Question

Describe the implications of at least three of the following for managerial decision making.

1. A decrease in personal taxes

2. A depreciation of the U.S. dollar.

3. A decrease in expected profits and business confidence because of a looming recession.

4. An increase in the level of foreign GDP or income

5. A decrease in the nominal money supply the Federal Reserve

6. An increase in the prices of raw materials and other resources

Answer 1

As a producer, we would want to maximize the overall profit which the firm makes over a period of time. All decisions taken with regards to the company are then translated into goals which either bring in maximum profit or try and control capital in a manner that loss for the business enterprise does not take place.

Accordingly, the following 3 and their economic impact on decision making for producers is as described as follows: -

1) A decrease in personal tax: -

Personal Tax is the tax which a person pays towards his income. This is usually reduced by the government, whenever it wants to increase the flow of money in the economy. As a business owner, we must be aware that revision to personal taxes would mean additional income for people which then would be spent on purchasing goods and services. Therefore, the company during this time period can expect an increase in demand and therefore increase its supplying capacity accordingly.

Those goods which are high in demand can be produced or the current line can be increased to accommodate the same.

2) Depreciation of Dollar: -

When the dollar depreciates in value compared to other countries, imports become expensive, while exports bring in lesser returns. It is then vital for an organization to control the existing markets as the possibility of international trade would bring in lesser returns for the company. Further, it should concentrate at the domestic markets as much as possible or can take their investments abroad as it would yield a better result than investing in dollars which is depreciating in value compared to other currencies of the world.

3) Looming Recession: -

During a recession cycle, the demand for goods and services is low. The result is that producers do not see equal footfall of customers which they used to earlier. Therefore, as a recommendation it is advisable to cut back on unnecessary expenditure and control the cost of operations as far as possible for the country. This reduced investment and production is the critical decision making which is required during this time period and which largely helps in ensuring that the company can stay financially sound during problematic times.

All of the above discussions point out to counteractive strategies to increase economic profit or to reserve one’s capital for future investments.

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