Influences of Macro-economic Activity on Virgin Atlantic
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This report explains the macroeconomic factors that impact business output of Virgin Atlantic, including the impact of UK current growth rate, government intervention methods, and current global challenges faced by the specific industry. It also discusses the cycle of economy and the challenges faced by the air travel industry.
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Business Management BMP4003Business Environment Assessment 2 Influences of Macro-economic Activity Submitted by: Name: ID: 1
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Contents Introduction...............................................................................................................................3 An explanation of two macro-economic factors that the chosen business will need to consider and the influences these could have on its business outputs (macro-economic factors e.g., economic output, unemployment rates, inflation etc.)....................................3 How will the UK current growth rate impact on the chosen business (give reference to economic life cycle, GDP, inflation, unemployment rate).....................................................4 How can the government current intervention methods affect the selected business? (e.g., fiscal and monetary policies, furlough scheme etc).....................................................6 What are the current global challenges facing by the chosen business and recommendations on how to overcome them in this current time?....................................7 Conclusion:.................................................................................................................................8 References..................................................................................................................................8 2
Introduction Macroeconomics is defined as the field of economics which deals with performance, structure, behavior, and decision making of an economy. In addition to this, the focus of macroeconomics is to understand large scale or general economic factors such as interest rates and national productivity(Olilingo and Putra, 2020). The Virgin Atlantic is the selected firm for this report.This report focuses on explaining macroeconomic factors which impact business output of Virgin Atlantic. In addition to this, the impact ofUKcurrentgrowthrateontheselectedbusinessisprovided.Thecurrent government intervention methods and their impact on the respective organization are also included in this report, along with description about current global challenges faced by the specific industry and recommendations on how to overcome them. Anexplanationoftwomacro-economicfactorsthatthechosen business will need to consider and the influences these could haveonitsbusinessoutputs(macro-economicfactorse.g., economic output, unemployment rates, inflation etc.) Macroeconomic factors factors are those factors which are not confined to a group of specific persons but relateentirety of economy as a whole these among others include Geo-political factors inflationary tendencies and gross domestic production: Unemployment rates: The percentage of people not gainfully employed anywhere in the econmy is known as the rate of unemployment prevailing in the country since it is the job of centralbankinconjunctionwiththeincumbentgovernmenttokeeprateof joblessness low(Wagner, 2020). This is done so that people are gainfully employed in the economy it becomes important to look at these rates as if the rate of people without jobs is extremely high then the government would have to step in and lower the cost of borrowing to allow the businesses to expand and take on new employees conversely if the the cost of borrowing is lower and the noiselessness are expanding which has a tendency to inflate the price of goods and services then the government needs to step in to regulate the price of goods and services and increase the cost of borrowing meaning increase in the rate of interest at which the businesses borrow money from the bank. If people have jobs that means they can afford to spend which circulates the money and has a tendency for boosting the economy. 3
Inflation: it is the addition of cost for affording certain goods and services in a given period of time moreover it indicates the real purchasing power of money(von Carnap and et. al., 2020). Inflationary tendencies increase the price of goods and services they occur when there is excess money in the market due to the cost of borrowing being lower excessive demand raises the price of goods it may also occur when the supply of a product is affected adversely due to certain exigencies such as the pandemic of 2019 which severely affected thechain of supply and shot up the price of crude oil and aviation fuel which resulted inincrease in the price of flying along with low demand for air ticketsdue to restrictions on travel this means a double blow for the virgin Atlantic's operation since they have had to increase prices at a time when the demand for air travel is already very low. How will the UK current growth rate impact on the chosen business (givereferencetoeconomiclifecycle,GDP,inflation, unemployment rate) Growth rate of a country is good indicator of the countries health in terms of how the economy is doing if it gets adjusted for the inflationary toll it may reveal a picture that is clear as to how much the economy has progressed over a given period of time during the time of pandemic(Olilingo and Putra, 2020). the growth which was registered was negative to the tune nearly 10 percen and only termed positive with a strong bounce back of around 7 percent in 2021 of the growth rate is positive then the business