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Chapter 2

BUSINESS CUSTOM 2/E VOL. 1 Chapter 2 Readings (very detailed and helpful)

Management (MGT)
Course Code
Chris Bovaird

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Chapter 2: Understanding the Environments of Business
The economic environment
oExternal environment: everything outside an organizations boundaries that might affect
oEconomic environment: conditions of the economic system in which an organization
Economic growth
oBusiness cycle: pattern of short-term ups and downs (expansions and contractions) in an
ohas four phases: peal, recession, trough, recovery
operiods of expansion and contraction can vary from several months to several years
Recession: period during which aggregate output, as measured by real GDP,
Depression: particularly severe and long-lasting recession
Aggregate output and the standard of living
oAggregate output: total quantity of good and services produced by an economic system
during a given period…main measure of growth in a business cycletherefore an
increase in aggregate output is growth (or economic growth)
When output grows more quickly than pop. two things follow—output per capita (
the quantity of goods and services per person) goes up and the system provides
more of the goods and services that people want
oStandard of living: total quantity and quality of goods and services that a countrys
citizens can purchases with the currency used in their economic system…growth makes
possible higher standards of living
Gross domestic product
oGDP: total value of all goods and services produced within a given period by a national
economy through domestic factors of production…profits earned by foreign firms in
Canada are included in GDP
oGross 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…profits earned by a Canadian company abroad are included in GNP
oGDP and GNP allow us to track an economys performance over time
oReal growth rates: The real growth rate of GDP—the growth rate of GDP adjusted for
inflation and changes in the value of the country’s currency—is what counts
Note: growth depends on output increasing at a faster rate than population…if
growth rate of GDP exceeds rate of pop. growth, then standard of living rises
oGDP per capita: means GDP per person
Formula: divide total GDP by total pop. of a country
GDP per capita is better than GDP when it comes down to looking at an average
person in a country
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