Question

Please write atleast half page on each.

1. What are the negative and positive impacts of unemployment rates to businesses?

2. How does inflation and deflation impact a small business?

Answer 1

1. There's an old unemployment theory that suggests workers profit from high unemployment because it keeps employees under track. We are less likely to strike, to leave their jobs in search of new ones, and reluctant to seek raises in pay. This keeps employers costs down and increases their profits. But the coin does have two sides. Although lower salaries and high unemployment can make labor more docile and reduce business costs, demand for business production is also reduced. And while costs can fall, profits do not automatically increase because revenues do not increase because potential customers have little money to spend because of low wages and high unemployment

Lower benefits for the unemployed and cuts in unemployment insurance favor employers as it keeps workers from keeping up higher salaries for better jobs and encourages them to take whatever they can, mostly at the minimum wage, from necessity. Conservatives are naturally also opposed to an increase in the minimum wage.

Enterprises are seeking fiscal or monetary incentives to increase aggregate wages, minimize unemployment, restore mass buying power and accelerate economic growth. But the recent stock market sell-off indicates their ability to boost profits by cost-cutting has come to an end. Maybe when profits have stalled long enough and businesses realize they need more consumers to spend more money to grow, they end up supporting some kind of government job program.

2. One cause of inflation is demand which extends beyond the supply of goods and services. Another occurs when supply is constrained but demand is not. You see this happening with gas prices when oil refineries shut down or production is slow due to extreme storms etc. Yet all of these are short-term phenomena, and not a source of global price inflation in the long term. In general, longer-term price inflation is triggered by an rise in money supply (i.e. monetary inflation) typically induced by central banks in an attempt to boost the economy.

Smaller companies often struggle with what may be called "economic insecurity," meaning they don't have the same exposure to financial resources as their bigger counterparts. The wages of the owner or partners eat up a much greater share of the sales, often leaving less to pay or grow investors. One of the big side effects of inflation (apart from rising prices) is that it makes cost forecasting more complicated because decision-makers don't know if the current inflation rate will hold or rise significantly in the next 1, 2 or 5 years.

Whereas external factors, including inflation rates, appear to have a much greater effect on small businesses. They can withstand financial misjudgements less. Adequate cash flow can also be a major problem , particularly when consumers are reluctant to pay invoices due to their own financial pinch. In fact, small companies are often faced with the question of raising rates or accepting the higher inventory costs. When companies increase rates, they have a greater chance of making a profit. They can hold more stock, and still have enough cash flow. They might even expand if they so wished.