will experience strong demand and expansionary practicedue to more money being readily available with the public and more jobs means people will have more to spare however if the growth rate id not doing so well means that the people without jobs in the economy is very high and demand for products will decrease . Cycle of economy: laws of demand and and supply dominate economy based on market the various positions of demand and supply determine the cost of goods in conjunction with balance of trade, rates at exchanges, cost of borrowing, cost increase of goods and services which, producing capability and prevailing conditions of the economy(Nakamura and Steinsson, 2018). Cycle of economy can be said to be in an upward trend when depending on factors that stimulate growth in an economyit wouldmeanabetterstandardoflivingifGrossdomesticproduct registers a higher growth and addition in wealth of the economy. When the business cycle is showing an upward trend till the time it goes down is said to be completion of business cycle when economic growth is rapidly being registered then its called 4
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boom and if stagnation in growth occurs then that period is called recession these getmeasuredbytakingoutrealgrossdomesticproductfromNominalgross domestic product by way of taking out the growth registered through inflation of commodities. 1. Expansive stage When the rate of joblessness decrees and income of person gainfully employed is increasing moreover there aren't any defunct assets as as noon performing assets meaning debts are being paid on time and liquidity of money remains high together with investing of that money by bushiness then the economy is said to be in expansive stage(Mitchell, Wray and Watts, 2019). -Peak The highest point at which the economy can reach is the next business cycle stage it connotes the the growth registered is maxed out and is indicative of prices being high then it is said that a reversal of cycle. - Recessive stage It comes after the stage at which the economy has peaked goods and services are no longer in demand which in turn means excess supply and by extension means prices being low factors which are indicative of positivity such as output and wages start falling. -Depressive stage: Joblessness gets high in this period which connotes people don't have money to buy goods and services which in turn means businesses starts going under resulting in more job losses with declining growth(Mankiw, 2020). -stage of Trough Growth rate gets negative which induces further decrease in supply and demand in this stage income of nation suffers massively since there is marginal profit to tax - Recovery stage Recovering of economy takes place in this phase firstly the negative rate of growth recovers and levels out consequently resulting in more demand dueprocess being very low and by extension jobs being created the businesses start to supply more by investing in additional equipment and the process of production. Gross domestic product: the goods and services produced in the the economy at a given period of time frame and the value thus created is measured through gross domesticproduct(Hommes,2021).Itcanalsoreflectthespendingofthe 5
government and investments made by the business. When the Gross domestic product is adjusted for inflation it gives real value of Gross domestic product. If the countries domestic product is doing well then it will have a tendency to impact the businesses positively since people are employed and they have spare money which means more demand for goods and services offered by the businesses the virgin Atlantic will benefitwith positive demand since people will more money to spend on holidays or visits to their family however a negative growth rate like the one in 2019 will result in people left without money to spend on holidays and visit dustless people being employed and less investments made by the businesses. Inflation: inflationary tendencies occur when either the demand for a product increases in relation to its supply the growth rate after the pandemic registered in the negative which meant less people were employed further they didn't have any money to spend which was of disposable nature together with rise in prices of commodities meant business weren't growing however the GDP is growing back again(Goodwin and et. al., 2018). For virgin Atlantic the inflation in its inputs such as aviation fuel means it will have to increase the price of its tickets which will entail less demand if the economy is not growing since people will not have any moneymeaning any price rise will diminish demand for airline seats even further so it would not have been advisable to for virgin Atlantic to raise it's price during the period of pandemic in which negative growth was registered however if the economy is doing well then the then there is demand even if there is price rise the commodity so the the virgin Atlantic can safely transfer the rise in price of aviation fuel knowing that it will not affect their demand by consumers. Unemployment rate: whether or not people are employed in an economy has very important bearing in the businesses as if the people are gainfully employed they will have income which can be spared and can create demand which is always good for businessesfrom the governments perspective however the joblessness is never good so it will try to reduce the cost of borrowing money for the businesses so that they can borrow more and create more jobs and undertake expansionary steps(Dosi and Roventini, 2019). However if the people without being gainfully employed don't amount very much in number and rest of the factors remaining same the government will not increase interest rate at which the businesses can borrow. 6
