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: [25 marks]

a. A fall in interest rate;

b. High government spending;

c. High unemployment rate ;

d. High Inflation ;

e. Increasing GDP.

Answer 1

a. Low interest rates represent the presence of plenty of money in the system. At the point when banks have a great deal of money close by, they are on edge to loan it out, so they bring down the financing cost they charge on advances. Low loan costs are additionally reflected in the cost of merchandise and ventures, since low rates influence the financing of activities, to fabricate and dispersion more affordable for organizations. Low financing costs additionally drive venture into the share trading system by speculators looking for higher profits for their cash than is accessible in bank testaments of store and bonds. Low rates empower the compensation down of charge card obligation, since it speaks to a costly type of cash with respect to different credits. Buyers have couple of different spots for their cash to win exceptional yields on speculation, so their additional cash goes into paying down their charge cards. The lower interest rates will reduce the incentive to save, cheaper borrowing costs, lower mortgage interest payments.

b. High government spending: Policymakers are isolated with reference to whether government extension aides or upsets financial development. Supporters of greater government contend that administration programs give important "open merchandise, for example, instruction and foundation. They additionally assert that increments in government spending can support monetary development by placing cash into individuals' pockets.

A few financial analysts trust that expanded government spending can diminish business speculation and accordingly diminish monetary development. In the event that organizations purchase government obligation as opposed to purchasing more machines or employing more laborers, the economy will decay. High duties can likewise make organizations deliver less items or contract less specialists. Organizations will leave high expense regions and move to different states or nations where charges are lower, prompting less employments and less riches in the states and nations that the organizations left. .

c. High unemployment rate: Businesses are affected in a variety of ways depending on whether unemployment is high or low, and rising or falling. Some business implications of rising / high unemployment include:

• Lower consumer spending = lower demand for income-elastic products.
• Demand for inferior goods (lower price, quality) may increase.
• Greater supply of labour – potentially lower wage/salary levels.
• Unemployment creates insecurity in the workforce; potentially a cause of lower morale and de-motivation.
• Business may be impacted by social problems associated with high unemployment (e.g. rising crime).
• Recruitment (in theory) becomes easier – there should be more applicants for each vacancy.

d. High Inflation: Firms generally prefer inflation to be low and stable. If inflation rises above 3 or 4%, firms may see a rise in costs and uncertainty. Inflation can also cause firms problems of rising costs, falling profitability, and a decline in international competitiveness. However, inflation is not necessarily damaging for a firm – especially, if they can increase prices to consumers more than their costs of production rises.