Answer to Question #216900 in Economics for Khwisti

Question

A clear understanding of the macroeconomic environment is important to inform your business decisions. Using relevant examples of businesses, discuss how fluctuations of the following macroeconomic indicators may affect the business. (In your answer, discuss the effect of both increasing (5 marks) and decreasing (5marks) trends on the business).

Your answer must start by explaining the nature of business or sector of the company/organisation, followed by a critical review of the variables.

a. Fluctuations of the GDP [10 Marks]

b. Fluctuations of the interest rate [10 Marks]

c. Fluctuations of the exchange rate [10 Marks]

Answer 1

a. Rising GDP means more jobs are likely to be created, and workers are more likely to get better pay rises. If GDP is falling, then the economy is shrinking - bad news for businesses and workers. If GDP falls for two quarters in a row, that is known as a recession, which can mean pay freezes and lost jobs.

b. With an increase in interest rates, businesses with company credit cards and existing loans can have higher interest payments, less disposable income and bigger overheads. In some cases the business may end up paying off the interest only, rather than the loan itself.

c. Changes in the exchange rate can also indirectly impact your business, even when you do not buy or sell goods and services overseas. Depreciation of your local currency makes the cost of importing goods more expensive, which could lead to a decreased volume of imports.