Textbook Notes (363,502)
Canada (158,383)
RSM100Y1 (431)
John Oesch (214)


8 Pages
Unlock Document

University of Toronto St. George
Rotman Commerce
John Oesch

Understanding the Environments of Business Organizational Boundaries and Environments External Environment: Everything outside an organization’s boundaries that might affect it Organizational Boundary: That which separates the organization from its environment Multiple Organizational Environments ‣ The major dimensions and elements of the external environment include: economic environment, technological environment, socio-cultural environment, business environ- ment, political-legal environment, global environment, as well as emerging challenges and opportunities (e.g. Outsourcing, viral marketing, and business process manage- ment) The Economic Environment Economic Environment: Conditions of the economic system in which an organization op- erates ‣ Three key goals in the Canadian economic system are economic growth, stability, and full employment ‣ Tools used to measure economic growth are aggregate output, standard of living, gross domestic product, and productivity ‣ Main threats to stability are inflation and unemployment Economic Growth The Business Cycle Business Cycle: Pattern of short-term ups and downs (expansions and contractions) in an economy ‣ The business cycles has four recognizable phases: peak, recession, trough, and re- covery Recession: Period during which aggregate output, as measured by real GDP, declines Depression: Particularly severe and long-lasting recession ‣ During a depression, economic activity declines, unemployment is very high, and con- sumer buying declines Aggregate Output and the Standard of Living Aggregate Output: Total quantity of goods and services produced by an economic sys- tem during a given period ‣ When output grows more quickly than the population, two things usually follow: output per capita - the quantity of goods and services per person - goes up, and the system provides relatively more of the goods and services that people want Standard of Living: Total quantity and quality of goods and services that a country’s citi- zens can purchase with the currency used in their economic system Gross Domestic Product and Gross National Product Gross Domestic Product (GDP): Total value of all goods and services produced within a given period by a national economy through domestic factors of production Gross National Product (GNP): Total value of all goods and services produced by a na- tional economy within a given period of time regardless of where the factors of produc- tion are located ‣ GDP and GNP are useful measures of economic growth because they allow us to track an economy’s performance over time ‣ Simply tracking growth may lead to a distorted view of the economic environment ‣ The real growth rate of GDP is the growth rate of GDP adjusted for inflation and changes in the value of the country’s currency ‣ GDP per capita is calculated by dividing total GDP by the population of a country Real GDP: GDP calculated to account for changes in currency values and prices Nominal GDP: GDP measured in current dollars or with all components valued at cur- rent prices Purchasing Power Parity: Principle that exchange rates are set so that the prices of simi- lar products in different countries are about the same ‣ Purchasing power parity provides a better idea of what people can buy, provides a better sense of standards of living around the world Productivity Productivity: Any activity that adds value to some input, transforming it into an output for a customer (whether external or internal) ‣ Standards of living improves only through increases in productivity Balance of Trade: The total of a country’s exports (sales to other countries) minus its im- ports (purchases from other countries) ‣ A positive balance of trade results when a country exports more than it imports which results in facilitating economic growth National Debt: Total amount of money that a country owes its creditors Budget Debt: The result of the government spending more in one year that it takes in during that year ‣ While taxes are the most obvious way the government raises money, it also sells bonds - securities though which it promises to pay buyers certain amounts of money by specified future dates ‣ Bonds are attractive investments because they are extremely safe; the Canadian gov- ernment is not going to default on them (fail to make payments) Economic Stability Stability: Amount of money available and the quantity of goods and services produced are growing at about the same rate Inflation Inflation: Occurrence of widespread price increases throughout an economic system ‣ Inflation occurs when the amount of money injected into an economy outstrips the in- crease in actual output ‣ People will have more money to spend, but there will still be the same quantity of products available to buy ‣ When compete to buy available products, prices go up and high prices will erase the increase of money injected into the economy and purchasing power declines Consumer Price Index (CPI): Measure of the prices of typical products purchased by consumers living in urban areas Deflation Deflation: A period of generally falling prices Unemployment Unemployment: Level of joblessness among people actively seeking work in an eco- nomic system ‣ Frictional unemployment is when people are out of work temporarily while looking for a new job ‣ Seasonal unemployment is when people are out of work because of the seasonal na- ture of their jobs ‣ Cyclical unemployment is when people are out of work because of a downturn in the business cycle ‣ Structural unemployment is when people are unemployed because they lack the skills needed to perform available jobs Managing the Canadian Economy Stabilization Policy: Government policy, embracing both fiscal and monetary policies, the goal of which is to smooth out fluctuations in output and unemployment and to stabi- lize prices Fiscal Policies: Policies by means of which the government collects and spends rev- enues Monetary Policies: Policies by means of which the government controls the size of the nation’s money supply ‣ When the Bank of Canada restricts the money supply, we say that it is practicing a tight monetary policy ‣ When the Bank of Canada loosens the money supply - and this stimulates the econo- my - we say that it is practicing an easy monetary policy The Technological Environment Technology: All the ways firms create value for their constituents ‣ Technology includes human knowledge, work methods, physical equipment, electron- ics and telecommunications, and various processing sy
More Less

Related notes for RSM100Y1

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.