Inflation is a general ascend in the price level over a certain period of time. Inflation in the late 70’s in the U. K was 27%. (Overview of the Inflation Report, 2008)That meant that if a dozen eggs was 50p, the next year it would be 77p. We can measure inflation by: o Looking at the standard retail price index. This is where the government agrees a standard shopping basket e. g. petrol, food, mortgage. o RPIX-RPI (Retail Prices Index minus mortgage interest payments) receives gone mortgages. o RPIY-RPIX gets missing taxes and limited authority dues.
o HICP (Harmonized Index of Consumer) -adopted by all EU nations. They have decided not to include for example, housing costs in each country, they are looking for a general price rise in general retail goods. However it is expensive in any city to live there, so housing costs are an extremely important factor. It does include university fees, to measure how good an economy is in any country. Because students are future of economy, the more students you can produce (theoretically) the better. • Full Employment : Full Employment- Used to be a job for all, now a job for all those who want one.
Affected by economy-if economy is good, more jobs, if you are going through a recession then that is not the case. If you are over 21 the minimum wage is ? 4. 85 for over 21’s, for under 18’s just ? 3 . The EU convention of Human rights, Article 23 states that everyone has the legal right to work (Fundamental Rights of the European Union, 2000). This means that if the person does not have a job through no fault of their own, they must be compensated for. This is why must governments have a state system to provide for them. In U.
K there is a period of time where you get unemployment benefit linked to housing and family sizes. After unemployment of 6 months, if you want to keep unemployment benefits you must sign up for training or education. Full Employment differs from what it used to mean, it used to mean everyone should work but now it means what it says above. The ‘Poverty Trap’ is where you get benefits, then accept a job and get less money than from benefits so there is no incentive to go to work for a low paid job, so people just stay at home. This is bad for a government. (Farina et al,2007) • Balance of payments ( Imports vs.
exports): The control in payments depend upon some imports/exports are visible, some not visible and providing a service to other countries, e. g. leasing out ships to other countries, tourism. Therefore the bigger the gap between imports and exports the worse it would be for a government. Ideally exports should be higher than imports, but as Britain doesn’t make a great deal of things to export it could result in trouble. If the pound is strong against the euro, it is hard to sell British made goods in Europe.
However if you are an import company then it is good if you are based in U. K and import from Europe because you can import more. It can be linked with exchange rates, because this influences the perceived prices of imports and exports and therefore costs and competitiveness. The exchange rate is the price at which ones money can be traded for a different one. Exports are difficult to put up for sale overseas because broker have to give up more of their money to get the same quantity of ? – export values emerge to increase. Imports come out to be cheaper – purchaser in UK gets more distant money for each ? (pound). (Farina et al, 2007) • Economic Growth:
Calculated by the addition of overall earnings (Y) or overall expenses (E) or entire productivity of business in theory all should be the similar. Suitable development phases in U. K for instance: If the economic growth is excessively high, it would mean that the financial system is overheating, if it is too low it is declining –capitals, jobless, a genuine development of 2-2. 5% is observed as being maintained and is ‘suitable’. If growth rates get too high the economy is expanding too quickly and people spend too much money which leads to an overheating of the economy and inflation.
(Farina et al, 2007) There is also a fear of whether it is sustainable to have it expanding that quickly. If it is too low resources may be unused/underused (e. g. labor) and this leads to unemployment. This is with low economic growth, not a recession. Economic development is continually occurring in conjunction with change this is because economic development occasionally depends on change. A major issue which is seriously able to hinder economic development is unemployment. It is essential for people of a certain age to work; if they do not then the economy will suffer.
It is understandable that the goal of ‘full employment’ which the government strive for is virtually impossible, but mass unemployment causes the taxpayer to suffer and puts a strain on public services and on the Exchequer because tax yields will have to be spent on providing unemployed people with a Job Seekers Allowance. Also unemployed people are not being productive as they are not contributing to the advancement of the economy and as they are not receiving a wage then there will be a lack in demand and spending on goods and services, which will affect businesses and will slow economic growth.
However statistics now show that unemployment is lowering and this will be due to the economy gradually developing. The government as also trying to cut unemployment by using a supply side policy of decreasing the disincentive to work, for example lowering the Job Seekers Allowance and making it a lot harder to qualify for it. Conclusion: The economic dimension of the business environment is extremely important, maybe even the most important. The political, social and technological dimensions are also somehow intertwined with the economy.
If the economic dimension was not carefully balanced and controlled then the external environment would certainly not prosper. Resources would not be carefully produced, allocated and distributed which would cause a lot of waste and resources would run out quickly which would be terrible for the economy and growth. Businesses would also be affected as the may not be able to buy the raw materials they need to produce because the resources would have ran out. Inflation that becomes out of control would cause a lot of problems for a business due do raising prices and demands for higher wages.
The unemployment issue of the fiscal dimension power businesses to a great extent. This is for the reason that is unemployment is elapsed then it would most prone to a rise. If there is high joblessness then when paying the firm would be able to propose low salary because there would be so more citizens to decide from and more people want work, this is helpful for businesses because it reduces their expenditure on wages, which will therefore leave more money to be invested into another aspect of the firm.
A stable economy is not just important for businesses to stay healthy but is it also for growth as that is what all governments and countries aim for. (Gary, 2008).
Farina, Francesco and Tamborini, Roberto (2007) Macroeconomic Policy in the European Monetary Union: From the Old to the New Stability and Growth Pact. Published by Routledge, 2007 Bank of England (2008) News Release, Bank of England Reduces Bank Rate by 0. 5 Percentage Points to 4. 5%, Retrieved October 23, 2008 from http://www. bankofengland. co. uk/publications/news/2008/067. htm