Chapter 2.1 Economic environment for business

Question 1

1. Macroeconomic policy target
   (A) Government Aim

Answer 1

• Economic growth (rising in std of living)
• Control of inflation (companies in high inflation can become less competitive to its international trading rivals)
• Full employment (who wants a job get a job)
• Balance of payment stability (Import > Export = deficit)

Question 2

Expansionary macroeconomic policies

Answer 2

• Increase demand (spending)
• Stimulate economic growth
• Create the need for new jobs

Question 3

Contractionary macronomic policies

Answer 3

• Keep inflation at acceptable limits
• Reduce domestic spending away from imports; to improve BOP

Question 4

Macroeconomic policies

Answer 4

Fiscal policy; government spending & taxation
Monetary policy; interest rate & money supply
Exchange rate policy; cannot be control but gov may try to influence
- fixed rate policy
- floating rate policy
- managed exchange rate policy

Question 5

Competition policy [Market Failure]

Answer 5

1. Imperfect competition; monopoly might cause inefficiency to the industry, excessive profit
2. Social cost; eg. Pollution (negative externalities) which may need regulations to address the issue.
3. Imperfect information; false information being put in the public domain, disturbing consumer choice
4. Fairness; improve social justice. Eg. Expensive house pricing