The lecture provides definition of macroeconomics and macroeconomic policies with FISCAL POLICY MONETARY POLICY SUPPLY SIDE POLICIES It also mentions to the influence of the global economy with the example of the global recession
AFFECTING BUSINESSES IN A COUNTRY Analysis of a country's economy as a whole The study of an economy in its largest sense That is, macroeconomics studies gross domestic product, unemployment, inflation, and similar matters It does not look at the function of individual companies and only tangentially studies individual industries It is useful in helping determine the aggregate effect of certain policies on an economy as a whole Analysis of the behavior of individual economic units such as companies, industries, or households The branch of economic study that analyzes the market behavior of individual consumers and firms in an attempt to understand their decision-making processes; it focuses on the interaction between individual buyers and sellers and the factors that influence the choices they make, particularly the trends of supply and demand and the determination of price and output in individual markets It is a government policy aimed at the aggregate economy, usually to promote the macro goals of full employment, stability, and growth Common macroeconomic policies are fiscal and monetary FISCAL POLICY MONETARY POLICY SUPPLY SIDE POLICIES Fiscal policy is the decisions that are made about tax rates and government spending Two Types of Tax Rates Direct Taxes are those which are levied on the income generated by individuals and business Examples: income tax/profit tax Indirect taxes are applicable to products When tax payers make purchases they pay Value Added Tax (VAT) for the item bought Four Types of Common Taxes Income Tax Individuals pay tax on their income and the amount of tax payable is in accordance with their income level After deducting income tax, the tax payer’s earnings are known as disposable income Profit Tax or Corporation Tax Value Added Tax (VAT) It is applicable on the Tax on business profits is known as profit tax After paying tax, the profit of the business will be reduced price of a product, which makes it more expensive Normally, VAT is applicable on luxury products, not on daily, routine items Four Types of Common Taxes Import Tariffs & Quotas In order to reduce the import of products from other countries, governments levy some special taxes known as duties or import tarrifs These increases the sale of home-made products & the price of raw materials Other countries can also adopt the policy of import tariffs & reduce the amount of goods that they import; this is known as retaliation Business exporting to these countries will sell fewer products than before Import Quotas are another methods used to reduce a country’s imports The quota limits the quantity of an item that can be imported from other countries, which helps to protect the home industries from unfair competition with other countries Government Spending includes spending on: Infrastructure development Health services Educational services Defence Spending of this kind include: Building roads Setting up hospitals Schools Colleges Etc Government Spending includes spending on: Infrastructure development - Building roads Health services - Setting up hospitals Educational services – Schools & Colleges Defence Payments of wages & salaries to employees, & pensions to old age pensioners Payments for materials, supplies & services Purchases of capital equipment Payments of interest on borrowings & repayments of capital Business organisations pay interest on borrowed money The interest rate can be changed by the government and the central bank according to the MONETARY POLICY The impact of high interest rates on business are as follows” Businesses have to pay more interest on loans Investment towards expansion of business will be reduced Fall in consumer disposable income Higher exchange rates Consumer demand for expensive items will fall as they will not be interested in borrowing money at high interest rates to make purchases Supply side policies allow efficient supply of products in the country These policies are used by the government to improve the efficiency of the country’s economy The following methods come under supply side policies: Privatisation Professional training & educational programmes for workers to increase the supply of skilled staff Restricting monopolies in the country by motivating competition between companies Globalisation is the process by which national economies become increasingly integrated, often as a result of power wielded by Trans - National Corporation (TNC) Trans-National Corporations are: ‘stateless corporations’ able to move production round the globe, make mergers, acquisitions & foreign investments where they please pay less taxes The combination of changes in communication and the unstoppable rise of these corporations means that there are no effective controls on the movement of capital — there is a truly globalised economy Video Clip: global financial crisis One more video clip before I end this presentation: The Economy_A Bedtime Carrot Story Answer TASKS 2B and 2C ... employment, stability, and growth Common macroeconomic policies are fiscal and monetary FISCAL POLICY MONETARY POLICY SUPPLY SIDE POLICIES Fiscal policy is the decisions that are made about... POLICY The impact of high interest rates on business are as follows” Businesses have to pay more interest on loans Investment towards expansion of business will be reduced Fall in consumer... repayments of capital Business organisations pay interest on borrowed money The interest rate can be changed by the government and the central bank according to the MONETARY POLICY The impact