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Chapter 2

MGTA01H3 Chapter Notes - Chapter 2: Genuine Progress Indicator, Business Cycle, Money Supply

Management (MGT)
Course Code
Chris Bovaird

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Chapter 2 Understanding environments of business
Lecture 4 Sept 30
External environment: everything outside organization boundaries that might affect it
Economic environment: condition of economic system
Measures of Economic performance: GDP, GDP Growth, GDP/capita, Productivity, Unemployment,
- Purpose of economic system is to assemble/organize resources, make things people want to earn
3 Key goals of Canadian economic system
1. Economic Growth
Business Cycle: pattern of short term ups (expansions) and downs (contractions) in economy
4 phases: 1. Peak 2. Recession 3. Trough 4. Recovery
- Recession: period during aggregate output (measured by real GDP) declines
- Depression: severe and prolonged recession
- Aggregate output (main measure of growth): total quantities of goods & services produced by
economic system during a period
When aggregate output increases, output/capita (quantities of goods & services/# of
people) goes up and system provides more goods that are wanted
- When these 2 characteristics occur, standard of living increases
- Standard of living: total quantities of goods that people can buy with currency
- Gross domestic product: total value of goods produced domestically through FOP in given
period (biggest: US, CDN, Japan, Germany)
- The larger the GDP, the more workers using more resources are producing more things
of value
- Growing GDP: more people making more stuff
- Falling GDP: fewer people making less stuff -> aka recession
- 2 quarters (6 months) of decrease is considered depression
- Gross National Product: total value of all goods produced by a nation regardless of where FOP
was located
- Genuine Progress Indicator: measurement of growth by giving costs (harming of
environment/quality of life) a negative value
- Real Growth Rate (of GDP): Growth rate of GDP adjusted for inflation and changes in country’s
currency *growth depends on output increasing at faster rate than population growth
- GDP/capita (GDP per Capita GDP per person): formula: GDP / total population; measure of
relative wealth of an average citizen
- Nominal GDP: GDP measured in current dollars or with all components valued at current prices
- 2009: 10 bicycles for 10 dollars; GDP is $100(10*10)
- 2010: 10 bicycles for 12 dollars; GDP is $120(12*10)
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