Macroeconomic issues

The macroeconomic environment can create

opportunities and threats for business . In a booming
economy ,demand may be growing fast ,creating more
sales opportunities. If the prices are stable, planning
will be easier than if they are changing rapidly. The
stats of the economy will therefore affect the ease of
doing business and likelihood of success. Not
surprisingly economic change often makes headline
news because it has an direct impact on the jobs,
households standard of living and economic growth
 The most common indicators of the
health of the economy
• The rate of the economic growth
• The rate of employment
• The rate of change in the price level
• The balance of the payment position
 Economic growth
• The growth is generally measured by changes
in GDP. The growth rate has impact on levels
of demand , and therefore the desired levels
of capacity and production for business .To
achieve economic growth .a government may
attempt to increase the level of aggregate
demand or aggregate supply.
• Increasing aggregate demand will
take the economy nearer to full
employment on PPF while an
increase in aggregate supply can be
seen as an outward shifts in the
frontier.
 Policies to boost aggregate demand
• Government expenditure
• Cutting direct taxes
• Lowering interest rates
usiness
• Depreciation of currency
• Others
 Supply side policy
• Subsidies
• Lowering corporate taxes
• Tax holidays
• Export incentives
• Others
 THE ECONOMIC CYCLES
• Shapes of recessions are
• V shaped: as occurred in UK in the early 1990s –
the recession was short lived and then the
economy accelerated quickly
• U shaped : as occurred in UK in 1980-81 –this is
similar to V shape but the decline and recovery
are more prolonged
• L shaped : as experienced by JAPAN in the 1990s
–this occurs when an economy stays stuck in a
recession for a long time .
• Managers need to be awrae of the present
level of income in the economy and the
expected rate of growth in the future ,
because this is likely to affect :
• The levels of demand for business
• The ease of recruiting staff
• The likely demand for pay by staff
• The ability to increase prices
 The benefits and cost of economic
growth
• Benefits :
• Higher per capita income
• High standard of living opportunities for
business
• Change in consumption pattern
• New market in emerging economies
• Revenue to the government
• Low expenditure on social benefits n
 Cost
• Negative externalities
• Pollution
• Demand pull inflation ‘
usiness
• Increase in income inequalities
• Regional disparities
• May not be sustainable
 Unemplyment
• Measuring unemployment
• Voluntary and involuntary unemployment
• Consequences of unemployment
• Hysteresis
 Inflation

• Inflation occurs when there is a sustained

increase in the general price level .
• How to measure inflation :CPI or WPI
• Two types of inflation: demand pull and cost
push
 Effects of inflation

• Making planning more difficult

• Reducing consumer's real income
• Influencing wage demand thus leading to
wage price spiral.
• Reducing international; competitiveness
• Unequal distribution of income and wealth
 Balance of Payments

• Causes of current account deficit

• Fast economic growth ,sucking in imports
• High propensity to import rather than by
domestic products
• Strong currency
• Higher domestic inflation
• Lack of investment and innovation reducing
the quality of the product s
 Reducing current account deficit

• Expenditure reducing policy : it may lead to

slower growth and higher unemployment

• Expenditure switching policy

• Stimulate exports
 Conflicting objectives

• Demand –price
• Fast growth –bop balance