Business Economy Issues - Essay Example

Name : xxxxxxxxxxx Institution : xxxxxxxxxxx Course : xxxxxxxxxxx Title : Business economy Tutor : xxxxxxxxxxx @2010 Business economy Introduction Economics is the social science which entails the studies of production, distribution and consumption of goods and services. This is generally affected by the choice of the behaviour of human and the methodology used in making production decisions which are considered to determine the allocation of the scarce resources and their impacts in the availabilities and distribution of productions in the market (Griffiths, 2001). It studies how individuals and society look for ways of satisfying the needs and wants through choices, incentives and allocations in a given set of constraints of resources. It is looked at in different perspective depending on the on the field of concern, for example, personal finance, government and business. In business, it is the science of managing people to organize and maintain collective productivity towards accomplishing certain creative and productive goals basically to generate revenue (Moschandreas, 2000). Inflation In business economics, inflation is the rise in the general level of prices of goods and services in the economy of an area for a certain period of time. The value of the currency goes down when the prices of the commodities increases because a unit of the currency can only exchange for fewer or less services; as a result yearly inflation is also wearing out the power of purchasing leading to a loss of the initial value of the medium of exchange and the account’s unit in the economy. Inflation is usually measured through the Retail price index (RPI) or it is mainly the inflation rate and the yearly percentage change in a general price index, which is the consumer’s price index (CPI) over a period of time and it is the new measure used by the government to set inflation targets. Inflation is caused by a number of factors depending on some aspects: it can occur when there is so much money in circulation if the government prints excess notes and coins thus the prices increases to fit the surplus of the currency. This is known as the demand pull inflation because the prices are set by the high demand. Another cause of inflation is the increment in the cost of production which them rises the prices of the final products, for example, if the prices of the raw materials increase the cost of the final product will definitely be increased for the company to make a reasonable profit. The cost-push inflation can also be as a result of the increasing cost if imports forcing the prices of the commodities to increase (Parkin, 2000). International debts can also cause the inflation because these nations have to make enough interests to support their projects as well as pay the debts thus the commodities will have their prices set a bit higher than the normal ones. Finally federal taxes set on consumer products can also cause inflation because when the tax levies are increased the prices are also increased. This determines the prices of the commodities because they rarely changes. Effects of inflation The effects of inflation on the economy are multiple and can either be positive or negative although the negative are the most. They include the decrease in the value of the money for a long period of time; these uncertainties in the future value of currencies may discourage the investments of the economists. This can also reduce the general rates of economic productivity due to the elusive or the expensive capitals required to maintain the businesses. High inflations can lead to shortages of goods if the consumers assume that the prices will never reduce hence they look for other products to compensate the expensive ones. The borrowers may benefit if they pay back when the inflation is high hence the interest rates are lower compared to when the inflation is lower while on the side, the lenders may end up recording losses as the amount paid is worth less. When the rate of inflation is higher the government receives higher income rates because the workers demand for more wages (Hall, 2003). Unemployment This is whereby there is availability of the skilled labour but do not have the opportunity of applying their skills in a formal working environment or a person is available and willing to work but is not assigned any job. Its commonness can be measured using the rate of the unemployment which is defined as the percentage of those in the labour force on contractual bases. Although some of the governments assume that all those who are counted on unemployment benefits are the only unemployed but this process does not give the real details because the under 18s and those whose partners are employed are not considered. Causes of unemployment The causes of unemployment depend on the type, for example, the seasonal unemployment is affected by the time of the year or the period of the year. For instance, in the Agricultural sectors there are more jobs during the harvesting times. Other factors like the technological changes can result to unemployment. This is because there is less manual work which has been replaced by the use of machines. For example, initially people would be hired to file and store the records and others to take the records of the proceedings while in the present world all have been replaced by the use of computers which only needs one person to operate. These and others factors like the business cycle, recessions and seasonal aspects cause unemployment. People may also choose to remain unemployed especially in cases where they can get other ways of earning more money compared to the income they would earn under employment or so as to overcome the liability of paying taxes on little