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study guide for 2nd chapter

Rotman Commerce
Course Code
Michael Szlachta

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Understanding the Environment of Business
1Organizational Boundaries and Environment
External environment: Everything outside an organizations boundaries but might
affect it.
1. Organizational Boundaries: That which separates the organization from its
2. Multiple Organizational Environments: Figure 2.1
Economic Environment, Technological environment, socio-cultural Environment,
Business Environment, Emerging Challenges and Opportunities, Global Environment,
Political Environment
2The Economic Environment
Conditions of economic system in which an organization operates
1. Economic Growth
(1)Business Cycle: patterns of short term ups and downs(expansion  and
contraction  )
(2)Aggregate output: Total quantity of goods and services produced by an
economic system during a given period
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
(3)GDP: Government Expenditure+foreign invest+ exports, (import!),domestic
GNP: citizen
Real Growth rate: depends on output increasing faster than the population;
Standard of living increase if real growth rate exceed growth
Real GDP:GDP adjusted to exclude the changes in currency value and prices
Nominal GDP: measured in dollars or with all components valued at current prices
(4)Productivity: any activity that adds value to some input, transforming it into an
output for a customer( whether external or internal)
Balance if trade: exports – imports
National Debt: The total amount of money that a country owes its creditors
Budget deficit  Government spending more in one year than it take in during that
Governments sell bonds to anyone.  The more money government borrows,
the less money is available for investment.——affect economic growth
2. Economic Stability
Stability: the amount of money available and the quantity of goods and services
produced are growing at the same rate
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