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Introduction
Managers have to deal with economic environment at two levels micro level and macro level Micro level includes market structure and the strength of competitors. Firms decision making is mostly influenced by the activities of its rival forms. The following are some factors that affect firms decision at micro level Level of competition Cost of production and Product differentiation
Introduction
Macro level includes the overall system. This is something that the firm assumes to the given. Decision making of the firm is affected by the macroeconomic environment. The following macroeconomic factors have a strong effect on firms decision making Overall Demand Price Level Rate of interest Tax policies and Exchange Rates
Introduction
It is important for managers to know the macroeconomic policy environment because an unprecedented change in any of these factors can upset the revenue and cost of the firm, affecting the profitability and returns. The problem can be minimized or managed if managers know the working of an economy and thereby, judge the direction of possible changes in macroeconomic variables and policies. With this, they can even assess the best timing to take new investment decisions
Workings of Macroeconomics
Monetary Policy Fiscal Policy Other Policies AS Price & Cost Capital Labor Tech AD Employment Output Real GDP
Potential Output
Macroeconomic Concepts
Supply-side concepts National Income Accounting Demand side concepts Consumption, Investment, Government Expenditure, Foreign Trade, Multiplier
Household
Taxes
Government
Taxes
Business
Product Market
GDP Measurement
Product Method It is the sum of monetary value of quantity produced in the given time period Income Method Sum of income of all factors of production gives the GDP from income side GDP = Rent + Wages + Interest + Profits Expenditure Method GDP = C + I + G + (X-M)
Treatment of Inventories
Produced but not used in the same year
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