Macroeconomic Impact On Business Operations

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In the following text, readers will form an understanding of what monetary policy is and the effect monetary policy has on macroeconomic facts such as gross discount products (GDP), unemployment, inflation, and interest rates. The text will also explain how money is created and give a combination of monetary policy that will best achieve a balance between economic growth, low inflation, and a reasonable rate of unemployment.

Monetary policy is the process governments and central banks use to manipulate the quantity of money in the economy to achieve certain macroeconomic and political objectives. The objectives are economic growth, changes in the rate of inflation, higher level of employment, and adjustment of the exchange rate. Monetary policy is categorized into two types; concrationary and expansionary. Concrationary (tight) monetary policy aims to reduce the amount of money circulating through the economy, and reduce short-term economic growth in exchange for higher (hoped-for) long-term growth. Expansionary (lose) policy, on the other hand, aims to increase the money supply and increase short-term economic activity at the expense of long-term economic activity. (Nematnejad, Aaron, 2008)

The primary measure of the economy’s performance is the annual total output of goods and services, or as the process is called, the aggregate output. Aggregate output is labeled gross domestic product (GDP): the total market value of all final goods and services produced in a given year. (McConnell and Bure, 2004). The monetary value of all the finished goods and services produced within a country's borders in a specific time frame, though GDP is usually calculated on an annual basis. It includes all private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

GDP = C + G + I + NX

where:

"C" is equal to all private consumption, or consumer spending, in a nation's economy.

"G" is the sum of government spending.

The gross discount product is commonly used as an indicator of the economic health of a country, to gauge a country's standard of living. Critics of using the gross discount product as an economic measure say the statistic does not take into account the underground economy - transactions that for whatever reason, are not reported to the government. Others say that the gross discount product is not intended to gauge material well-being, but serves as a measure of a nation's productivity, which is unrelated.

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