Economics for Business: Macro and Microeconomics, Fiscal and Monetary Policy, Business Growth and Domestic Economic Policy

This guide on Economics for Business covers macro and microeconomics, fiscal and monetary policy, business growth, and domestic economic policy. Learn about the relationship between macro and microeconomics, the effectiveness of fiscal and monetary policy under fixed and floating exchange rates, types of business growth, and policies to reduce the cost of globalization and migration.

ECONOMICS FOR
BUSINESS

Table of Contents
Answer 1.....................................................................................................................................1
Difference between macro economics and microeconomics and also the relationship between
the macro and micro economics .................................................................................................1
Relationship between micro and macroeconomics ....................................................................2
2. Effectiveness of fiscal and monetary policy under fixed and floating exchange rates along
with different circumstances in which exchange rates will be affected......................................3
3. Importance of business growth, types of growths and profit maximizing level of output and
profit in different types of growths.............................................................................................4
Answer 4.....................................................................................................................................6
REFERENCES................................................................................................................................8

Answer 1
Difference between macro economics and microeconomics and also the relationship between the
macro and micro economics
S.No. Microeconomics Macroeconomics
1 Microeconomics refers to the study of the
individual economic units.
Macroeconomics studies the economy of
the whole nation and also different
aggregates of the economy.
2 Microeconomics basically deals with the
income of an individual, output and also
the price of goods
Macroeconomics studies the aggregates of
the national income which includes the
output and general price levels.
3 It includes various factors which includes
the demand and supply of a particular
good or commodity in the market.
It includes the aggregate or sum of the
demand and supply of the nation's
economy.
4 It majorly focuses on the eradicating the
issues that is generally concerned with the
allocation of the resources and price
variation.
It involves the problems that is related to
the employment and national household
income.
5 It generally focuses on the picture of the
goods and services that are required in
order to make the economy more effective
stable and also show the assumption
about the growth of these commodities in
the near future(Széles, and et.al., 2019).
It ensures that there is optimum utilisation
of the resources which also contributes in
the development of the country.
6 Microeconomic assumes the rational
behaviour of an individual.
It assumes the aggregate behaviour of the
output of the economy
7 It also mainly focusing on the issues
regarding the rise in the price of the
products and income level of the
The major focus of the macroeconomics is
the issues that is related to the income
distribution in the country.
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economy.
Relationship between micro and macroeconomics
Macro and micro economics both refers to the study of the various problems that are
concerned with the problems economy and can impact the growth of the
economy .Microeconomic refers to the problems of the scarcity of the choice of the company
but on the other hand macroeconomics is related to the study of the problems that is connected
to the economy as a whole. The relationship lies in the fact that aggregate of the prodcutio and
consumption. It has been observed that there are two parts of the economics that is macro and
micro economics but are not interrelated to each other but they are mutually exclusive but it is
observed that they are interdependent on each other . All the studies that is related to the
microeconomics have the ability to analyse the concept of the micro as well as the macro
economic variables. For example with the helps of this study of the micro economics os
concerned with the policies and programs. On the other hand it is observed that various changes
in the process in the economy is due to the result if the large and small scale elements that
retains the capacity that affect each other.
For example:increase in the tax rates is considered as the macroeconomic decision but affected
the savings of the firm which is covered under the microeconomic analysis. On the other hand
the micro variables depends upon the level and also on the behaviours of the macroeconomic
variables. For example the wage rate of the particular industry operating in any sector will be
influenced by the overall wage rate of the whole economy of the country(Yang, Geng, and
Feng, 2020). Similarly macro economic variables some how depends upon the behaviour and
level of the microeconomic variables in the economy. It can be said that bot micro and macro
economic variables are complimentary to each other. It can be said in order to analyse the
factors both macro and micro economic factors have to be evaluated closely in order to get
desirable results. By considerings the purposes of both the economic it has been analysed that
both focus on different factor but main motives is to problem of scarcity and choice at the level
of individual, firm on the other hand macroeconomics are focused on studies which is related to
problem of scarcity and choice of economy as the whole. In addition to this, it can be considered
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as every price, wage, income are dependent in other ways. Further, indirectly and directly
depend on price all other product.
2. Effectiveness of fiscal and monetary policy under fixed and floating exchange rates along
with different circumstances in which exchange rates will be affected
Monetary policy has been adopted by the fixed exchange rate policy, in which the
exchange rate is the target of monetary policy. Monetary policy is unable to pursue an inflation
target or an output target both at the same level of time as it pursues an exchange rate target.
Neither can it will be set interest rates or money supply growth rates in independent manner.
