Introduction to Management—CH04.pptVIP

Economic environment Chapter 4 Macroeconomic factors; How market prices are determined; How the government influences economic conditions objectives Economic growth Inflation Interest rates Macroeconomic factors Recession Indicators 1. Aggregate expenditures And total production level shown by GDP ( the total market value of all final products and services produced) Economic growth 2. Unemployment level Frictional unemployment Cyclical unemployment Structural unemployment Seasonal unemployment Indicators Industrial production index New housing starts The personal income level Indicators Firm’s revenue, operating expenses and wages, etc. Cost-push inflation Demand-pull inflation Inflation influence the business’s interest expenses Typically adjusted periodically Cost of financing eg. housing market/construction industry Interest rates Demand schedule Supply schedule How market prices are determined Consumer income Consumer preferences Production expenses Factors that influence market prices Monetary policy Fiscal policy Government influences How the fed can reduce interest rates How the fed can increase interest rates Demand of products Interest expenses of firms Monetary policy Revision of personal income tax rates---spend more money Revision of corporate taxes---EAT Revision in excise taxes---costs of production Revision in the budget deficit---higher spending leads to high demand for loanable funds Fiscal policy Restrictive monetary policy Low growth in the money supply Interest rates increase discouraged borrowing reduce total spending Low inflation Slow economic growth High unemployment rate Dilemma Restrictive fiscal policy High taxes and government spending Reduce spending Slow economic growth High unemployment rate Dilemma Forecast how future fiscal and monetary policies will affect economic conditions Demand for the firm’s product Labor and material costs Interest expenses How business react