External Influences The Macro-economy The production and exchange process of the whole economy as opposed to individual markets within the economy. Businesses are affected by changes in the macro-economy and by government processes towards the macro-economy. Government economic policies change a lot. (E. g.
labour made bank of England independent on their first day in office. ) Instead of dividing the economy into different sectors (e. g. retail, cars etc) we look at the economy of the country as a whole. Government Macro-economic objectives: o Control of inflation – 2. 5%o Maintain full employment-all who want a job can get one.
That means that the country as a whole does better next year than it does this year. Inflation is a general rise in the price level over a period of time. Inflation in the late 70’s in the U. K was 27%. That meant that if bread was 100 p, the next year it would be 127 p We can measure inflation by: o Looking at the standard retail price index. This is where the government agrees a standard shopping basket e.
Inflation is described as the process by which prices are continuously rising or the value of money continuously decreases (Consumer Price Index Frequently Asked Questions, 2013). As the definition explains, this is not something that would be desirable for the government or its citizens. For example, Germany during the 1920’s experienced a period of hyperinflation. Germans literally had to carry ...
g. food, petrol, mortgage. o RPIX-RPI take away mortgage so RPIX-RPIX takes away taxes and local authority taxes. o HIP-adopted by all EU countries. This was made to try and determine with the position is within Europe. They have decided not to include for example, housing costs in each country, they are looking for a general price rise in general retail goods.
However it is expensive in any city to live there, so housing costs are an extremely important factor. It does include university fees, to measure how good an economy is in any country. Because students are future of economy, the more students you can produce (theoretically) the better. Balance of payment so A record of trade between U.
K and other countries. (although it applies between all countries) o It is the difference of imports and exports o Some imports / exports are visible (e. g. laptops, watches, toys etc), some not visible (e. g. financial services, insurance, shipping.
Providing a service to other countries, e. g. leasing out ships to other countries, tourism) The bigger the gap between imports and exports the worse. Ideally exports should be higher than imports, but as Britain doesn’t make a great deal of things to export it could result in trouble. China will make more and more to export.
Full Employment o Full Employment- Used to be a job for all, now a job for all those who want one. Affected by economy-if economy is good, more jobs, if you are going through a recession then that is not the case. If you are over 21 the minimum wage is lb 4. 85 for over 21’s, for under 18’s just lb 3. o The EU convention of Human rights, Article 23 states that everyone has the legal right to work. This means that if the person does not have a job through no fault of their own, they must be compensated for.
This is why must governments have a state system to provide for them. o In U. K there is a period of time where you get unemployment benefit linked to housing and family sizes. After an unemployment of 6 months, if you want to keep unemployment benefits you must sign up for training or education.
Physical Exports: If the goods physically go out of the country or services are rendered outside the country then it is called as physical export. Deemed Exports: Where the goods do not go out of the country physically they can be termed as deemed exports. This will be subject to certain conditions as prescribed by the DGFT. Under Deemed Exports, the goods may be supplied to the manufacturer ...
o Full Employment differs from what it used to mean, it used to mean everyone should work but now it means what it says above. o The ‘Poverty Trap’ is where you get benefits, then accept a job and get less money than from benefits so there is no incentive to go to work for a low paid job, so people just stay at home. This is bad for a government. o New deal- the government told people who were unemployed they must go into training or education.
They did this because a lot of 17 year olds don’t go into training, employment or education and so don’t know where they are, or how they are earning (criminal activities? ) o Investing in diversity o ‘Employment Zones’ Balance of payments This affects the ease with which businesses can sell their products abroad. If the pound is strong against the euro, it is hard to sell British made goods in Europe. However if you are an import company then it is good if you are based in U. K and import from Europe because you can import more. It can be linked with exchange rates, because this influences the perceived prices of imports and exports and therefore costs and competitiveness. (The exchange rate is the rate at which one currency can be exchanged for another.
) o Exports are harder to sell abroad (because traders have to give up more of their currency to get the same amount of lb – export prices appear to rise. o Imports appear to be cheaper – buyer in UK gets more foreign currency for every lb. o If a country is importing a lot of goods it can be dangerous-puts manufacturers in your own country under threat. Can weaken your own country. Economic Growth Measured by the GDP (Gross Domestic Product) – the value of output of goods and services in the economy over a period of a year. o Measured by adding up total incomes (Y) or total expenditure (E 0 or total output of industry In theory all should be the same.
o Appropriate growth levels in U. K e. g. If it is too high, the economy is overheating, if it is too low it is stagnating -resources, unemployed, an actual growth of 2-2.
5% is seen as being sustainable and is ‘appropriate’o If growth rates get too high the economy is expanding too quickly and people spend too much money which leads to an overheating of the economy and inflation. There is also a fear of whether it is sustainable to have it expanding that quickly. If it is too low resources may be unused / underused (e. g. labour) and this leads to unemployment. This is with low economic growth, not a recession.
A good reading on the outlook for the U. S. economy can be had by closely watching indicators such as consumer confidence, unemployment, and corporate downsizing. The chances of an U. S. recession will rise and fall with these measures. For the moment, each is holding their own. The national state of mind has reflected the economy around us. With the economy booming as a whole, so has the ...
The u. k economy has not hit the targets it wished, but was not shrinking like U. S. A and Japan and Japan went into recession (2 quarters, or 6 months of a shrinking market.