Macroeconomic Impact On Business Operations

1405 words, 6 pages

Intro Sample...


Monetary policy is conducted by the Federal Reserve System, the nation's central bank, and it influences demand mainly by raising and lowering short-term interest rates” ( Federal Reserve Bank of San Francisco, 2009). Monetary policy has a direct affect on macroeconomic factors such as the Gross Domestic Product, Unemployment, Inflation and Interest rates. The Gross Domestic Product is the actual value of goods and services within the United States. If the Federal Reserve changes interest rates it can affect the consumer and businesses demands for goods and services. If the Fed raises rates consumers and businesses will slow their borrowing and lending accordingly, and the opposite could be said if the Fed lowered rates. Lowered interest rates allow more lending available by banks and consumers will be able to spend more. Unemployment is directly affected by a change in Monetary Policy in much the same way. If interest rates are raised, consumers and businesses will do less spending which can lead to businesses suffering a loss in profits and having to narrow down the workforce. The current economy is a good example of this. Unemployment is at the highest level in decades due to the changes in Monetary Policy that have reduced consumer spending. This reduction in spending has caused business that were once thriving to report massive losses and layoffs and many previously successful companies are now out of business due to the limited amount of lending that banks are willing to do at this time. Inflation is another macroeconomic factor that is highly susceptible to changes in monetary policy. When the Fed attempts to keep the interest rates low it can directly affect consumer and business expectations. With low rates there is an expectation that higher inflation will soon follow. Soon can be a relative word, there are unpredictable lags, taking anywhere from months to years, as to when inflation will effect the economy when changes tak View More »

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