1) What factors are important for achieving the goal of economic growth for Canada’s
economic system?
Answer:
The Business Cycle
The business cycle refers to the rise and fall of economic activity over time. Although the
economy will grow over the long term, economic growth is usually unstable. Business
cycles or economic fluctuations vary in length and severity. Some periods of fluctuation
are difficult and long; others are short and mild. Generally, the economy in the long run
has an upward slope with ups and downs of varying degrees The five stages of the
business cycle are expansionary, peak, contraction, trough, and recovery).
The expansionary phase is a period when economic activity is rising. Goods are being
produced and sold, the workforce is expanding (that is, jobs are being created), demand
for goods is increasing, and the price of goods is rising. Typically, this is a positive
period for business. Profits are rising, cash flow is steady, and there is an opportunity for
some risk taking. The expansionary period can experience a sudden economic boom or
slow and steady growth. The economy needs to be expanding in order for economic
growth to occur. Once the economy has reached its highest point, it can be said to have
peaked. A peak marks the end of the expansionary phase and the beginning of the
contraction phase. A contraction phase is characterized by declining economic activity
and falling profits. During this phase, managers usually reduce costs, lay off workers, and
halt any plans to invest in the company. A recession is realized when there are two or
more consecutive quarter periods of negative or falling economic activity. A depression
is an extreme recession that is characterized by longer economic periods of declining
economic activity, high unemployment, and high levels of personal and commercial
bankruptcies.
Productivity
Productivity is also an important factor to achieve economic growth. Productivity
measures the level of output versus the level of input in an organization. An input, for
example, can include materials, labour, or overhead, whereas an output is often a finished
unit of product (or service) ready to be sold. An organization is said to have improved its
productivity when it can produce more outputs with the same number of inputs.
Alternatively, an organization can produce the same number of outputs with a reduced
number of inputs. When costs are reduced and spread over the total number of units
produced, an improvement in productivity has been achieved.
Balance of trade
The balance of trade is the value of all the goods and services a country exports minus the
value of all the goods and services a country imports. While most trade with Canada
involves goods, services have been an important component to the economy. Ideally,
Canada would like to have a trade surplus instead of a trade deficit. A trade surplus
occurs when a country exports more goods than it imports. This indicates a positive
balance of trade and encourages economic growth. A trade deficit exists when a country
imports more goods than it exports. A trade deficit is problematic because it results in a
Test Bank for Karakowsky and Guriel, The Context of Business, 1e
Copyright © 2015 Pearson Canada Inc. 1
economic system?
Answer:
The Business Cycle
The business cycle refers to the rise and fall of economic activity over time. Although the
economy will grow over the long term, economic growth is usually unstable. Business
cycles or economic fluctuations vary in length and severity. Some periods of fluctuation
are difficult and long; others are short and mild. Generally, the economy in the long run
has an upward slope with ups and downs of varying degrees The five stages of the
business cycle are expansionary, peak, contraction, trough, and recovery).
The expansionary phase is a period when economic activity is rising. Goods are being
produced and sold, the workforce is expanding (that is, jobs are being created), demand
for goods is increasing, and the price of goods is rising. Typically, this is a positive
period for business. Profits are rising, cash flow is steady, and there is an opportunity for
some risk taking. The expansionary period can experience a sudden economic boom or
slow and steady growth. The economy needs to be expanding in order for economic
growth to occur. Once the economy has reached its highest point, it can be said to have
peaked. A peak marks the end of the expansionary phase and the beginning of the
contraction phase. A contraction phase is characterized by declining economic activity
and falling profits. During this phase, managers usually reduce costs, lay off workers, and
halt any plans to invest in the company. A recession is realized when there are two or
more consecutive quarter periods of negative or falling economic activity. A depression
is an extreme recession that is characterized by longer economic periods of declining
economic activity, high unemployment, and high levels of personal and commercial
bankruptcies.
Productivity
Productivity is also an important factor to achieve economic growth. Productivity
measures the level of output versus the level of input in an organization. An input, for
example, can include materials, labour, or overhead, whereas an output is often a finished
unit of product (or service) ready to be sold. An organization is said to have improved its
productivity when it can produce more outputs with the same number of inputs.
Alternatively, an organization can produce the same number of outputs with a reduced
number of inputs. When costs are reduced and spread over the total number of units
produced, an improvement in productivity has been achieved.
Balance of trade
The balance of trade is the value of all the goods and services a country exports minus the
value of all the goods and services a country imports. While most trade with Canada
involves goods, services have been an important component to the economy. Ideally,
Canada would like to have a trade surplus instead of a trade deficit. A trade surplus
occurs when a country exports more goods than it imports. This indicates a positive
balance of trade and encourages economic growth. A trade deficit exists when a country
imports more goods than it exports. A trade deficit is problematic because it results in a
Test Bank for Karakowsky and Guriel, The Context of Business, 1e
Copyright © 2015 Pearson Canada Inc. 1
