11. Economic environment for business

Question 1

What is macroeconomic policy?

Answer 1

The management of the economy by the gov.

Question 2

Principle macroeconomic objectives (4)

Answer 2

High economic growth
Low unemployment
Low inflation (price stability)
Balance of payments equilibrium

Question 3

What is monetary policy?

Answer 3

Policy that affects the volume of money in circulation or the price of it (interest rates)

Question 4

What is fiscal policy?

Answer 4

Use of government budget to influence the level of AD. This includes government spending, borrowing and taxation.

Question 5

Two types of inflation:

Answer 5

Demand-pull: due to excess demand

Cost-push: due to high production costs.

Question 6

What is the relationship between interest rates and foreign investment?

Answer 6

Foreign investment is encouraged by higher interest rates.

Question 7

What are the two main criticisms of fiscal policy?

Answer 7

Crowding out: government spending discourages private markets as there is less incentive.

Can be counter-active as all instruments affect one another.

Question 8

Typical examples of corporate governance (3)

Answer 8

Chairperson and CEO not to be same person

Remuneration committee to decide director salaries

NEDs to be independent and prominent on board