Influence of MacroEconomic Activity on Business Outputs - Desklib

This report discusses the influence of macroeconomic factors on business outputs, with a focus on Virgin Atlantic. It covers the impact of unemployment rates and inflation, the current growth rate of the UK, government intervention methods, and global challenges faced by businesses. Recommendations are provided on how to overcome these challenges.

Business Environment
Title:
Influence of Macro-
Economic Activity

Table of Contents
 Introduction
 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.)
 How will the UK current growth rate impact on the chosen business (give
reference to economic life cycle, GDP, inflation, unemployment rate)
 How can the government current intervention methods affect the selected
business? (e.g., fiscal and monetary policies, furlough scheme etc.)
 What are the current global challenges facing by the chosen business and
recommendations on how to overcome them in this current time?
 Conclusion
 References

INTRODUCTION
Macro economics is a theory that helps in sticking together number of policies, sources and
the technologies which play a role in maintaining the economic development. Its main aim is to pay
attention on the working condition of the economic, this includes the change in the economic result,
inflation, interest and foreign exchange rate. It majorly works on three things that is national output,
unemployment and inflation. The purpose behind the macro economic is to provide full
employment to the people, to keep a high rate of economic growth along with maintaining
sustainability and lastly managing and balancing the payments. There are few main policies which
help in maintaining the balance in the system that are Fiscal , monetary and the exchange rate
policy. (Mitchell., 2019. )
MAIN BODY
Factors of macro economic that are chosen to influence the outputs in the business:
Macro economic factors are considered with a positive, negative and neutral affects on the
economy. These factors are used as indicators which denote the growth in the financial status and
decline in the economic status. Macro economic factors bear the whole economy of a nation, the
factors including in the macro considerations are the tax structure of the authority, the monetary
policy. The rise in price in a given amount of time is known as inflation, the amount of people who
are looking for an employment but are not able to get the employment and remain unemployed., this
affects the rate of unemployment. (Goodwin, 2018)The Virgin company started the business in
1980's to chart routes between London and overseas territory of Britain known as the Falkland
Islands. The company is affected by the macro economic factors. The two major factors that affect
are:
1) Unemployment rates: The term denotes the number of people who are not working or
having any job in any organisation who are looking for jobs but cannot get a job to be an
employed person. These rates are been examined by the businesses as it will impact on the
economy. There will be a down fall in the economy cycle when ever the number of
unemployed people increases. The reason as to have more unemployment people is the the
business are not in taking more staff as they are not capable of paying the salary of the
employees and the items are not getting scold due to which there is a downfall in the
business. And if the people are not fully employed than they would not be able to make the
best of the resources or of the products the businesses sell to the common group of people.
Now, talking about the virgin Atlantic airlines it refers the flying of the customers will be
less as they would not be able to afford the cost of the tickets due to unemployment. The
people will not make plans with there families to go on vacations, to have a get together

with friends and family members as there are in a shortage of money and would save the
money with them for more useful matter and emergency issues. See this kind of situation the
company will not expand the organisational working team, as they will not be able to pay
the salary of the staff on time and up to the market standards. (Backus., 2021. )
2) Inflation: this term means to increase the cost of the commercial services within a given
point of time. There are certain lawful limits put by the central bank to control the
inflationary tendencies .The word inflation may have a negative impact or meaning in the
household but it has a positive impact or a meaning on the businesses or the organisations,
as they can multiple their profits but it can have a negative impact also if the business is
reliable on the commodity in which the cost of the raw materials have increased. Now,in the
case of Virgin Atlantic the inflation directly depends on cost of the fuel as it is main element
of flying, the rate of fuel will indirectly affect the prices of the tickets and if the cost
increase the number of customers using the air transport will decrease and eventually affect
the business. (Melolinna., 2019. )
The current growth rate impact on the business:
1)Economic cycle: It refers to fluctuations faced by an economy ranging from growing
periods to recession(Orlando, and Zimatore, 2020). Various elements such as GDP, rate of
borrowing, unemployment rate,inflation can assist in determining the present stage from which
economy is moving through. Assessment of current cycle of business helps Virgin Atlantic in
exploiting opportunities and containing the fallout of crisis. For instance if economy is going
through expansionary phase Virgin Atlantic may undertake measures to expand their operations to
routes which were previously not profitable. Conversely routes which were profitable before may
become nonviable in recession or trough phase which means Virgin Atlantic needs to downsize their
operation to routes which are still earning them revenues.
The laws of demand and supply influence the prices of commodities and services. Economic cycle
goes through four phases:
 Expansionary or growth phases: In this phase exceptional growth is registered.
Unemployment rate is very low, people have disposable income to spend which means
people demand more and to meet the demand companies produce more. As this phase
matures interest rates start rising.(Yan, and Huang, 2020)
 Peak phase: This is the upper limit of growth in an economy, price rise in commodities and
services is very high. So measures to correct inflation are taken.
 Contraction phase: In this phase growth starts to decline, less people are gainfully
employed, which means they have less to spend and demand less.

