MGTA01H3 Chapter Notes - Chapter 2: Purchasing Power Parity, Canadian Dollar, Business Cycle

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Published on 21 Apr 2013
Management (MGT)
External environment: everything outside an organization’s boundaries that might affect it
o Plays a major role in determining the success or failure of any organization
Economic environment: conditions of the economic system in which an organization operates
o Ie. McDonald’s Canadian operations are functioning in an economic environment characterized by moderate
growth, moderate unemployment, and low inflation
o Business cycle: pattern of short-term ups and downs (expansions and contractions) in an economy
Four phases: peak, recession, trough, and recovery
o Recession: period during which aggregate output, as measured by real GDP declines
o Depression: particularly sever and long-lasting recession
o Aggregate output: total quantity of goods and services produced by an economic system during a given period
An increase in aggregate output is economic growth
o Standard of living: total quantity of quality of goods and services that a country’s citizens can purchase with the
currency used in their economic system
Growth makes possible higher standard of living
o Standard of living is improving, when the nation’s economic system is growing
o GDP (gross domestic product): total value of all goods and services produced within a given period by a national
economy through domestic factors of production
If the growth rate of GDP exceed the rate of population growth, then the standard of living should be
o GN[ (gross national product): 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
o GDP per capita = total GDP divided by the total population of a country
o “Real GDP” means that GDP has been adjusted
Nominal GDP: GDP measured in current dollars or with all components valued at current prices
o Real GDP: GDP calculated to account for changes in currency values and price changes
o Purchasing power parity: Principle that exchange rates are set so that the prices of similar products in different
countries are about the same
Gives us a better idea of what people can actually buy with the financial resources allocated to them by
their respective economic systems
o Definition: measure of economic growth that compares how much a system produces with the resources needed to
produce it
o Standard of living improves only through increases in productivity
Real growth in GDP reflects growth in productivity
o Balance of trade: the total of a country’s exports (sales to other countries) minus its imports (purchases from other
A positive balance of trade results when a country exports more than it imports (helps economic growth)
A negative balance (trade deficit) of trade results when a country imports more than it exports (inhibits
economic growth)
o National debt: the total amount of money that the govt owes its creditors
o Budget deficit: the result of the government spending more in one year than it takes in during that year
The more money the govt borrows, the less money is available for the private borrowing and investment
that increases productivity
o Stability: condition in an economic system in which the amount of money available and the quantity of goods and
services produced are gowing at about hte ame rate
o Inflation
Definition: occurrence of widespread price increases throughout an economic system
Occurs when the amount of money put into an economy outstrips the increase in output. (people will have
more money to spend, but there will still be the same quantity of products available
Decrease s the purchasing power of your money
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