ECON201 Microeconomics for Business Essay

How Macroeconomics affects business Essay

ECON201 Microeconomics for Business Essay Macroeconomics is a branch of economics that explores trends in the national economy as a whole considering the study of the sum of individual economic factors. Macroeconomics considers the larger picture, and an understanding of how do business operates is crucial to understand macroeconomics. Macroeconomics is intertwined with business because business is affected by the factors that constitute macroeconomics. Circular-flow diagram: a visual model of the economy that shows how dollars flow through markets among households and firms. Using this diagram it can be clearly observed how some factors can influence business operations..

Business is affected by many economic activities.
These activities are: Interest rate increase, taxes increase, unemployment rate increase, Inflation.

Interest Rate.

Interest rate is a rate which is charged or paid for the use of money. Increase of interest rate has a great affect on several consumption opportunities

1. As it can be observed from the graph, if interest rate increases the consumption expenditures of households will decrease, which means that company’s profit will de…………fect on cost of borrowing.

Many companies around the world make their business by loaning money from the bank. If interest rate increases, the interest payments on credit and loans become more expensive. Therefore this discourages companies from borrowing and widening its business. Companies who already have loans will have less disposable income because they spend more on interest payments. 3. Increase in mortgage interest payments.

In majority of cases companies borrow mortgages to buy already existed place for operations or to build a new building. And if the mortgage interest will incre…………………nt; it makes firms less willing to take out risky investments and purchases

Taxes

A fee charged by a government on a product, income, or activity.

Here are some effects of taxes on business operations.
1. Taxes lower overall gains.
There is a stateme……………..ate to lower overall gains because operating income and capital gains are normally taxed.

2. Low wages
Multiple governments levy so many taxes on businesses that “taxes” is the highest budget items on the ledger sheets of most businesses. These taxes take away some of the money otherwise used to pay wages. That’s why employers can’t pay good wages. 3. High prices

In many countries governments put many taxes on businesses that “taxes” is the highest budget items on the ledger sheets of most businesses. Businesses have to raise prices to get money to pay these taxes. So product prices go up. This leads to inflation.

Unemployment.
Unemployment is an economic condition marked by the fact that individuals actively seeking jobs remain unhired.

There are several reasons of unemployment in a country. They are:

1. Worldwide financial crisis

Companies do not have enough money to hire new staff to the company and to increase their outcome.

2. Population increase

When, for example, baby boomers reach the age of 18, they start to search for a job, but the number of work places did not increase. That’s why many of them become unemployed.

3. Low qualification

The majority of companies nowadays try to employ more qualified workers, and people that are less qualified fail to find a better job

4. Replacement of workers by technologies

In todays world technological progress is very visible. In many factories people force is replaced ………………s of production

Unemployment has a direct impact on all business. People buy products and services and if they do not have a job they will buy less products and services. That is why increasing unemployment often results in many businesses reducing inventories because they expect to sell less. Another reason is that many companies in order to develop and reach the new level of production need mo………………..o not decrease the level of production they should fire some workers

Inflation

Inflation is an increase in the price of a basket of goods and services that is representative of the economy as a whole. Effects of inflation on business.

1. People try to get rid of cash before it is devalued, by saving food and other commodities creating shortages of the saved objects. That’s why in a specific period of ………………not consume at all.

2. Increased risk – Higher uncertainties. Uncertainties in business always exist, but with inflation risks are very high, because of the instability of prices.

3. Existing credit companies will be hurt, because the value of the money they will receive from their borrowers later will be lower than the money they gave before.

4. Fixed income recipients will be hurt, because while inflation increases, their income doesn’t increase, and therefore t……………..