-In the current business environment the cost of borrowing remains low so virgin group of companies can undertake expansion if there is corresponding demand to gain a greater market share thereby creating more jobs in the process. How can the government current intervention methods affect the selected business? (e.g., fiscal and monetary policies, furlough scheme etc) the objective of fiscal and monetary policy can one and the same how the differ is the decision taken by what authority they both can be applied to: increase economic prosperity-for checking inflation to be within permissible limits-to induce employment or reduce the amount of people who are not gainfully employed. Governments have often targeted inflationary tendencies through monetary policy. Fiscal policyrelates to governmental budgetary decision which includes spendings by the government and change in the taxing structure the government tends to spend more in recession conditions along with reducing the taxes levied on the businesses to accommodate growth by inducing the businesses to spend the portion they saved with on tax(Brancaccio and Califano, 2022). Monetary policy:the central bank influences liquidity available in the market by a sleuth of measures which include raising interest rate to squeeze out the liquidity when the liquidity in the market is excessive and reducing the interest rate when the market is facing liquidity issues i.e. when not enough money is available in the market it can also include open market operations. In the current business environment the government has an accommodative stance towards businesses toinducegrowthandmitigatetheeffectsofpandemic this includes reduction of tax burden andand making borrowing money cheapervirgin group of companies will greatly benefit by expanding it's operations as the market in the current business environment. Furlough scheme:wages of people unable to work by reason of employers not being able to afford the people working for them is paid by the United kingdom governmenttothetuneof2500poundstherebyreducingtheburdenonthe government(Alvarez, Lippi and Oskolkov, 2022).the 80 percent of their wage will be paid by the government and rest 20 percent by their respective employers it can be regarded as being the same as gardening leave as the employee will not be working for the amount received.These schemes were introduced by the government to reduce the burden on the employees who were suffering due to poor demand and 7
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supply chain bottlenecks and rise in the cost of inputs such as fuel. Whatarethecurrentglobalchallengesfacingbythechosen business and recommendations on how to overcome them in this current time? Low international air travel: restrictionsplaced on international travel or making of travel bubbles between the countries is acrisis for the virginAtlantic asit resultsinplanes notflyingto destinations which were previously profitable together with governmental restrictions there is overall drop in traveling due to risk of infection while traveling which is inducing people to not make journeys till absolutely necessary. Fuel price surge: AS FUEL PRICES are major input cost in airline industry costing anywhere between 50 to 60 percent of the overall cost results in obstacles of operational nature and at a time where the demand already remains low passing the cost on to the customer may result in further reduction of demand. Challenges of technical nature:If the planes are not flown regularly it will result in plane needing extensive maintenance as a result planes have to be flown regularly so that it stays operational further the planes need maintenance and overhaul at regular intervals which increases the cost of flying. 8
Conclusion: From the above report, it is determined that the factors which impact businesses in thecurrentenvironmentincludelastdomesticproductinflationaswellas unemployment rate. The cycle of economy is an important microeconomic tool which can be used in understand the impact of current growth rate in businesses and their future potential. The Fiscal and monetary policy implemented by the UK government, along with its swallow scheme, provides benefit to businesses in their future growth. The businesses in the air travel industry are facing various challenges in the current times, which can impact their future goods such as low international travel, along with fuel price surge and technical challenges. 9
References Alvarez, F., Lippi, F. and Oskolkov, A., 2022. The macroeconomics of sticky prices withgeneralizedhazardfunctions.TheQuarterlyJournalof Economics,137(2). pp.989-1038. Brancaccio,E.andCalifano,A.,2022.Anti-BlanchardMacroeconomics:A Comparative Approach. Edward Elgar Publishing. Dosi, G. and Roventini, A., 2019. More is different... and complex! the case for agent- based macroeconomics.Journal of Evolutionary Economics,29(1). pp.1-37. Goodwin and et. al., 2018.Macroeconomics in context. Routledge. Hommes,C.,2021.Behavioralandexperimentalmacroeconomicsandpolicy analysis: A complex systems approach.Journal of Economic Literature,59(1). pp.149-219. Mankiw, N. G., 2020.Principles of macroeconomics. Cengage learning. Mitchell,W.,Wray,L.R.andWatts,M.,2019.Macroeconomics.Macmillan International Higher Education. Nakamura, E. and Steinsson, J., 2018. Identification in macroeconomics.Journal of Economic Perspectives,32(3). pp.59-86. Olilingo, F. Z. and Putra, A. H. P. K., 2020. How Indonesia economics works: Correlation analysis of macroeconomics in 2010-2019.The Journal of Asian Finance, Economics, and Business,7(8). pp.117-130. von Carnap and et. al., 2020.The macroeconomics of pandemics in developing countries: An application to uganda. Center for Global Development. Wagner, R. E., 2020.Macroeconomics as systems theory. Springer International Publishing. 10