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Macro-Economic Objectives and their Impact on Business Activity - Assignment Example

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Macro-Economic Objectives and their Impact on Business Activity
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Macro-Economic Objectives and their Impact on Business Activity

Download file to see previous pages... The RPI reflects a weighted average of price rises over the previous 12 months and as such it can be seen as the rate of inflation affecting the average household. (Jewell, 2007) Economists attribute inflation to one of the three causes; Excess demand in conditions of full employment, this is also known as demand pull inflation. Monetary inflation, which is the excess rise in the money supply A rise in the cost of production that is, in turn, passed on to the customers by firms enjoying some degree of monopoly power. This is cost push inflation. Inflation leads to a rise in prices, it has the effects of redistributing purchasing power. Businesses might suffer if their customers experience a decline in their real incomes. Moreover, if the inflation is one of costs rather than prices, profit margins will be squeezed. Conversely, inflation caused by access demand may lead to an increase in profits margin. One of the most damaging aspects of inflation from the business point of view is that it makes planning for the future difficult. Budgeting becomes difficult. Making provisions for expenses and purchases becomes difficult as prices tend to increase. (Jewell, 2000) The unemployed are defined in government statistics as those people seeking work who are unable to obtain a job. Unemployment can occur due to deficiency in demand; this could be cyclic, which is temporary during recession. Or it could be persistent which results from long-term deficiency. Technological advancement curb the need for manpower and this can also result in unemployment. Structural unemployment occurs when there is a change in the structure of demand leading to the decline of a major industry. Regional unemployment occurs when a major local industry declines leaving the workers of that area unemployed. Frictional unemployment results from the unemployment while job changing. Another form of unemployment is voluntary, which is the unwillingness to work at current rates of pay McEachern, 2008). In theory, a high level of unemployment should increase the reserves of labour available to business. Firms that are starting up would find labour easily. Furthermore, excess supplies of labour may also weaken the resolve of unions to demand high pay. These were the advantages of unemployment; however, it is possible for unemployment to coexist with shortages of particular types of labour or shortages in certain geographical regions. (Frank & Bernanke, 2001) Economic growth is basically an increase in the productive capacity of the economy or a rise in real national income per head. As it provides the means for achieving higher living standards for all, it opens up the prospects of reducing poverty without the necessity of income redistribution. Economic growth is beneficial to private sector firms. New market opportunities will be created in an expanding economy. This provides scope for emerging businesses as well as the expansion of existing ones. A growing economy is favorable for any business and especially the ones that are new. Economic growth is measured by the increase in the gross domestic product (GDP) of the country. GDP can be measured by the expenditure approach or by the income approach. (Wessels, 2006) International Trade and the Balance of Payments The balance of payments is a set of accounts recording details of a nations transaction with the rest of the world. The current account measures a country's trade in currently produced goods and ...Download file to see next pagesRead More
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