income. Effects of unemployment Unemployment results to a low standard of living of the citizens, unemployed individuals go through a tight economic crunch. They are unable to manage their financial obligations. Unemployment may also force people to take up careers which are not related to their professions or skills, education or educational qualifications. The unemployed can also suffer from anxiety in their minds because of the difficulties that they face and the expectations that they had in their career world. Thus they mostly become pessimistic about life and have to face psychological problems as a result of mental stress. The unemployment interferes with the social as well as the economic status of the society because no developmental project can be successful without the power of money. It may also results to crimes like robberies or stealing where the members strive to earn living. The unemployed also do not pay taxes but only receive interests or benefits from the government. Economic growth Economic growth is used to indicate the increase of per capita, gross domestic product (GDP) and other measures of average income. It is mostly valued as the rate of change in GDP. Generally, economic growth is looked into as the quality of goods or services produced. The effects of the economic growth can either be negative or positive depending on the type. Negative growth is felt when the economy of an area is shrinking and this is mostly associated with the recession or the depression of the economic sectors. So as to evaluate the pa capita income across the nations, the figures may be citied in single currency based on either current purchasing power parity or exchange rates. To compensate in the value of money, either inflation or deflation, the GDP is usually given in terms which are either the real or inflation adjusted and not the actual figure compiled annually and that which is referred to as the current or nominal figure (Weil, 2008). Latest figures for key economic indicators The major indicators in the economics are the key influences of the financial conditions of a given geographical area or the statistic concerning the economy. Prices and inflation is one of the indicators which concentrates on the changes in the Consumer Price Index, the Retail Prices Index of all the items, Producer Prices Index minus the output and the Producer Prices Index minus the input prices, for example, the cost of materials and fuels. Their monthly and annual changes are recorded. Labour market is also another indicator which entails the rate of employment and unemployment, the AWE headline rates, both total and regular and the job seekers allowances. The other indicators are the National Accounts and all the economic activities taking place including the Gross Domestic Product; Balance of trade and payments and the other short term indicators including the retail sales, index of production and services. These indicators support the analysis of the present economic performance and the prediction of the future performance or functions to help in the study of business cycles. In the recent records there are some positive and negative indexes in various indicators, this is as result of the changes in the value of currencies or the general inflation. For example, on the recent records of the National Statistics of the United Kingdom, the high economic inflation has resulted to the highest positive index in the annual changes in the Producer Prices Index while the Employment rate indicated the highest negative index within the last financial year (Mark, 2000). Inflation According to the report from the office of national statistics in UK, the value on the inflation has recorded some positive index. Between April and May 2010, there is an increment of the 0.6% in the consumer price index, an indication that inflation is still high. Monetarists forecast and economists indicate an annual increase of 3.5% and a monthly increase of 0.4%. Increase of raw materials like oil and the reduction of VAT and other form of government taxes are attributed to this. Unemployment The reports of the national statistics of UK indicates that there is an increase in the rate of unemployment by 8% by may 2010 and the working age reduced to 1.5% annually. This is because of the decrease in the working opportunities and lack of finances to support the workers. High cost of raw materials like fuels also reduced the activities in places like industries hence reduces the job opportunities. Economic growth This indicates both negative and positive indexes. This means that there are variations in the growth of the economy. The GPD in UK recorded an increment of 0.4% in the last quarter of 2009 and an increase by 2% in the first quarter of 2010. This indication is linked with the poor growth in the service industries. Factors affecting the economic indicators Inflation is one of the factors affecting these indicators; high inflation can result to positive changes in some of the indicators like the prices of the commodities and the unemployment rate and vice versa on the lower inflation. The availability of resources can also affect the economic indicators either in a negative and positive way. The political factor can also affect the economic indicators, this is whereby the government in charge is not able to manage the resources or its economic status to improve and maintain it. Unstable economy can be affected by any passing wind hence abnormal changes will be recorded. Cultural factors affect the indicators of the economy as they reflect the efforts put to change or maintain the economic status. People should be encouraged to always work hard to boost ensure that there are positive changes in the economic indicators for example, if they offer