With the help of fixed exchanged rates interest rates must be set as required in order to maintain
the exchange rate when capital mobility is high in nature (Akinci and Queralto, 2018). Indeed,
the higher international capital mobility is, the reduced number of the scope for independent
monetary policy. This is what it means when one illustrates the fixed exchange rates eliminate
monetary policy sovereignty. It involves the example that central bank cannot follow an
independent monetary policy. On the other hand, monetary policy in floating exchange rates,
policy can change the level of income in this section. Since, the exchange rate adjusts to yield
balance of payments equilibrium, the central bank cab highly able to choose its monetary policy
independent of other countries policies.
A fixed exchange rate and perfect capital mobility undermine the scope of monetary
policy but maintain the appropriateness of fiscal policy. In the closed economy, in the short run,
fiscal expansion raises the output. Under the monetary policy rule with the interest rate as the
policy instrument as long as output is less than potential output, the central bank supports the
enhancement in interest rates and increasing the money supply as output expands. However, an
output equals to or greater than potential outcome, central bank raises interest rates to crowd out
the effects of fiscal expansion. It is potentially a stabilization policy under the fixed exchange
rates. It also helps in order to compensate for the fact that monetary policy can no longer be
used. On the other hand, fiscal policy in floating exchange rates is powerful for exchanging the
AD (Brand, Bielecki and Penalver, 2018). It works through both the interest rates and exchange
rates linkage in the transmission mechanism not just the interest rates linkages of the closed
economy. However, the effects of fiscal policy on aggregate demand are reduced.
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In context of exchange rates, it has been identified that a higher valued currency makes a
country imports less expensive in nature and its exports more expensive into the foreign
markets. A lower valued currency makes a country's imports more expensive and exports on the
other hand less expensive into the global markets. Thus, a higher exchange rate can be expected
to worsen a country's balance of trade while a lower exchange rate can be expected to improve
it. Exchange rates has been affected through differentiation of inflations in which a country with
the consistently lower inflation rate exhibits a rising currency value as their purchasing power
increases relative to other currencies. The countries with having higher inflation typically see
depreciation in their currency about the currencies of their trading partners. This is also
generally attended by the higher interest rates. Moreover, Differences in interest rates, inflation
and exchange rates are extremely correlated with each other (Chen, Mrkaic and Nabar, 2019).
With the help of manipulations into the interest rates, central bank exerts influence over both
inflation as well as exchange rates and changing interest rates impacts inflation and currency
values. Higher level of interest rates offer lenders in an economy a higher return relative to
another country.
3. Importance of business growth, types of growths and profit maximizing level of output and
profit in different types of growths
Growth is highly essential for any business organization in order to survive themselves
within the market place for long term survival of any business. It helps to acquire assets, attracts
new talent and fund investments. It also drives business performance as well as profit margins.
Growth can be good for any establishment for various reasons which includes taking advantage
of new opportunities, expand products and services, attract more and more consumers, enhanced
sales volume and employee more staff members (Simsek and et.al., 2020).
Growth is an enhanced or decrease into something and classified into various types such
as:
 Bottom line growth: This belongs to company's net income defined as income after all
expenses have been deducted. This can grow due to improved revenue, reduced costs or
even sometimes both.
 Bounded growth: It is a growing rate that is constantly decreasing. Results in reaching a
boundary that is being approached but never crossed.
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 Economic growth: It is the growth which has been measured by Gross domestic product
or a similar type of measure that captures all economic activity for a nation or region.
 Exponential growth: An ever increasing rate of growth. This may start slowly but
eventually reaches at the high rates of growth that jumps upwards.
 Inorganic growth: It is an investing term for growth that is accomplished by acquiring
and merging companies.
 Linear growth: Growth which adds a consistent amount with each unit of time. For
instance a landscaper might be able to plant three trees a day.
In terms of explaining about the profit maximizing level of output, it has been identified
that it has been represented as the one at which the total revenue is the height of C and total cost
is the height of B. Thus, the maximal profit is measured as the length of the segment CB. This
output level is also the one at which the total profit curve is at its maximum. Total profit is
maximized at which the marginal revenue equals to marginal cost. The profit maximizing choice
for a perfectly competitive firm will occur at the level of output at which the marginal revenue is
equal to the marginal cost that is where MR=MC (Aoki, 2022). However, the profit in bottom
line growth refers to company's income level after all expenses have been deducted from
revenues. These expenses involve interest charges paid over loans, general and administrative
costs and income taxes. Profit in bounded growth occurs when the growth rate of the
mathematical function is constantly increasing at the decreasing rate. This is basically an
exponential growth. Profit in the economic growth refers to after tax earnings less a charge with
equity capital or equivalently, invested into the equity capital times the difference among the
return on equity and the cost of equity. In addition to this profit in the exponential growth states
that it is a pattern of data that shows sharper increases over time. In finance, compounding
creates exponential returns. Saving accounts with the compounding interest rate can show
exponential growth. Profit in the inorganic growth states that the growth from buying other
businesses or opening at new locations. It is basically the internal growth through which a
company sees it from their operations and often measured by their comparable sales. This can
help them immediately boost a company's earnings and hence increased level of market share.
