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9 Feb 2011
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‘RSM Chapter 2 notes
Inflation and deflation ( )
External environment: everything outside an organizations boundaries that might
affect it. This environment plays a major role in determining the success or failure
of any organization
Organizational boundaries: that which separates the organization from its
environment
Economic environment: conditions of the economic system in which an
organization operates
Three goals in the Canadian economic system: economic growth, stability, and
full employment
Tools we use to measure economic growth: aggregate output, standard of living,
gross domestic product, and productivity.
Main threats to stability: inflation and unemployment
2.5% of population works in agriculture in Canada; agriculture production has
grown because we have been able to increase total output in the agricultural
sector
Business cycle: pattern of short term ups and downs (expansions and
contractions) in an economy, this cycle is used to examine whether or not an
economic system is growing
The cycle has four recognizable phases: peak, recession, trough and recovery
Recession: period during which aggregate output, as measured by real GDP,
declines Recession is usually defined as two consecutive quarters when the
economy shrinks, but it is probably more helpful to say that a recession starts just
after the peak of the business cycle is reached and ends when the trough is
reached.
Depression: particularly severe and long-lasting recession occurs when the
trough of the business cycle extends two ore more years.
During in depression: economic activity declines, unemployment is very high and
consumer buying declines
Aggregate output: total quantity of goods and services produced by an economic
system during a given period. This is used to measure of growth in the business
cycle. (An increase in aggregate output is growth)
Standard of living: total quantity and quality of goods and services that a
countrys citizens can purchase with the currency used in their economic system
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When: output per capita goes up and the system provides more of the goods and
services that people want, people benefit from a higher standard of living
Capita: the quantity of goods and services per person
GDP: gross domestic product: total value of all goods and services produced
within a given period by a national economy through domestic factors of
production; if GDP is going up, the nation is experiencing economic growth
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 located
GDP and GNP are useful measures of economic growth because they allow us to
track an economys performance over time.
GPI: the Genuine Progress Indicator, it is more realistic to measure economic
activity
GDP: is the preferred method of calculation national income and output, the real
growth rate of GDP, adjusted for inflation and changes in the value of the
countrys 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
current prices
Purchasing power parity: principle that exchange rates are set so that the prices
of similar products in different countries are about the same, determine what
people can buy with the financial resources allocated to them by their economic
system
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
Balance of trade: the total of a countrys exports (sales to other countries) minus
its import (purchase from other countries)
A positive means exports more than imports, it means that trade facilitates
economic growth
A negative inhibits economic growth because the money that flows out cannot be
used to invest in productive enterprises
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Document Summary

External environment: everything outside an organization"s boundaries that might affect it. This environment plays a major role in determining the success or failure of any organization. Organizational boundaries: that which separates the organization from its environment. Economic environment: conditions of the economic system in which an organization operates. Three goals in the canadian economic system: economic growth, stability, and full employment. Tools we use to measure economic growth: aggregate output, standard of living, gross domestic product, and productivity. 2. 5% of population works in agriculture in canada; agriculture production has grown because we have been able to increase total output in the agricultural sector. Business cycle: pattern of short term ups and downs (expansions and contractions) in an economy, this cycle is used to examine whether or not an economic system is growing. The cycle has four recognizable phases: peak, recession, trough and recovery.

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