cheap labour the inflation rate will be lower hence positive indication on the economic factors (Hornby , Gammie & Wall, 2001). Fiscal and monetary measures the government has introduced in order to combat the recession The fiscal policy entails the use of government taxation, borrowing and spending to influence a positive pattern of economic activities and the standard of aggregate demand, employment and output. Changes in the fiscal policy have effects on the aggregate demand and supply. Fiscal policy helps to manage the issue of demand. If the government is wise on the way it spends, direct and indirect taxation and a balanced budget can be used to regulate the aggregate demand of the commodities and the same applies to the supply. The annual government or public spending takes more than 40% of the gross domestic product and it can be classified into transfer payments, current government spending and the capital spending. Transfer are welfare payments made available by the social security systems including the allowances of the jobseekers, benefits on children and others like pension. (Eshag, 2003). Current government spending is the spending on the goods and services provided by the government on a recurrent basis every week, month and year, for example, wages or salaries paid to the workers in NHS and the money spend on state education. There is also capital spending infrastructural financing for example, on schools and hospitals. There are some stabilisers which come along in the different stages of economy. The leading is the tax revenues; as the economy expands rapidly the rate of tax revenue increases taking money from circular flow of income and spending, welfare spending means that it is not a must that the government should spend much on welfare benefits and lastly budget balance and circulation flow explains that a fast-growing economy tends to lead to an average outflow of money from the circular flow and during a recession the government runs a large budget deficit. When setting the taxation rates the government should distinguish between the direct and the indirect taxes so as to know that relevant field and how to impose the levies and the three levels of taxation depending on the income of the tax payer. Car Scrappage This is a non-profit making process organized by the car dealers in UK. The members were required to give £2,000 as a discount for a new vehicle if they are willing to add over the old ones, this was meant to get rid of the scrap vehicles from the operation. The process increased the economic status and for safety measures by reducing the accidents which are likely to be caused by the old vehicles. Monetary policy and interest rates Monetary policy is the use of rates of interests and the level of the money supply to manage the economy and it is always set by the policy committee chose by the government. If t is committee realises that the inflation is falling they can easily meet its target by maybe cutting the rates of interests. Reducing the interest’s rates gives people freedom of borrowing because little will be charged on the credits. Others on the benefits like mortgages will have more to spend because the payment of these benefits reduces. The level of consumption is increased. The government should ensure that there is enough money in circulation to encourage more spending. The government monetary policies are to cut the interests rates and allowing enough circulation of money (Eshag, 2003). Effects of the recession on the economy of Blackburn with Daren Recession is a contraction in the business cycle. It is caused by a widespread drop in the rate of spending and the government respond to it by adopting methods of expansionary. During this period the society faces more negative impacts on its economic status. For example, unemployment, the productivity of the business fall then rises again as the firms which were weak closes down reducing competition and the general living standards of people depreciates as most of those who depend on the salaries and wages are affected by the recession than those on welfare benefits and fixed incomes and the common loss of jobs has negative impacts on the lives of many families. Conclusion Business economics is the social science which entails the studies of production, distribution and consumption of goods and services and there are some factors which influence these studies. For example, the inflation or the rise of the prices of the commodities over a period of time; the unemployment leading to lack of enough money to but the commodities; the economic growth and the economic recession. The government tries to fight against these economic problems by reducing the interest charged and ensuring that there is enough money in circulation for the citizens to increase their spending. Bibliography Griffiths A., 2001, Business economics, Heinemann, New York. Moschandreas M.,2000, Business economics, Cengage Learning EMEA, Virginia. Hornby W., Gammie R.& Wall S.,2001, Business economics, Financial Times Prentice Hall, San Francisco. Parkin M., 2000, Inflation: a world problem, Manchester Statistical Society, Manchester. Hall R., 2003, Inflation: Causes and Effects, University of Chicago Press, Chicago. Weil D., 2008, Economic Growth, Pearson Addison Wesley, San Francisco. Mark R.,2000, Handbook of key economic indicators, Chicago: McGraw-Hill Professional Committee for Economic Development, 1999, Fiscal and monetary policies for steady Economic growth: a statement on National policy by the Research and Policy Committee of the Committee for Economic Development, Committee for Economic Development, Boston. Eshag E.,2003, Fiscal and monetary policies and problems in developing countries, Cambridge University Press, Cambridge. Read More