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Macroeconomic Issues in Business

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  • 0:50 Unemployment Rate
  • 1:48 Inflation
  • 2:30 Economic Output
  • 3:12 Interest Rate
  • 4:12 Technology
  • 4:37 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley
Businesses ignore general economic issues, such as inflation, interest rates and unemployment, at their own peril. In this lesson, you'll learn about some key economic issues important for businesses to track. A short quiz follows.

Macroeconomics Defined

Betty is a small business owner of a successful coffee shop in a large metropolitan city. She is thinking about expanding her operations by opening a new shop in another part of town. However, before she takes the plunge, she needs to examine the current macroeconomic conditions to determine whether expansion is a good idea right now.

Macroeconomics relates to how an overall economy works and performs. In other words, it looks at the big picture instead of focusing on individuals. Let's take a closer look at some key macroeconomic factors that Betty should consider before expanding her business.

Unemployment Rate

Betty needs to pay special attention to the unemployment rate, which is the percentage of people in the workforce that are unemployed and actively looking for work. A high rate of unemployment is a mixed bag for Betty but is generally not good for her expansion plans.

A high rate of unemployment may mean that Betty will be able to hire employees at a lower wage. This will save her money and improve her profit margins. However, Betty needs customers with paychecks so they can spend some of that money on espressos, lattes and cappuccinos. In other words, generally speaking, since people that are unemployed don't have much, if any, disposable income, high unemployment tends to lower demand for goods and services, which hampers economic growth and business expansion.

Inflation

Betty also needs to pay attention to inflation, which is the general rate of price increase in an economy. If the inflation rate is high, the costs for goods and services will increase. If the inflation rate is too high, people may decide to change their purchasing decisions.

For example, if the price of the premium coffee beans Betty buys increases significantly, she'll have to either increase her prices or take a hit on net revenue. If she increases her prices too much, she may lose customers who decide to purchase cheaper java elsewhere or make it at home.

Economic Output

Betty will also want to pay attention to the rate of growth or decline in the economy's economic output, which is measured by the gross domestic product (GDP). GDP is the total value of all goods and services produced in an economy during a specific period of time. If an economy's output is growing, this means that people are employed and spending money and businesses are investing. If an economy is declining, unemployment tends to increase and investments decline. Betty wants to see economic expansion so there's more money and customers in the market to buy her coffee.

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