MGTA02H3 Chapter Notes - Chapter 2: Genuine Progress Indicator, Purchasing Power Parity, Gross National Product
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Understanding the Environments of Business
Gross Domestic Product (GDP)
GDP / Capita
Importance of the economic environment to business and identify the factors used to
evaluate the performance of an economic system.
Everything outside an organization’s boundaries that might affect it.
*Managers must therefore have an accurate understanding of the environment.
Conditions of the economic system in which an organization operates.
* i.e. Mcdonald’s operates in an economic environment where there are, Moderate
Growth, Moderate unemployment, and Low inflation.
Moderate Employment: Most people can afford eat out, but it also means that it must pay
higher wages to attract employees.
Low inflation: it pays relatively constant prices for its supplies, but it also means that it
can’t really increase the prices it charges consumers.
3 key goals of Canadian Economic system
- Economic growth
- Economic stability (threat: inflation/unemployment)
- Full employment.
Measurement of Economic growth:
- Aggregate output
- Standard of living
- Gross domestic product
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- It is said to be grown when it is able to increase total output.
The Business Cycle
Pattern of short-term ups and downs (expansions and contractions) in an economy.
4 Recognizable phases: peak, recession, trough, recovery.
Period during which aggregate output (Measured by real GDP) declines.
If Recession lasts for a prolonged period, it is called Depression.
Aggregate output and the Standard of Living.
Aggregate output (총생산량)
The total quantity of goods and services produced by an economic system during a given
An increase in Aggregate output = Economic Growth
When output grows more quickly than the population, two things follow
-Output per capita: the quantity of goods and services per person /goes up
-The system provides relatively more of the goods and services that people want.
-When these two things occur, Standard of living goes up
-Standard of living means total quantity and quality of goods and services that they can
purchase with the currency used in their economic system.
-Economic growth = Higher Standard of living
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