MGTA01 – Introduction to Business

Measuring Performance
 How well does Canada’s
“mixed-market” system work?

How to measure an economic

system’s performance?
 Measuring Performance
Is an economic system producing:
lots of goods and services?
more every year?
lots per citizen?
using all of the factors?
sharing the benefits?
Measures of Performance

Gross Domestic Product (GDP)

GDP growth
GDP per capita
Productivity
Participation and employment
Distribution and equality
 Gross Domestic Product (GDP)
Gross = “large”
Domestic = “within the borders”
Product = “what is produced”

GDP = Total value of all goods

and services produced
within a country.
 Gross Domestic Product (GDP)

If a country has large GDP:

many workers, using many factors,

producing many things of value
 Gross National Product (GNP)
Gross means “large”
National means “belonging to a nation”
Product means “what is produced”

GNP = Total value of all goods and

services produced by factors
belonging to a country
 GDP versus GNP

GDP measures value of goods and

services produced IN Canada
GNP measure value of goods and
services produced by Canadian
organisations, anywhere in the world
 GDP versus GNP
If Microsoft opens an office in Canada
The jobs and revenue generated
increase Canadian GDP.
(It happens here)
The jobs and revenue generated
increase US GNP.
(Microsoft is a US organisation)
 GDP and GNP
They are both:
One big number
Value of goods & services produced
Measures of activity

GDP: Where activity happens

GNP: Who owns the organisation

GDP much more common, more widely used

 Countries with Largest GDP - 2014
1  United States $ 17,419 billion
2  China 10,360 billion
3 Japan 4,602 billion
4  Germany 3,852 billion
5 United Kingdom 2,942 billion
6 France 2,829 billion
7 Brazil 2,346 billion
8 Italy 2,144 billion
9  India 2,066 billion
10 Russia 1,861 billion
11  Canada 1,787 billion
Source: World Bank, http://databank.worldbank.org/data/download/GDP.pdf
World Map According to GDP
 GDP Measures Size
GDP measures an economy’s size.
GDP does not measure:
Growth
Wealth
Opportunity
Distribution
 GDP Growth
An economic system should grow

Growing GDP indicates:

more people
in more businesses
producing more goods
providing more services
…more jobs, more stuff
Canada – GDP Growth
1985 - 2014
Slow Growth / No Growth
Falling GDP indicates:
fewer people (?)
in fewer jobs (?)
more failed business (?)
fewer goods (?)
fewer services (?)
Falling GDP called “recession”
Canada – GDP Growth
1985 - 2014

g
win
gro

falling
 US GDP Growth 2001-2013
Economies should grow
Sometimes they don’t. Recession
 Recession
2 consecutive quarters (3 months)
GDP when GDP falls
growth %
s cycl e
busines

time
recession
Canada – GDP Growth
and Business Cycles
GDP Growth – Major Economies
 Fast Growing Countries

Poor countries
have greatest capacity for growth.

They start from low base

Have more “catching up” to do
Growers and Shrinkers - 2013
 GDP Growth
A well preforming economy should:
Make more goods (food, clothing, housing)
Provide more services (health, education)
Create more jobs (meaningful occupation)

…create prosperity for all

 GDP Per Capita

GDP measures only “size”

GDP doesn’t measure “wealth”
GDP per capita = GDP per person
“per capita” = “per person”
 GDP Per Capita

Measures wealth of “average” citizen

some “big” economies are “poor”

e.g. India
 GDP Per Capita

rich
s
countrie
blue
o r
po ries
n t
ou d
c re
 GDP / Capita – Richest 2014
1 Luxembourg 111,71 9 Singapore 56,319
6
2 Norway 97,013 10 United States 54,597
3 Qatar 93,965 11 Ireland 53,462
4 Switzerland 87,475 12 Netherlands 51,373
5 Australia 61,219 13 Austria 51,307
6 Denmark 60,564 14 Iceland 51,262
7 Sweden 58,491 15 Canada 50,398
8 San Marino 56,820
 GDP / Capita – Poorest 2014

Niger $ 469
Madagascar $ 449
Congo $ 437
The Gambia $ 428
Central African Republic $ 380
Burundi $ 336
Malawi $ 242
Somalia $ ???
Source: The World Bank http://data.worldbank.org/indicator/NY.GDP.PCAP
What Makes a Country “Rich”?

“Productivity”
 Productivity
a ratio
outputs : inputs
products : factors
Productivity = outputs (products/services)
inputs (people, $$$)
 Productivity
GDP per Capita is measure of productivity

GDP
population
A country has high productivity when it
has plentiful, cheap, high quality factors
of production put to good use
 Productivity
High GDP per capita produced by:
Good labour: Well educated workers
Good labour: Well trained workers
Good natural resources: clean water
Good natural resources: fertile soil
Lots of capital: modern technology
Lots of capital: good transportation
Lots of capital: good communications
 Productivity
Is economic system using all
resources at its disposal?
If not – the economy is producing
less than it could
 Participation & Employment

Participation: Is everyone who wants

to work allowed to work?
Is everyone who wants to
work motivated to look?

Employment: Can everyone who wants

to work find a job?
 Participation
Women as % of Canadian labour force
Employment

Having a job.
 Unemployment

Wanting a job - can't find one!

Unemployment defined:
% of people who are actively
looking for work, but can’t find work
 Unemployment
Unemployment lowers productivity
People who want work can’t find work
People are doing less than they could
Less is being produced
Less is being consumed
 Canada: Unemployment Rate
1985 - 2016

12%

10%

8%

6%

4%
 Unemployment - Canada
Historically - Canada’s unemployment
rate higher than rate in USA

Larger % of work force not working

This is one cause to our lower wealth

Unemployment Rate: Canada vs. USA

.
 Wealth Distribution
High “GDP per Capita” suggests
“average” person is “rich”.
But
What if a few people are very, very rich
and
the rest are very, very poor?
Why Wealth Inequality Matters
 Graphing Wealth Distribution
If everyone was equally wealthy
% of the
wealth 100
90
80
70
60
50 50% of population
= 50% of wealth
40
30
20
10
% of
population 10 20 30 40 50 60 70 80 90 100
 Wealth Distribution – Lorenz Curve
The curve below the line “Lorenz” curve
% of the
wealth 100
90
80
70
60
50
40
30
20
10
% of
population 10 20 30 40 50 60 70 80 90 100

Named for Max Lorenz (1905)

 Lorenz Curves – USA & Canada
Canada’s richest 20% has 39% of the wealth
% of the
wealth 100
90
80
70
60
Canada
50
40
30
USA
20
10
% of
population 10 20 30 40 50 60 70 80 90 100
 Review
Measures of economic performance:
Gross Domestic Product (GDP)
GDP Growth
GDP / capita
Productivity
Participation and Employment
Distribution and Equality