Why Macroeconomics is important for a Business Strategy?

It is about decision making

Decision making is an important job of corporate managers in any roles because an optimum combination of resources would maximize corporate profit.

Appropriate decision making is the strength of the business. A marketing strategy for a new product needs to foresee potential market demand, estimated market size, a forecast of purchasing power, governmental policies, etc. All are some of the important factors calling for decisions in the business where macroeconomics may be applied for better results.

Macro Economic Analysis

Macroeconomics is concerned with the study of aggregate economic variables. It is concerned with the whole economy and studies the level and the growth of national income, the levels of employment, the level of private and government spending, the consumption & the investment. Overall economic activity, economic policies (industrial policy, trade policy, monetary policy, fiscal policy), inflation affects the business. In the business decisions, tracking of macroeconomic variables has become an important element. Understanding of macroeconomics helps managers in running the business. Decisions managers are affected by this aggregate which makes up the overall environment of business.

Macro analysis helps in the development of microanalysis 

Many of microeconomic conclusions are an outcome of macro conclusion. The assumption that consumer is rational has been decided only after knowing about the behaviour and trend of income of a group.

Microeconomics is not able to study monetary problems, fiscal problems, foreign exchange regulation problems and inflationary and recessionary situations problems. Business needs to be protected from these ticklish problems and therefore, needs the help of macroeconomics.

Image result for macroeconomics factors

Macroeconomic Variables and Business Decisions are highly linked

Business depends on the growth rate. Savings and investment in a country determine its business potential. Investment can be undertaken in directly productive activities or in infrastructure. A company can introduce new products in this period and markets can be created for these products.

Business depends on the inflation rate. Inflation of a mild sort increase aggregate demand which, in turn, opens up fresh opportunities for business growth. In such an environment, not only the demand for existing goods increases but the business can also introduce new items for which demand may be created through dynamic marketing.

When economic growth slows down; the overall economic environment becomes unfavourable to business. In a period of slow growth, the aggregate demand is very much reduced and the business has no choice but to curtail its operations. At this time managers abandon new projects, resulting in a sharp reduction in demand for capital equipment.

Happy Marketing!


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