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MGTA01H3 (583)
Chapter 2

Chapter 2 Study Guide and Review Notes

3 Pages
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Department
Management (MGT)
Course Code
MGTA01H3
Professor
Ingrid L.Stefanovic

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CHAPTER TWO
UNDERSTANDING THE ENVIROMENT OF BUSINESS
The Economic Environment
x All businesses operate within a larger external environment
x The external environment is everything outside of the organizations boundaries that might affect
it ; this determines the success or failure of the business
x Economic environment is the conditions of the economic system in which an organization
operates
x Three Key goals of Canadian Economic System:
economic growth, economic stability, full
employment
The Business Cycle
x Business cycle are the ups and downs in an economy
x Recession is a period when aggregate output, measured by GDP, declines
x Depression is a severe long lasting recession
x Aggregate output is the total quantity of goods/services produced by an economic sys.
Aggregate Output and the Standard of Living
x Main measure of growth in business cycle is the aggregate output
x When aggregate output grows quicker than population then output per capita (the quantity of
g/s per person goes up and the system provides more of the g/s people want)
x This leads to a higher standard of living: the total quantity and quality of g/s they can purchase
with the currency used in their econ. Sys.
Gross Domestic Product
x The total value of all g/s produced within a given period by a national economy within a given
period through domestic factors of production
x *'3Þ(FRQRPLF*URZWKÞ
x Gross National Product : total value of all g/s produced within a given period by a national
economy regardless of where factors of production are located
x Ex: Profits earned by a Canadian company abroad are included in GNP not GDP, but profits
earned by foreign firms in Canada are included in the GDP
x Genuine Progress Indicator (GPI) : treats activities that harm the environment or quality of life as
costs and give them negative values
GDP Per Capita
x GDP per person (Total GDP/Total Population)
x Measure of economy well-being of the average person
Real GDP
x Basically means GDP has been adjusted to account for output of the market and so on
x ,ILWLVQWDGMXVWHGWKHUHZLOOEHDnominal GDP (measured in current dollars or with all
components valued at current prices
x These adjustments account for GDP and purchasing power parity
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Description
CHAPTER TWO UNDERSTANDING THE ENVIROMENT OF BUSINESS The Economic Environment N All businesses operate within a larger external environment N The external environment is everything outside of the organizations boundaries that might affect it ; this determines the success or failure of the business N Economic environment is the conditions of the economic system in which an organization operates N Three Key goals of Canadian Economic System: economic growth, economic stability, full employment The Business Cycle N Business cycle are the ups and downs in an economy N Recession is a period when aggregate output, measured by GDP, declines N Depression is a severe long lasting recession N Aggregate output is the total quantity of goodsservices produced by an economic sys. Aggregate Output and the Standard of Living N Main measure of growth in business cycle is the aggregate output N When aggregate output grows quicker than population then output per capita (the quantity of gs per person goes up and the system provides more of the gs people want) N This leads to a higher standard of living: the total quantity and quality of gs they can purchas
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