Textbook Notes (380,719)
CA (168,184)
UTSC (19,294)
MGT (1,095)
MGTA01H3 (583)
Chapter

Study Guide for MGTA03, Chapter 2

8 Pages
113 Views

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

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Chapter 2: Understanding the Environments of Business
x All businesses operate within a larder external environment
o ÆvovÀ]}vuv}v]}(ÀÇZ]vP}µ]v}Pv]}v[}µv]Z
might affect it
o It plays a major role in whether business has success or failure
x Economic Environment refers to the conditions of the economic system in which an organization
operates.
o Example: McDonalds Canadian operations are functioning in an environment where
these id moderate unemployment, low inflation and moderate growth
o This shows people can afford to buy McDonalds, but McDonalds must pay higher wages
to attract employees
o McDonalds also have fairly constant prices and they cannot increase it.
x Economic Growth
o One time, half population was involved in producing food, now less than 2.5%
o Which means that agricultural production has grown
¾ The Business Cycle
x Experts call the pattern of short-term up and downs as the business
cycleÆ peak, recession, trough, recovery
o Recession: output declines
o Depression: a prolonged Recession
¾ Aggregate Output and the Standard of Living
x Aggregate OutputÆ is the main measure of growth in business cycle:
the total quantity of goods and services produced during a given period
x When output grows quicker than population, two things follow
o The quantity of goods and services per person(Output per
Capita) goes up and the system provides more goods and
services of what the people want
this leads to a higher standard of livingÆthe total
quantity and quality of goods and services that they can
purchase with the currency used in their economic
system
x To know your standard of living, you have to know how much your
v]}v}v}u][Çu]P}Á]vP
x Gross Domestic Product (GDP)
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o GDP refers to the total value of all goods and services produced within a given period of
time by a national economy through domestic factors of production
¾ Therefore, if GDP goes up, nation is experiencing economic growth
o Gross National Product (GNP)
¾ GNP refers to the total value of all goods and services produced within a given
period of time by a national economy regardless of where the factors of
production are.
x Profits earned by an Canadian company abroad are considered GNP and
not GDP
o GDP and GNP are useful measures of economic growth because they allow us to track
v}v}uÇ[(}uv}À]u
o Real Growth Rates
¾ GDP is preferred method of calculating national output and input
¾ The real growth rate of GDP t the growth of GDP adjusted for inflation and
ZvP]vZÀoµ}(Z}µvÇ[µvÇ- is what counts.
¾ If growth rate of GDP exceeds growth rate of population, standard of living
should be improving.
o GDP per Capita.
¾ Adjustments are necessary...
x In 2005 pizza cost 10 dollars and in 2006 pizza cost 11 dollars. In 2005
GDP was 10 000 dollars and in 2006 GDP was 11 000 dollars. However,
1000 pizzas were produced in both years. Therefore we are being
misled that our economy is doing better than it actually is.
o GDP in 2006 is nominal GDP; measured in current dollars or
with all components valued at current prices
o Purchasing Power Parity
¾ The principle that exchange rates are set so that process of similar products in
different countries are about the same
¾ Better understanding of what people can buy with their financial resources by
their respective economic system
¾ Gives us a better sense of standard of livings around the world
x Productivity
¾ Means GDP per person
¾ Better measure than GDP
o Real GDP
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¾ Means GDP has been adjusted
¾ Why
o Measure of economic growth that compares how much a system produces with the
resources needed to produce it
¾ Example: 1 Canadian worker and 1 Canadian dollar to produce 10 soccer balls,
while 1.2 Saudi workers and 1.2 Canadian dollars to produce 10 soccer balls.
Canadian worker is more productive than the Saudi worker. This is a very simple
case with the factors of production being capital and labour.
o Standard of Living only improves through the increases of productivity
¾ If more products are being produced with fewer factors of production, it costs
less for consumer to buy product, therefore standard of living improves
¾ The balance of trade and national debt are factors that can help or hinder the
growth of an economic system
o Balance of Trade
¾ Economic value of all the products that a country exports minus the economic
value of its imported products
x Positive trade: country exports more than it imports, helps economy
grow
x Negative trade: country imports more than it exports, inhibits economic
growth
¾ Negative balance of trade is a trade deficit
¾ Canada usually has positive trade
x Which means ][ a creditor nation not a debtor nation
¾ Trade deficit negatively effects economic growth because money that flows out
of a country cannot be used to invest in productive enterprises etc
o National Debt
¾ Amount of money government owes its creditors
¾ Government of Canada spent more money than it took in for many years
(budget deficits)
¾ How does national debt affect economic growth?
x Government uses taxes and sells bonds
o Bonds are securities through which government promises to
pay buyers certain amounts of money in future dates
o The more money government borrows through bonds, the less
money available for the private borrowing and investment that
increases productivity
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Description
Chapter 2: Understanding the Environments of Business N All businesses operate within a larder external environment o LoL]}LKL }LZ]ZZ}Z]L2}Z]L}2L]]}L[Z}L]ZZ might affect it o It plays a major role in whether business has success or failure N Economic Environment refers to the conditions of the economic system in which an organization operates. o Example: McDonalds Canadian operations are functioning in an environment where these id moderate unemployment, low inflation and moderate growth o This shows people can afford to buy McDonalds, but McDonalds must pay higher wages to attract employees o McDonalds also have fairly constant prices and they cannot increase it. N Economic Growth o One time, half population was involved in producing food, now less than 2.5% o Which means that agricultural production has grown The Business Cycle N Experts call the pattern of short-term up and downs as the business cycle peak, recession, trough, recovery o Recession: output declines o Depression: a prolonged Recession Aggregate Output and the Standard of Living N Aggregate Output is the main measure of growth in business cycle: the total quantity of goods and services produced during a given period N When output grows quicker than population, two things follow o The quantity of goods and services per person(Output per Capita) goes up and the system provides more goods and services of what the people want this leads to a higher standard of livingthe total quantity and quality of goods and services that they can purchase with the currency used in their economic system N To know your standard of living, you have to know how much your L]}L }L}K] Z[ZZK]Z2}]L2 N Gross Domestic Product (GDP) www.notesolution.com
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