Chapter 2 Summary Summarize all chapter 2

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Published on 16 Oct 2011
School
UTSG
Department
Rotman Commerce
Course
RSM100Y1
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RSM100
CHAPTER 2 UNDERSTANDING THE ENVIRONMENTS OF BUSINESS
I. Organizational Boundaries and Environments
External environment: everything outside an organization’s
boundaries that might affect it -a major role in determining the
success or failure of any organization
Organizational Boundaries
Organizational Boundaries: that which separates the
organization from its environment
Multiple Organizational Environments
Major elements of the external environment: economic
environment, technological environment, socio-cultural
environment, business environment, emerging challenges and
opportunities, global environment, political-legal environment
II. The Economic Environment
Economic environment: conditions of economic system in
which an organization operates
3 key goals in Canadian economic system: economic growth,
stability, and full employment
Tools used to measure economic growth: aggregate output,
standard of living, gross domestic product, productivity
Economic Growth
1.The Business Circle
Business circle: pattern of short-term ups (expansions) and
downs (contractions) in an economy
Depression—Recovery—Peak—Recession—Trough—Recovery
Recession: period during which aggregate output, as measured
by real GDP, declines
Depression: Particularly severe and long-lasting recession,
when the trough of the business cycle extends two or more years
2. Aggregate Output and the Standard of Living
Aggregate output: total quantity of goods and services
produced by an economic system during a given period
oAggregate output =economic growth
Standard of living: total quantity and quality of goods and
services that a country’s citizens can purchase with the currency
used in their economic system
oOutput per capita: the quantity of goods and services per
person
ooutput > population output per capita standard
of living
3. Gross Domestic Product (GDP) and Gross National Product (GNP)
GDP: total value of all goods and services produced within a
given period by a national economy through domestic factors of
production (all companies within Canada)
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 given (all Canadian companies)
GPI (the Genuine Progress Indicator): treats activities that harm
the environment or our quality of life as costs and gives them
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CHAPTER 2 UNDERSTANDING THE ENVIRONMENTS OF BUSINESS
negative values
Real Growth Rates of GDP: the growth rate of GDP adjusted for
inflation and changes in the value of the country’s currency
GDP per Capita : calculated by dividing total GDP by the
population of a country (as a measure of economic well-being of
the average person)
Real GDP : GDP calculated to account for changes in currency
values and prices
Nominal GDP: GDP measures in current dollars or with all
components valued at current prices
Purchasing power parity: principle that exchange rates are
set so that the prices of similar products in that prices of similar
products in different countries are about the same
4. Productivity
Productivity: any activity that adds value to some input,
transforming it into an output for a customer (whether external
or internal)
Standard of living improves only through increases in
productivity
Several factors that help or hinder the growth of an economic
system, such as the balance of trade and the national debt
oBalance of trade: the total of a country’s exports (sales
to other countries) minus its imports (purchases from other
countries)
Export >import= “+” balance of trade facilitates
economic growth
“−” balance of trade inhibits economic growth
oNational Debt: the total amount of money that a country
owes its creditors
Budget deficit: the result of the government
spending more in one year than it takes in during
that year
Bonds: securities through which it promises to pay
buyers certain amounts of money by specified future
date
The more money the gov’t borrows, the less money
is available for the private borrowing and investment
that increases productivity
Economic Stability
Stability: condition in an economic system in which the amount
of money available and the quantity of goods and services
produced are growing at about the same rate
Several factors threaten stability: inflation, deflation,
unemployment
1. Inflation
Inflation: occurrence of widespread price increases throughout
an economic system
Occurs when amount of money injected > the increase in actual
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CHAPTER 2 UNDERSTANDING THE ENVIRONMENTS OF BUSINESS
output
People have more money to spend but the same quantity of
products prices goes up erase the increase in amount of
money purchasing power declines
Hurts consumers bcs Inflation decreases the purchasing power of
your money
Measuring inflation: the CPI
oConsumer price index (CPI)价格指数: measure of the
prices of typical products purchased by consumers living in
urban areas
2. Deflation
Deflation: a periods of generally falling prices
Occurs when industrial productivity increase and cost savings
can be passed on to consumers
OR when consumers have high levels of debt so unwilling to buy
very much
The Bank of Canada reduces interest rates in attempt to increase
consumer demand
3. Unemployment
Unemployment: level of joblessness among people actively
seeking work in an economic system
oFrictional unemployment: people are out of work
temporarily while looking for a new job
oSeasonal unemployment: out of work bcs of the seasonal
nature of their jobs
oCyclical unemployment: out of work bcs of a downturn in
the business cycle
oStructural unemployment: bcs of lack the skills needed to
perform available jobs
Low unemployment =shortage of labour available businesses
compete for the available supply of labour wages increase
higher labour cost prices of products increase purchasing
power declines
Wages get too high hire fewer worker unemployment goes
up demand declines reduced prices hire much fewer
workers employment even higher
Gov’t corrects it by injecting more money into the economic
system to increase demand, but may cause inflation and
purchasing power declines
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 stabilize prices
Fiscal policy 财政政策: policies by means of which the
government controls the size of the nation’s money supply, such
as a tax increase
Monetary policy 货币政策: policies by means of which the
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Document Summary

Chapter 2 understanding the environments of business: organizational boundaries and environments. External environment: everything outside an organization"s boundaries that might affect it -a major role in determining the success or failure of any organization. Organizational boundaries: that which separates the organization from its environment. Major elements of the external environment: economic environment, technological environment, socio-cultural environment, business environment, emerging challenges and opportunities, global environment, political-legal environment. Economic environment: conditions of economic system in which an organization operates. 3 key goals in canadian economic system: economic growth, stability, and full employment. Tools used to measure economic growth: aggregate output, standard of living, gross domestic product, productivity. Business circle: pattern of short-term ups (expansions) and downs (contractions) in an economy. Recession: period during which aggregate output, as measured by real gdp, declines. Depression: particularly severe and long-lasting recession, when the trough of the business cycle extends two or more years.