How Macroeconomics affects business
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 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 decrease. In future it will lead to decrease in production output. In order to be competitive companies will need to cut wages or even fire somebody from the personnel, which will again lead to decrease in consumption opportunities. 2. Affect 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 increase even by very little percent, it will have significant impact on businesses disposable income. That’s why it will be more profitable for them to rent an apartment rather that to buy a new one. 4. Reduced Confidence. Interest rates have an effect on business confidence. A rise in interest rates discourages investment; it makes firms less willing to take out risky investments and purchases
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 statement in accounting which calls income statement. In income statement all revenues and expenses are written. After subtractions of all expenses out of revenues there is a column which name is Earnings before interest and taxes. Results of "before tax" and "after tax" business cases can look quite different. Where the business case shows gains or net cash inflows, taxes operate 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 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...
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