Question

how do businesses/government utilize macroeconomics in making decisions? explain

Answer 1

In simple terms,Macroeconomics is the study of economic variables/factors at the level of economy as a whole.It consists of factors which are very very vital and crucial part of economy and determines the growth and development of a business or any nation.Businesses/governments are the part of economy,so in order to achieve desired results,they need to consider these factors and act accordingly to achieve desired results.It includes issues and problems which are of vital importance for determining the well being of people.Macroeconomic problems such as unemployment,inflation,instability in foreign exchange rate etc. causes much mieries in the life of people and businesses.And the main role of govt. is to maximize or ensure the well being of the people.Macroeconomics explains the causes of such problems and helps in formulating economic policiees to tackle them.Mentioned below are the some ways how Macroeconomics plays crucial role for govt. and the businesses:-

• Helps understand Business Cycles-Business cycles refer to the fluctuations in the output and employment with alternating periods of boom and recessions.They have been the biggest ailments of the market eonomies.Using macroeconomics significant advances have been made in bringing out the causes that lead to business cycles.Fluctuations in AD due to volatile nature of investment demand together with the interaction of multiplier andd accelator provides adequate explanations of business cycles.Due to macroeconomics,the severity of business cycles has reduced in recent years and has helped to devise such plans and policies that can keep business cycles in control.
• Formulating govt. Macroecomic policies-Macroeconomics helps to understand the nature and functioning of economy which is very crucial in framing fiscal and monetary policies of the government for the nation and its economy.Causes and the effects of recession,inflation and other macroeconomic problems help to devise proper monetary policies to tackle them.Liberal monetary policy and expansionary fiscal policy can be framed to bring the economy out of recession and tight monetary policy and contractionary fiscal policy can be used to tackle inflation.This further helps in achieving foreign exchange stability,high saving and investment,technological improvement in production process etc.
• Taking Business Decisions-Understanding macroeconomic factors helps businesses and managers to take crucial decisions in several related problems.The level of overall economic activity,AD conditions,policies of goveernments,rate of inflations etc. impact businesses.These aggregates make up overall business environment that affects their decision making processes of managers.Forecasts pertaining to future demands and investment decisions of managers are based on the state of the economy and its growth prospects.