Financial Management Environment (1) Flashcards
What are macroeconomics?
Concerned with issues affecting the economy as a whole
The policies pursued by a government?
Economic growth
Control inflation
Balance of payments stability
Full employment
What is meant by economic growth?
Growth implies an increase in national income, usually interpreted as a rising standard of livjng
What is meant by full employment?
Everyone who wants a job has one
What is meant by control price inflation?
Means managing price inflation to a low, stable level
Reason inflation is viewed as a problem?
If a country has a relatively high rate of inflation, then companies in this country can become less competitive relative to its internatioanl trading level
What is very difficult for a country to do in balance of payments stability?
It is very difficult for a country to spenmd more on imports than it earns from exports for a sustained period of time
When imports exceed exports?
Often called a balance of payments deficits
How do government correct imports that exceed exports?
By manipulating the exchange rate to switch spending away from imports and towards exports
When can expansionary macroeconomic policies be adopted?
To increase demand in economy to stimulate economic growth and create need for new jobs
When are contractionary macroeconomic polciies required?
To keep inflation within acceptable limits or to reduce domestic spending on imported goods
What does a fiscal policy involve?
Government spending and taxation to manage demand to achieve macroeconomic targets
What is a monetary policy aim to influence?
Monetary variables such as interest rate and money supply to manage demand to achieve macroeconomic targets
How may governments use exchange rate policy (fix)
Fix the eachnage rate (fixed rate policy)
How may governments use exchange rate policy (market)
Allow it to change in response to market forces (floating rate policy)
