External Influences
The Macro-economy
The production and exchange process of the whole economy as opposed to individual markets within the economy. Businesses are affected by changes in the macro-economy and by government processes towards the macro-economy. Government economic policies change a lot. (E.g. labour made bank of England independent on their first day in office.)
Instead of dividing the economy into different sectors (e.g. retail, cars etc) we look at the economy of the country as a whole.
Government Macro-economic objectives:
? Control of inflation ? 2.5%
? Maintain full employment-all who want a job can get one.
? Control of balance of payments. Imports vs. exports
? Stability of exchange rate. Could stabilise exchange rate by joining euro.
? Maintain steady economic growth -2%-2.5%. That means that the country as a whole does better next year than it does this year.
Inflation is a general rise in the price level over a period of time.
Inflation in the late 70's in the U.K was 27%. That meant that if bread was 100p, the next year it would be 127p
We can measure inflation by:
? Looking at the standard retail price index. This is where the government agrees a standard shopping basket e.g. food, petrol, mortgage.
? RPIX-RPI take away mortgages
? RPIY-RPIX takes away taxes and local authority taxes.
? HICP-adopted by all EU countries. This was made to try and determine with the position is within Europe. They have decided not to include for example, housing costs in each country, they are looking for a general p ...