logo

MANAGERIAL ECONOMICS

   

Added on  2019-12-03

10 Pages4056 Words218 Views
MANAGERIAL ECONOMICS

Economy is a term that refers to production, consumption, saving rate, inflation rate andmoney supply in the country. Every country’s central bank looks after economic conditions ofthe nation by using various figures like GDP, PMI, IIP and inflation rate. These figures indicatethe direction in which economy is moving. Moreover, central bank by using its policies which isalso known as monetary policy can control or promote production, consumption and saving in aneconomy. Production, saving and consumption is directly linked to the money supply. If moneysupply is not equilibrium to change in economy then, problems such as inflation come intoexistence. Rate of inflation directly affects the production and consumption from general publicand corporate entities (Economy, 2011). The report emphasizes on analyzing the case for UnitedKingdom. The respective report for United Kingdom from OECD is reviewed with the help ofeconomic theories and models. In order to generate an overview of relationship between variouseconomic factors, an illustration is taken into consideration. Suppose, the economy is facingdownturn and nation’s GDP falls or productivity gets declined in the economic territory of thecountry. Moreover, demand is sky rocketing within the nation. As a result, inflation rate will risedue to disequilibrium between production and demand from the people. Due to elevation ininflation rate edible and non edible products will be dearer for the people. Consequently, demandfor these products will certainly fall and firms will book low profits in their business. If theinflation rate rise globally then export from country will shrink as seen in FY 2008 to 2014(Khairy andet.al., 2006). As a result, price of raw material will also increase and sharpfluctuation in currency will fuel this problem. So, entire scenario will be that inflation is indomestic land which is reducing people purchasing power and profit of companies. On otherhand, import of raw materials at higher price will elevate production cost. Such percentageenhancement in this cost cannot be immediately passed to the customers. So, higher inflation rateaffects both people as well as corporate. In such scenario, central bank makes intervention andby making changes in repo, reverse repo, CRR and SLR rates makes an attempt to controlinflation rate by making adjustment in the money supply (Castells, 2011). In such a scenario,central bank will certainly increase CRR, SLR and repo rate in order to reduce money supply inan economy. Less availability of loan will reduce demand for houses, vehicles and expenses onpart of people. Ultimately, demand will be reduced and price of commodities will become stablein the country. In this way central bank plays prominent role in promoting, production,consumption and savings in the economy. 1

There are many principles and theories in economics as discipline. The theories such astrade can make better off, markets organize economic activity etc forms part of economics assubject. Trade can make better off which states that every country is specialized inmanufacturing some products whereas it cannot produce other products due to lack of resources.Thus, every nation must make sound relations with other nations and export goods in which it isspecialized. It must import goods which it cannot produce. Hike in inflation rate creates problemfor UK and this hinder growth of export. In order to enhance export, OECD recommendsgovernment of England to raise interest rates that will reduce availability of loan to generalpublic and companies. Hence, their demand for raw material and products will reduce andinflation rate will be reduced (OECD Economic surveys United Kingdom, 2015). Other principle is “market organizes economic activity” which states that centralgovernments must entrust pricing and output decisions on the firm. This concept assumes thatwith change in demand forces companies to make adjustments in their pricing and outputdecisions (Wallerstein, 2011). “Government can improve market outcome” is another importantprinciple of economics which states that every decisions cannot be left on market forces. Someof the issues can be resolved only by government such as allocation of resources, control ofemission of carbon etc. Government of UK is focusing on generating more and more renewableenergy but share of this category of energy is very low in the UK relative to other OECD nations.OECD suggests UK to address non financial barriers to generate large portion of projected totalenergy generation from renewable sources of energy. Apart from this, it also suggests that supplychain system for renewable sources must be implemented specially in case of wind, off shoreenergy (Shapiro and Varian, 2013). Along with this, OECD recommends that there must beclarity on planning for resolving issues so as to maintain confidence among investors. This willcertainly help UK in reducing pollution from its land. There are many theories in economies and quantity theory of money is one of them. Thistheory states that price and money supply goes hand in hand. With change in money supply, theprice of finished products also changes. OECD recommends government of UK to prepare soundmonetary policy and make necessary changes in its CRR, SLR and open market operationsstrategy. Apart from this, theory of value is also quite popular among economists and this theoryis divided into many categories. One of such category is intrinsic, subjective and labor theory ofvalue. Intrinsic theory states that, value of product contains in itself. Means by adding cost of2

End of preview

Want to access all the pages? Upload your documents or become a member.

Related Documents
The effect of Fiscal Policy Assignment Solution
|13
|3716
|213

Government Policy and Its Implications on Economy and Financial Marketing
|5
|805
|437

How an Increase in Government Expenditure Gives Rise to Inflation
|4
|1131
|334

Macroeconomic Policies for Economic Welfare in the UK
|11
|3639
|317

Macroeconomics: Demand-Pull and Cost-Push Inflation, Keynesian-Monetarist Controversy, Impact on AD-AS, Banks and Money Creation
|11
|1471
|471

Economics: Inflation, Restrictive Trade, and Fiscal Policies
|10
|2030
|212