At last profit in the linear growth is related to quantity grows linearly if it grows by a constant
amount for each unit of time.
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Answer 4
Domestic economic policy is different from foreign policy which refers to the way a government
advances its interest in the external policies. Also, this policy covers a wide range of areas which
are including business education, healthcare, energy, law enforcement, money and taxes, natural
resources and personal rights. This is also helped for planning and action which can be taken by
national government in order dealing with issues and also needs to present within country itself
and this is also developed by federal government ins the consultant of state and locals
government (Danzman, 2020). The government has taken the policy which help to achieve goals
of growth, price stability and full employment. Also, government influence by economic activity
through two major approaches which are related to fiscal policy and monetary policy, both the
policies are work on the basis of operating economic as whole.
There are different type of policies which can be pursued by government in
order to reduce or completely offset the cost of globalization and migration.
Social security is one of the common policy which is used by government in order to more focus
on building powerful support from their beneficiaries and also help for becoming widely
accepted by the public. Also, to UK government has established as system of social insurance in
which taxes on payrolls were used to provide benefits to the elderly. Also, social security are
help public in order to expand benefits for survivors including dependent children, widows,
orphans. That kind of benefit are help public in order to more focus on reducing consumer price
that is helps public by not migrate. Then due to globalization public has faced many problems
that is government start working on that ins order to improve their living by work on deflation so
that it helps to improve the cost of migration.
On the basis of globalization it has been analysed that this is help by increasing the trade
or foreign investment, so government has focus more on education policy which helps to
enhance the levels of globalization. (Educations) plays important role in order to more focus on
central level that this is help for providing different type of strategies which is necessary to get
success by more focus on developing domestic country. Further, educations provide several
benefits to economy in order to improve engagement with global economy. For the economic
growth there is the positive relation with education (Marikina, 2018). Also, UK government
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has provided the beneficial policy which help people to not going at another nation in search of
education. For the globalization education is necessary component of development but economic
and political policies are important. Then, to provide high quality of education help to bring
marginalized and rural people for the national development agenda, also it is related to
expansion of secondary or higher educations that decreases the cost of globalization which help
for the economic growth.
On the basis of regulatory policies it is focusing on maintaining social order which help
to action and endanger of society. This is also help for typically accomplished by enacting
policies and laws which are related to banning individuals and companies which are not
beneficial for the domestic purpose (Forero-Laverde, 2019). Also, this is beneficial for local
tariff that are helps for protecting on the basis of right to vote, gender and racial discrimination
so that it help to stopping human trafficking and fighting illegal drug trade and use.
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REFERENCES
Books and Journals
Akinci, O. and Queralto, A., 2018. Exchange rate dynamics and monetary spillovers with
imperfect financial markets. FRB of New York Staff Report, (849).
Aoki, M., 2022. Incentives to share knowledge and risk: An aspect of the Japanese industrial
organisation. In Incentives and Economic Systems (pp. 57-75). Routledge.
Brand, C., Bielecki, M. and Penalver, A., 2018. The natural rate of interest: estimates, drivers,
and challenges to monetary policy. ECB Occasional Paper, (217).
Chen, M.W., Mrkaic, M.M. and Nabar, M.M.S., 2019. The global economic recovery 10 years
after the 2008 financial crisis. International Monetary Fund.
Danzman, S.B., 2020. Foreign direct investment policy, domestic firms, and financial
constraints. Business and Politics. 22(2). pp.279-306.
Forero-Laverde, G., 2019. Stock market co-movement, domestic economic policy and the
macroeconomic trilemma: the case of the UK (1922–2016). Financial History
Review. 26(3). pp.295-320.
Marikina, M., 2018. Gross domestic product or gross national happiness–which is the better
alternative for economic measurement?. Economic and Social Development: Book of
Proceedings, pp.188-193.
Simsek, S. and et.al., 2020. A hybrid data mining approach for identifying the temporal effects
of variables associated with breast cancer survival. Expert Systems with
Applications, 139, p.112863.
Széles, and et.al., 2019. The macro-and microeconomic approach of subsidies. Zeszyty
Teoretyczne Rachunkowości, (105 (161)), pp.95-112.
Yang, Q., Geng, R. and Feng, T., 2020. Does the configuration of macro‐and micro‐institutional
environments affect the effectiveness of green supply chain integration?. Business
Strategy and the Environment. 29(4). pp.1695-1713.
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