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Chapter 2

MGTA02H3 Chapter Notes - Chapter 2: Genuine Progress Indicator, Purchasing Power Parity, Gross National Product

Management (MGT)
Course Code
H Laurence

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Chapter 2
Understanding the Environments of Business
Key Points
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.
External Environment
Everything outside an organization’s boundaries that might affect it.
*Managers must therefore have an accurate understanding of the environment.
Economic 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
- Productivity

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Economic Growth
- 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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