 Trough phase:In this phase the lowest point is reached exceptional number of people are
unemployed. Its also the phase after which economy can start expanding again.
2) Gross Domestic Product:It is the way through which nations can know the total value of
finished goods and services produced in a given year.(Collins, and Nguyen, 2022). It shows how
much the wealth of nation has increased. During the lock down era Britain's GDP fell by almost 10
percent however it was able to gain seven percent in the following year. If GDP is on the rise then
for Virgin Atlantic it may mean that people have more money to spend and therefore they could
offer them their services. Gross domestic product however has to be adjusted for inflation to gather
clearer picture as to the value produced during a given year.
3)Inflation: It connotes rising prices of commodities and services in a given year. Typically
when inflation rate is higher the government need to take corrective actions. For people it serves as
invisible tax for companies it can be a source of growth. (Nasir, and Vo,2018)The central bank
through monetary policy reduces the liquidity available to businesses by raising interest rate. The
government through fiscal policy increases taxes on companies so they can't expand. As when these
companies start to expand they start demanding more commodities and services and because of
their monetary assets they are able to pay more than what an individual requiring those services
would pay. So when governments increase the interest rates and taxed they make it unfeasible for
these companies to demand more thereby supply and demand are in equilibrium causing the prices
to drop back down again. For Virgin Atlantic this could prove to be advantageous if tickets price
rises as they can get more revenue. However if price rise occurs in cost of input such as fuel this
may diminish their revenues as fuel prices account for nearly half of operating costs in aviation.
4)Unemployment Rate: This describes the rate of people who are looking to get employed
but can't find employment. (Economics,2018)Which in turn means they have no disposable income
to spend on demanding services of Virgin Atlantic. They can't visit their families or go on holidays
as they don't have the money due to lack of work. However its not all gloomy scenario, Virgin
Atlantic in this time period could hire talented workers easily. Moreover governments in order to
rectify the situation adopts an accommodating stance toward businesses, meaning they are likely to
reduce interest rates to make it easier for businesses to expand. As they can obtain loans at a
cheaper rate, Further they are likely to reduce taxes so businesses can use this revenue to expand
their operations. This induces businesses to grow and hire more employees thereby people have
more disposable income to spend. When unemployment rates are low meaning people are gainfully
employed, Then Virgin Atlantic may find it difficult to hire talented and skilled employees without
incurring significant costs but they would have lot of people demanding their services

The governmental current interventions methods that affect the business:
1. Fiscal policy: this policy deals with the rules and regulations of a area and lie under the
domain of the present government in power who makes its policies related to the structure of
tax and the amount of the government to be spend. Usually and most of the time the
government uses more money when there is a demand from the private sector and has
agreed to sudden start the economy the government needs to spend more. In the period of
the pandemic time the government initiative certain measures to reduce the downfall of the
economy ,which was to decrease the burden of taxes and to make provisions for business so
that they could pay the taxes at a later date which helped the businesses grab onto the crucial
capital.(Hantzsche., 2019.)
2. Monetary Policy: This falls in the domain of the central bank which usually focuses on
containing inflation within permissible limits and ensuring unemployment rate does not
increase. The central bank increases the interest rates when inflation increases and
unemployment rate is not huge. And makes borrowing easier and less cheaper when there is
no inflationary tendencies showing or when unemployment rate is rising. Basically the
central bank controls the liquidity available in the market. During the pandemic the growth
was in negative terms so the interest rates were down to make it easier for the businesses to
borrow.
3. Furlough Scheme: This is somewhat similar to the concept of garden leave in which the
various enterprise working in the United kingdom were asked not to lay off the employees
due to businesses going under due to lock downs and their being no demand. The business
were asked to put on hold their employees since it was no longer feasible for the companies
to keep them due to the cost incurred by paying their salaries and them not being able to
work. The government could not reasonably ask these enterprises for such a thing without
paying their salaries on their own. So the government came up with a method where they
would pay eighty percent of the salary and the rest of the twenty percent would be borne by
the business, which they would incur any ways since they would have to rehire at a future
date. The Lock downs hit the Airline industry very hard since people were not flying and
when they were able to fly various restrictions regarding seating capacity or which nation
they could fly too was dictated by the government. Due to this scheme the Virgin Atlantic
was able to retain their employees operating at various levels
The current global challenges faced by the company and some recommendations on
how to overcome them:
Currently the Virgin Atlantic is facing various challenges such as rise in the cost of inputs

