Acca F1

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Session Objectives

Topic 10
Macroeconomic Factors
Define macro-economic policy Explain the main determinants of the level of business activity in the economy and how variations in the level of business activity affect individuals, households and businesses

© accountingclassroom.com 2008

Student Notes for ACCA F1-Accountant in Business

© accountingclassroom.com 2008

Student Notes for ACCA F1-Accountant in Business

Session Objectives
Explain the impact of economic issues on the individual, the household and the business: i) Inflation ii) Unemployment iii) Stagnation iv) International payments disequilibrium

Session Objectives
Describe the main types of economic policy that may be implemented by government and supra-national bodies to maximise economic welfare Recognise the impact of fiscal and monetary policy measures on the individual, the household and businesses

© accountingclassroom.com 2008

Student Notes for ACCA F1-Accountant in Business

© accountingclassroom.com 2008

Student Notes for ACCA F1-Accountant in Business

Macroeconomics
It is the study of how society allocates scarce resources which have alternative uses, between competing ends. It focuses on: Overall demand for goods and services Output of goods and services Supply of factors of production Total incomes earned by providers of factors of production

Difference between Macro- and Micro-economics
Microeconomics –study of economic behaviour of individual consumers, firms and industries Macroeconomics – Considers aggregate behaviour and the sum of individual economic decisions

© accountingclassroom.com 2008

Student Notes for ACCA F1-Accountant in Business

© accountingclassroom.com 2008

Student Notes for ACCA F1-Accountant in Business

Macroeconomic Policy Objectives
Economic Growth Inflation Unemployment Balance of Payments

Factors Influencing Level of Business Activity
Confidence Aggregate demand Capital Use of Resources Government Policy Exchange Rate Movements

© accountingclassroom.com 2008

Student Notes for ACCA F1-Accountant in Business

© accountingclassroom.com 2008

Student Notes for ACCA F1-Accountant in Business

Confidence
Greater Consumer confidence lead to higher business confidence and higher investment in new factories Confidence is adversely affected by political instability, disasters, unemployment, inflation

Aggregate Demand
It is the total demand for the country’s output It is calculated as: AD = Consumer spending + Investment by firms + Government spending + Demand from exports – imports

Higher demand results in firms increasing output Higher demand can result in inflationary pressure © accountingclassroom.com 2008 Student Notes for ACCA F1-Accountant in Business © accountingclassroom.com 2008 Student Notes for ACCA F1-Accountant in Business

Capital
Firms need finance to invest in new projects Greater availability of finance results in higher investments Lower interest rates will make capital cheaper

Use of Resources
New Technology and more efficient working practices can improve productivity and lower costs Advances in level of education

© accountingclassroom.com 2008

Student Notes for ACCA F1-Accountant in Business

© accountingclassroom.com 2008

Student Notes for ACCA F1-Accountant in Business

Government Policy
Governments can increase or decrease the level of aggregate demand through fiscal policy Investment in the infrastructure of the economy can attract investment

Exchange Rate Movements
Strengthening currency will make a country’s exports more expensive Imports will get cheaper

© accountingclassroom.com 2008

Student Notes for ACCA F1-Accountant in Business

© accountingclassroom.com 2008

Student Notes for ACCA F1-Accountant in Business

Trade Cycles

Trade Cycles
Recession starts when demand begins to fall. Reduction in demand feeds into household incomes and the economy moves into a slump Slowly economic...
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