Macroeconomic Framework

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• Macroeconomic Framework

Macroeconomics is a branch of economics that
deals with the performance, structure, and
behaviour of the economy as a whole
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Role of Enterprise in Resource Allocation Firstly
, marketing is a process - it occurs over time
and evolves. Secondly, it is about identifying,
anticipating and satisfying consumer needs.
Thirdly, it is about satisfying those needs
profitably.
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Circular Flow of Income
Household
Business
Household supplies land labour and capital
Rent,wages, interest, profit
Spend profit
On goods and services
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Investments
Households
Government spending
income
Savings
Exports
expenditure
Taxation
Businesses
Imports
Circular flow
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Mixed Economy
A mixed economy is an economy that has a mix of
economic systems. It is usually defined as an
economy that contains both private-owned and
state-owned enterprises or that combines elements
of capitalism and socialism, or a mix of market
economy and command economy.
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Business Cycles
The business cycle or economic cycle refers to
the fluctuations of economic activity about its
long term growth trend. The cycle involves
shifts over time between periods of relatively
rapid growth of output (recovery and prosperity),
and periods of relative stagnation or decline
(contraction or recession). Despite being named
cycles, these fluctuations in economic growth and
decline do not follow a purely mechanical or
predictable periodic pattern.
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Importance of Business Confidence
Consumer confidence correlates closely with
joblessness, inflation, and real incomes. The
growth of help wanted advertising as measured by
the Conference Board has also been a strong
contributor to consumer confidence. Rising stock
market prices can also boost consumer confidence.
Why follow business confidence? Understanding
shifts in business confidence is essential at
times like the current period when the economy is
at inflection point. This is all the more true
given the wide disparities that have persisted
between the mood and behaviour of consumers and
businesses.
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Business Cycle
Peak
Income
Recession
Recovery
Trough
Time
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Types of Business Cycle

• Traditional business cycle models
• The Kitchin inventory cycle (3-5 years)
• The Juglar fixed investment cycle (7-11 years)
• The Kuznets infrastructural investment cycle
  (15-25 years)
• The Kondratieff wave or cycle (45-60 years).
• Juglar cycle
• In the Juglar cycle, which is sometimes called
  "the" business cycle, recovery and prosperity are
  associated with increases in productivity,
  consumer confidence, aggregate demand, and
  prices.

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Types of Business Cycle
continued

• Politically based business cycle models derive
  the
• business cycle from political decisions.
• The partisan business cycle suggests that cycles
  result from the successive elections of
  administrations with different policy regimes
• The political business cycle is an alternative
  theory stating that when an administration of any
  hue is elected, it initially adopts a
  contractionary policy to reduce inflation and
  gain a reputation for economic competence. It
  then adopts an expansionary policy in the lead up
  to the next election, hoping to achieve
  simultaneously low inflation and unemployment on
  Polling Day

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Government Policy Objectives

• Control inflation
• Employment
• Economic growth
• Balance of payment

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Government Policy Objectives

• What are the major objectives of
• macroeconomic policy?
• The four major objectives are
• price stability
• full employment
• (iii) a high, but sustainable, rate of
• economic growth
• (iv) keeping the Balance of Payments in
• equilibrium

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Conflicts between these objectives?
1. Healthy growth and low inflation e.g. If an
economy grows too quickly, especially if it is
due to excessive consumer spending as it tends to
be in the UK, then demand will outstrip supply
and prices will rise. 2. Healthy growth and a
Balance of Payments equilibrium e.g. When an
economy is growing quickly, consumer spending
tends to be high. Hence, import growth picks up
relative to exports, leading to a worsening trade
deficit. 3. Low unemployment (or full
employment) and low inflation e.g. If a
government tries to reduce unemployment through
reflationary measures, such as lower interest
rates or increased public spending, then the
resulting reduction in unemployment will push
wages, and then prices, higher.
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Government and Business Involvement

• Regional aid
• Markets
• Taxation (Income tax, Corporation tax, VAT)
• Spending
• Money (Momentary policy)
• Legal Framework (Employment laws, Business laws,
  Consumer laws)
• Trading (other countries)
• The Environment (Transport, Urban, Housing)

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Examples of Economic Instruments used to achieve
objectives

• Economic objectives
• Energy tax
• Carbon dioxide tax
• Tax shift (higher taxes on energy and use of
  private cars)
• Carbon dioxide differential vehicle tax
• Road charge for heavy-duty vehicles
• Rail track charges
• Electricity certificates
• Emissions trading
• Carbon dioxide differential vehicle tax
• Exemption from tax on biogas motor fuels

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Examples of Economic Instruments used to Achieve
Objectives continued

• Energy system conversion programme
• Local climate investment programme
• Local ecologically sustainable development
• Electricity certificates
• Parking fees
• Environmental classification of petrol and diesel
• Differential taxation of petrol and diesel
• Subsidised public transport
• Tax on thermal effect of nuclear reactors
• Charge to fund disposal of certain radioactive
  waste
• Funding of future expenditure on spent nuclear
  fuels
• Tax on nitrogen in artificial fertilizers

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Examples of Economic Instruments used to Achieve
Objectives continued

• Environmental grants for measures to combat
  nitrogen leaching, and for the creation of
  protection zones
• A Water pollution charge
• Grants for disposal of oil waste from ships
• Lower tax on alkylate-blended petrol
• Funding for liming of lakes and watercourses
• Environmental differentiation of shipping lane
  and harbour duties
• Pesticides tax
• Batteries charge
• Tax on cadmium in artificial fertilizers

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Government Policy Effects examples
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Business Strategies to deal with Government
Policies (examples)