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Macroeconomic Framework
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A summary of the macroeconomic framework and key factors that have an impact on the wider economy.
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By: michealmcnulty241 • 6 months ago
By: fconor06 • 6 months ago
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Macroeconomic FrameworkDefinition:
The wider economy = macro-economy.
A study of the economy + how it is influenced by factors.
Examines how the government - maintain steady growth through taxation, public expenditure +
interest rates.
Economic growth, recession, falling interest rates - dramatic impact on business performance.
Major developments changing our world - globalisation.
Key Variables - influence Business Activity:
GDP - total value of output produced over 1 year.
o Increase = economic growth.
Economic growth.
Inflation - persistent rise in general price level +
associated fall in value of money.
Interest rates - price paid for borrowed money +
return on savings.
Unemployment + exchange rates - price of one
currency expressed in terms of another.
Business cycle: shows how GDP changes.
o 4 key stages: boom, downturn, recession +
recovery. 3. Slump: GDP falls.
a. Gov. will intervene.
1. Boom: Fast economic growth.
b. Monetary policy.
a. Demand outstrips supply.
c. Reduce interest rates + corporation
b. Inflation + shortage of workers.
tax.
c. Wages rise = increase costs + prices.
d. Fiscal policy - reduce taxes.
2. Downturn: Leading to recession .
a. GDP begins to fall. 4.Recovery:
b. 2 consecutive quarters - recession.
c. Demand falls, job losses, firm closures. a. Gov. corrective action takes effect.
d. Cut investment plans, doesn't grow - rise in b. GDP rises.
unemployment. c. Demand rises for goods.
Some businesses are in cyclical industries - follow same trends as GDP e.g. elastic goods/luxury items. Others
are immune from GDP changes e.g. necessities - oil, petrol + basic foods.
Business Strategies -Economic Downturn/Recession:
Possible Business Strategies Evaluation
Close facilities as demand falls = excess capacity Job losses - damage relationship + reduce job security.
increases. Downturn short lived - reducing excess capacity =
E.g. Tesco - 43 stores. inadequate capacity.
Develop new products e.g. Tesco - Discount Damage reputation.
Range Not all customers experience fall in income.
Lower prices. Price war + damage brand image.
Demand - inelastic - revenue will fall.
Buy assets cheaply or takeover businesses at Purchases financed - risky with borrowed capital.
lower prices - compared to boom times. No one can be sure when downturn ends.
Continue with expansion plans + best prepared Bravest option - only considered by cash-rich businesses or
for the expansion. those not affected by changes in income - inelastic products.
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