assessing changes in the economic environment
Business and the Economic Environment
Macroeconomics
The study of the whole economy
The study of macroeconomics is primarily concerned with the total level of spending/demand and production/supply employment and unemployment levels rate of interest and inflation exchange rate
In effect, it is concerned with making the most efficient use of an economy’s resources
The Circular Flow of Income
The circular flow of income, shown below, illustrates the interrelationship between the main parts of the macroeconomy – ie. between producers, consumers, the government, and other countries.
Firms receive revenue in exchange for goods and services they provide. The revenue is used to pay incomes to workers and to other factors of production, in return for their contribution to the goods and services available for sale. Income of households is either spent on goods and services that are produced by UK firms, or withdrawn from the circular flow through imported goods, being saved, or taxed. The revenue received by firms either comes from customer spending or injections. Injections include spending by other firms, govt spending, or export sales abroad.
The Business Cycle
The regular pattern of ups and downs in demand and output within an economy , or of gross domestic product growth over time. It is characterised by four main phases; boom, recession, slump and recovery.
Some firms are more vulnerable to changes in the business cycle and GDP than others. The extent to which a business is affected will depend on the income elasticity of demand for the firm’s products. For example, the construction industry is very sensitive to changes in the GDP, with their demand being highly income elastic. On the other hand, staple foods sales are not likely to be affected too much, as they are essentials.
Possible Causes
Changes in business confidence, which lead to a change in level of investment in fixed assets. If a business
Macroeconomics
The study of the whole economy
The study of macroeconomics is primarily concerned with the total level of spending/demand and production/supply employment and unemployment levels rate of interest and inflation exchange rate
In effect, it is concerned with making the most efficient use of an economy’s resources
The Circular Flow of Income
The circular flow of income, shown below, illustrates the interrelationship between the main parts of the macroeconomy – ie. between producers, consumers, the government, and other countries.
Firms receive revenue in exchange for goods and services they provide. The revenue is used to pay incomes to workers and to other factors of production, in return for their contribution to the goods and services available for sale. Income of households is either spent on goods and services that are produced by UK firms, or withdrawn from the circular flow through imported goods, being saved, or taxed. The revenue received by firms either comes from customer spending or injections. Injections include spending by other firms, govt spending, or export sales abroad.
The Business Cycle
The regular pattern of ups and downs in demand and output within an economy , or of gross domestic product growth over time. It is characterised by four main phases; boom, recession, slump and recovery.
Some firms are more vulnerable to changes in the business cycle and GDP than others. The extent to which a business is affected will depend on the income elasticity of demand for the firm’s products. For example, the construction industry is very sensitive to changes in the GDP, with their demand being highly income elastic. On the other hand, staple foods sales are not likely to be affected too much, as they are essentials.
Possible Causes
Changes in business confidence, which lead to a change in level of investment in fixed assets. If a business