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BUSINESS AND THE ECONOMIC ENVIRONMENT
Macroeconomics ­ the study of the whole economy
"Making the most efficient use of an economy's resources"
Primarily concerned with:
Demand and Supply
Employment
Rate of Interest and Inflation
Exchange Rate

Circular Flow of Income ­ illustrates the interrelationship between the main parts of
the…

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High unemployment
Recovery ­ Slow rising levels of demand
Increasing confidence
Increased employment

Economic Growth
"An increase in the level of economic activity ­ real gdp"
Real GDP is a better measure of whether a country is getting wealthier than GDP,
measured in pure monetary value.
Growth is affected by:…

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The value of the currency falls, Exports cheap, imports dear.
If the Interest Rate increased, the opposite effects would occur.

Business Strategies
Strategies depend on whether the interest rate is falling or rising and the nature of
that product (PED).

Exchange Rates
"The price of one country's currency in terms…

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Effects of inflation
Encourages borrowing ­ if interest rates are less than the rate of inflation
Higher prices mean lower sales ­ PED
Workers are more concerned about their wages
Forecasts will be difficult to make
Efficient firms survive and inefficient firms disappear

Business Strategies
It is important to consider…

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The pace, scope and scale of globalisation has accelerated dramatically due to modern
communication. Western manufacturing industry has suffered greatly due to this rapid
globalisation.

International Competitiveness
"The ability of firms to sell their products successfully both abroad in export markets
and at home in competition against imports"
Based on…

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BUSINESS AND THE POLITICAL ENVIRONMENT
Government Intervention in the Economy
"Governments seek to have some control over the business environment in order to
achieve a range of economic objectives" ­ more predictable and fair


Laissez-faire approach ­ Policy based on the belief that the free market will maximise
business efficiency…

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Implications
Advantages Disadvantages
Easier to trade Cannot use protectionist policies
Large market opportunities for economies EU legislation
of scale
Increased efficiency and innovation Impose tariffs against outsiders
Greater mobility of labour Increases competition
Invest anywhere within the EU Labour and capital attracted to other EU
countries
Free movement of factors…

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Health and Safety Legislation
Health and Safety at Work Act ­ Ensure the health, safety and welfare at
work of all staff
This can influence the reputation and motivation of employees.


BUSINESS AND THE SOCIAL ENVIRONMENT
Demographic Issues
Demographics ­ Characteristics of human population including age, gender, religion and
sex.…

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PR campaigns
Change the way in which firms operate
Persuade people to change ­ consumption, disposal and pollution

Ethical Environment
"Morals that should underpin decision making, actions and decisions that are morally
correct"
Decisions made on ethical grounds might reject the most profitable solution to greater
benefit society.

Possible ethical…

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Ethics vs. Public Relations
Public relations ­ "activities to boost the public profiles of an organisation"
Obtaining favourable publicity, however the firms have no control over its content.
Good PR is the main reason for ethical behaviour, to enhance the image and generate
more goodwill.
Corporate Social Responsibility
"The duties…

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