Question

Discuss how macroeconomic policies affect managing a business?

Explain the importance of understanding the trends in the national economy.

In your response, observe how the subject matter of this workshop has affected you and the business where you work (or a business with which you are familiar).

Answer 1

Business is also a smart part of economy. So they to should react or adapt to the changes that takes place in the economy.

These are the few changes that in macro economic policies which effect the business.

1) Monetary policy: If there is an Expansionary monetary policy there will be fall in interest rates which makes the business to take loans and by fixed assets or expand their business. If there is a contractionary monetary policy business will not take any loans more than it is needed as they have pay higher interest rates. They try to save money during contractionary monetary policy for future purpose.

2) Inflation: The higher the inflation the lower of rate of return on an investment. So business will try to avoid investment in new business as they may have less return.

3) Price level: Depending on the price level and money supply in the market the business will either increase or reduce prices.

4) Unemployment : When unemployment rate is higher in the economy there will less consumption by people which leads to fall in demand for goods and services. Thus business will reduce its prices by reducing the cost of production.

Depending on the latest trends in the economy the business will follow new advertising and marketing strategy to attract customers. They even switch their products depending on the trend in the market.

Not only in my work any work these trends will follow. My father is having a construction business he wanted to expand his business by taking loan but while he was taking loan the government is following a contractionary monetary policy which made him to save money in bank rather than taking loans.

Any business will have to adapt to the changes in macro economic as it a small part of whole economy.