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What Is the Role of Macroeconomics in Business?

Macroeconomics deals with factors that affect the economy like unemployment and inflation.
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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 05 August 2014
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Macroeconomics is intertwined with business because business is affected by the factors that constitute macroeconomics. Macroeconomics is a branch of economics that deals with issues relating to factors that affect the economy of the country as a whole. Such factors include areas like the rate of unemployment, inflation, business cycles and Gross Domestic Product (GDP). Entrepreneurs and other people related to business must take such factors into consideration as part of their market analysis.

The role of macroeconomics in business can be seen in way the condition of the economy affects individual businesses. For instance, during a recession, the behavior of customers and consumers of goods and services change to reflect the change in the economy. Such changes can be seen in the way the demand for goods and services drop and the manner in which such a reduction affects the balance sheets of the various businesses.

An example of the role of macroeconomics in business is the way in which the reduction or increase in demand for products affects the decisions by companies to expand or to scale down their rate of production. For instance, a boom in the economy may lead to a demand for goods. Then companies will increase production, hire more employees and even expand their businesses, all with the aim of meeting up with the increase in demand.

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The effect of microeconomics in business can be seen in the way businesses plan their sales and marketing strategies based on the effect of macroeconomic factors like inflation, business booms and recessions. When there is a recession and the demands for goods are low, businesses usually change their marketing strategies to reflect the inevitable low demand for products and services. Such marketing strategies may be based more on aspects like reduced prices and cheaper alternatives that will appeal more to customers trying to conserve finances during such periods.

One of the important effects of macroeconomics in business is the effect of governmental policies on the businesses. Such governmental policies may include facets like the imposition of heavy taxes, stringent rules and regulations, a reduction in taxes and other facets like the imposition of import quotas. For example, a cigarette company may find out that the government regulations regarding tobacco companies are very strict. Such regulations may include precise requirements as to labeling, packaging and the payment of hefty taxes. Companies must evaluate these effects of macroeconomics in business in order to find out how they affect the success of their business.

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Discuss this Article

KaBoom
Post 6

@starrynight - I'm glad the bar industry in your city was able to dodge the effects of macroeconomics that time. I can actually think of time when a change in policy did effect businesses in my area adversely though.

Awhile back, they changed the hours bars could operate. All bars had to start closing 2 hours before they had been closing previously. I know a lot of bars in my area lost a lot of money after that law went into effect!

starrynight
Post 5

One example of a governmental policy which can affect business is smoking bans. My state instituted a smoking ban awhile ago, and I happened to be working in the bar industry at the time.

Now, I'm a non-smoker, so I was jazzed about the smoking ban. I hated going home at night reeking of cigarette smoke. And I also worried about how being around all that smoke affected my health long term.

However, other people weren't so excited. Local bars whined and complained about how the smoking ban was going to ruin their businesses. Yes, ruin. They thought people wouldn't come out and drink anymore if they couldn't smoke! There were tons of articles in the paper about it.

Guess what happened when the law took effect? Nothing! The bar industry didn't tank in my state and no one lost their jobs. That's one instance where everyone thought macroeconomics would affect business. But it didn't!

David09
Post 4

@hamje32 - I don’t think there are many businesses that are unaffected by macroeconomic factors of one sort or another.

If your business is not directly affected, it will be indirectly affected. Consumers may still need your product but they may need less of it than usual, or they may find ways to cope with less, thus limiting their expenses.

For example, they may buy gasoline but choose to drive less or even do “hyper-miling” where they attempt to extract as much mileage out of the gas as possible.

hamje32
Post 3

@MrMoody - Well, that’s good for you. Unfortunately I was stuck in the telecommunications industry for over ten years. I can tell you that telecommunications is acutely impacted by macroeconomic factors.

For example, consumers look for ways to scale back their phone bills. Thanks to deregulation and new technology, they’ve found it. It’s called VOIP – or Voice Over Internet Protocol technology.

It lets them make phone calls over the Internet, far cheaper than they can with a land line telephone service. It got to the point where we could no longer afford to service residential customers.

We had to focus strictly on business customers, where there wasn’t as much churn.

NathanG
Post 2

@MrMoody - You raised a good point. In your case it was government regulations that affected your business, which the article also talks about.

However, for your company the government regulations did your business good. The increased oversight over the utility companies meant that there was increased demand for your software.

Whether the government oversight was good for the utility companies is a matter that is open for debate I suppose. I imagine that they incurred additional expenses in an attempt to comply with those regulations; but I am sure that they remained profitable nonetheless.

MrMoody
Post 1

During a recession the money market managers advise you to re-balance your investment portfolio away from consumables, because people are consuming less.

Well, I followed the same advice when I looked for a new job after I was laid off in a recession; I looked for companies that weren’t as much affected by consumer demand.

Believe it or not, there are a few. I found a job in the electrical utilities industry. Actually it was a software job; we sell software to the utilities.

Do you know what drives demand for the utilities buying our software? It’s not consumers – they don’t really scale back their electricity usage.

It’s the government. The government has increased its auditing of the utilities, and to survive the audits the utilities need our software, which helps them test their equipment and report the results.

So I am in a safe haven so to speak, despite any cyclical downturns in the economy.

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