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Economic Environment For Business

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13 views2 pages

Economic Environment For Business

Uploaded by

2023-202982
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as TXT, PDF, TXT or read online on Scribd
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Economic environment for business:

This refers to the external economic factors that influence a company's operations
and decision-making.
What are those factors? Anyone?
those are:
Economic growth
Inflation
Interest rates
Employment levels
Government and other policies

Understanding Economic Environment helps businesses plan and adapt to changes in


the market.

Economics - economics is a social study that studies the production, distribution


and consumption of goods and services.
has 2 branches: The Macroeconomics and Microeconomics

Economics simply pertains to the production and use of income, money earning and
spending

What is Macroeconomics?
Macroeconomics looks at the economy as a whole, addressing broad aggregates like
national income and output, unemployment, inflation, and the effects of monetary
and fiscal policy.

Its objectives is to increase the production and consumption of goods and services
over time which result to economic growth
Low Level of Inflation: Maintaining stable prices and preventing excessive
inflation.
Low Level of Unemployment: Ensuring that a large proportion of the workforce is
employed.
Sustainable Balance of Payments (BOP): Achieving a balance between the money
flowing into and out of a country.
Proper Distribution of Income and Wealth: Ensuring that wealth is distributed
fairly among the population.

Economic policy tools


Monetary tools - influence monetary variables like money supply and interest rates.

Contractionary Monetary Policy - decrease money supply and increase interest rates
- Dito, bank increases interest rates making borrowing money more expensive.
Example, if the interest rate rises from 3% to 5%, businesses may be less likely to
take out loans for expansion, and consumers might reduce spending on credit.
Decreasing Money Supply: The central bank reduces the amount of money in
circulation.
These measures lead to higher interest rates and reduced borrowing and spending,
which helps to slow down economic activity. When demand decreases, the pressure on
prices eases, helping to control inflation.

Expansiornary monetary policy


Lowering Interest Rates: The central bank reduces interest rates, making borrowing
cheaper. For instance, if the interest rate drops from 5% to 3%, businesses are
more likely to take loans to expand, and individuals might take out loans for big
purchases like homes or cars.
Increasing Money Supply: The central bank injects more money into the economy,
often through measures like quantitative easing. For example, the central bank buys
government bonds, putting more money into the banking system, which banks can then
lend to businesses and consumers.

Fiscal Policy - government’s use of taxation and spending to meet macroeconomic


targets.

Contractionary fiscal policy:


Tax Increases: The government raises taxes, leaving people with less disposable
income. For example, if income tax rates increase from 20% to 25%, individuals will
have less money to spend, which can reduce overall demand in the economy.
Decreased Government Spending: The government cuts spending on public projects and
services. For instance, reducing funding for infrastructure projects or public
services like education and healthcare can decrease overall economic activity.

Expansionary Fiscal Policy:


Tax Cuts: The government reduces income taxes, giving people more money to spend.
For example, if the government cuts income tax rates from 25% to 20%, individuals
will have more disposable income to buy goods and services.
Increased Government Spending: The government increases spending on public projects
like building roads, schools, and hospitals. For example, launching a new
infrastructure project worth billions of dollars can create jobs and boost demand
for materials and services.

Exchange Rate Policy:


Manage the value of a country's currency relative to others to achieve economic
stability and growth.

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