic system  Balance of trade  Economic value of all products country export – economic value of imported products  +ve = country export > import; helps economic growth  Ex. Canada  creditor nation rather than a debtor nation  -ve = country import > export; inhibits economic growth  Aka trade deficit  Ex. USA  debtor nation than creditor nation  National debt  National debt: total amount of money that the government owes its creditors  Budget deficit: result of government spending more in one year tha
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