Question

1.     As a macroeconomic analyst, you have been tasked to present some insights into the
       impact   of   macroeconomic   variables   on   business   performance to   a   business   forum.
       Using relevant examples from an organization or sector of your choice, discuss how the
       following macroeconomic variables affect the growth and/or decline of businesses:
       a. A fall in interest rate
       b. High government spending
       c. High unemployment rate
       d. High Inflation
       e. Increasing GDP

                                                                                             [25 Marks]

2.     Use the AD-AS model to explain and illustrate, from a theoretical perspective, that by
       choosing the right combination of measures (policies) it is possible for the economy
       to grow without it experiencing inflationary pressures. Which macroeconomic policies
       are critical in ensuring that the price level does not increase? (N.B: In your answer,
       discuss a minimum of 4 examples of macroeconomic policies that can be adopted)

                                                                                             [25 Marks]

3.     Using a case study of an organisation, describe the nature of business of the selected
       organisation and explain the impact of fluctuations of the exchange rate on business
       performance. Identify and explain three factors that may have contributed to exchange
       rate volatility in your country during the last 12 months and three approaches that can
       be adopted by the business to minimise the negative impact of exchange rate volatility.

                                                                                             [25 Marks]

Marking guidelines

Please pay attention to the mark allocation for each of the subsections above.

Focus, logic and structure play a critical part in answering any assignment question. Your
assignment should be focused on answering each question asked. You answer should have
a clear logical structure and your arguments should be systematically developed. Sentences
and paragraphs should follow one another logically. A collection of more or less disjointed
comments on the literature is commonly referred to as “fragmentation”. Avoid fragmentation

Answer 1

Answering only the first one as these are separate independent questions.

a) A fall in interest rate leads to decline in discounting rate for project assessment. Thus firms find it more profitable to invest in new businesses. Example A real-estate company might be encouraged to invest in new projects if it feels that buyers will have easier access to finance because of lower interest rates.

b) HIgh government spending - leads to an increase in demand. Government subsidizing affordable housing gives a filip to demand for the real-estate industry.

c) High Unemployment rate - this leads to demand contraction as there is a decline in the purchasing power of many people. In our case, purchase of housing is the last thing in the mind of people who are out of jobs.

d) HIgh Inflation - This also erodes people's purchasing power. If people are spending more on daily needs then they are not left with enoug savings to purchase a house or service its EMIs.

e) Increasing GDP - This boosts consmer and producer confidence and prompts them to spend and invest more. This gives a positive thrust to the real estate demand as well.