such as fuel which makes up nearly half of the total cost while operating a flight. If the costs are not
passed down to the consumer then it would mean that the airline industry which works on the mere
two to three percent of the total costs would have to absorb the costs which it can't do. As the
demand for flying is already very low due to the passengers fearing that they get the virus whilst
they are in a pressurized cabin in which air is rotated over and over again. Moreover the various
restriction put in place due to consecutive waves of the virus mean profits are declining the
restrictions may be a seat capacity, or following a standard operating procedure or not being able to
fly to a country because it does not fall in the bubble of international travel created by the
government. In this regard the Airline would do well to follow and be in compliance with
government Orders since it could get very costly if they contravene the guidelines.
Further Exacerbating the problem is the fact that Air plane are notorious for demanding extensive
maintenance if they are not flown regularly and the demand for air travel could fall and come to a
stop anytime new wave come about so the airline should keep that in mind and fly their planes
regularly even when there is no one on them.
CONCLUSION
Macro-economic factors are the type of variables which have the capability to affect the
whole economy. The above report has been prepared with reference of working business undertaken
by Virgin Atlantic and provides different macro economic factors which overrule the decisions
made for the betterment of the business and its affect on the output and it also mentions how the
current growth rate of united kingdom has consequences for the Virgin Atlantic working capacity.
Ahead to this the report gives and states few ways according to which the government and the
authorities can over power the economy through monetary and fiscal policies and even the
Furlough scheme. Lastly it portraits what are the current circumstances lined up in front of the
company and how they can overcome the situations.
REFERENCES
Books and journals
Backus, D. and Driffill, J., 2021. Policy Credibility and Unemployment in the UK. In Advances in

Monetary Economics(pp. 3-16). Routledge.
Collins, D.W. and Nguyen, N.Q., 2022. Aggregate accounting research and development
expenditures and the prediction of real gross domestic product. Journal of
Accounting and Public Policy, 41(1), p.106901.
Economics, T., 2018. Unemployment rate. An Encyclopedia of Macroeconomics, p.711.
Goodwin, N., Harris, J.M., Nelson, J.A., Rajkarnikar, P.J., Roach, B. and Torras, M.,
2018.Macroeconomics in context. Routledge.
Hantzsche, A., Kara, A. and Young, G., 2019. The economic effects of the UK government's
proposed Brexit deal.The World Economy,42(1), pp.5-20.
Melolinna, M. and Tóth, M., 2019. Output gaps, inflation and financial cycles in the UK. Empirical
Economics,56(3), pp.1039-1070.
Mitchell, W., Wray, L.R. and Watts, M., 2019. Macroeconomics. Bloomsbury Publishing.
Nasir, M.A. and Vo, X.V., 2018. A Quarter Century of Inflation Targeting & Exchange Rate Pass-
Through: Evidence from the First Three Movers. Available at SSRN 3130082.
Orlando, G. and Zimatore, G., 2020. Recurrence quantification analysis on a Kaldorian business
cycle model. Nonlinear Dynamics, 100(1), pp.785-801.
Yan, C. and Huang, K.X., 2020. Financial cycle and business cycle: An empirical analysis based on
the data from the US. Economic Modelling, 93, pp.693-701.