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Notes Ch 9 Ext economic influences.notebookChapter 9 External economic influences on Business
A2
activity & behaviour
Read introduction page 99 Case study page 98 Iceland's economy..
Note: external economic factors are one of the key causes of
change which requires strategic decisionmaking in order for a
firm to achieve its' objectives.
Govt economic objectives
Managers must understand the likely impacts of govt economic
objectives on their business they must plan accordingly to protect
the business from negative impacts & to take advantage of
opportunities that may arise due to govt policy changes.
Macroeconomic objectives are set for the whole economy.
These include:
1. Economic growth
2. Low target rate of inflation
3. Low levels of unemployment
4. Avoidance of a deficit in the Balance of Payments
5. Exchange rate stability
6. Reduction of inequalities in wealth & income
These objectives often conflict with one another, e.g. to curb
inflation, govt may raise interests rates to slow consumer spending
inflation may drop but unemployment may rise as a result.
N.B.
• Start a file of articles on economic events & data, & how
businesses are responding to these changes.
• Update this regularly, including your own notes from TV or radio
broadcasts.
• Make sure your file is current before exams!
,Notes Ch 9 Ext economic influences.notebook
A2 1. Economic growth
• Economic growth is an increase in a country's productive
potential. It is measured by Gross Domestic Product (GDP).
• GDP is the total value of goods & services produced in a
country in a year, & is measured in monetary terms.
• Real GDP is adjusted for inflation, as inflation (an increase in
the general level of prices) will raise the value of GDP but does
not reflect economic growth.
Read through page 99
The importance of economic growth to a country
• GDP means more goods & services are produced
standards of living.
• GDP often means employment consumer income
standards of living.
• employment & consumer incomes demand
depending on income elasticity of demand for given products
(more later).
• tax revenue for govt govt spending on desirable
public sector initiatives (education, healthcare etc).
• As unemployment govt spending on unemployment
benefits more resources put to public sector spending or
taxes may be .
• Absolute poverty can be reduced or eliminated if growth is
sufficiently significant & the benefits are spread widely enough.
Disadvantages of rapid economic growth
• Increases in pollution.
• Job losses due to technological change.
• Inflation can be driven by excess consumer spending see
"boom" period of the Business / Trade cycle.
, Notes Ch 9 Ext economic influences.notebook
A2 Causal factors of economic growth
1. Technological change & expansion of industrial capacity due
to business investment & innovation in products & industries.
• This is highly desirable as it essentially represents growth due
to increased efficiency, and carries no demandpull inflationary
pressure.
• Govts therefore encourage business investment.
• Business investment is expenditure by business on capital
equipment, new technology, R&D.
2. An increase in available resources increased working
population or discovery of new resources (e.g. oil & gas).
3. Increased productivity of available resources increase in
skills through training, or greater willingness of workers to work
with new technology.
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