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Firm’s Vitality

The vitality of a firm is closely dependent on the health of the overall economy.

1) In general the vitality of a firm is closely dependent on the health of the overall economy. A growing economy and the favorable macro variable contribute significantly to the successes of businesses. Such a favorable macro environment hence, increases businesses investment creating more jobs resulting in higher production, sales and higher profit. Choose and discuss the impacts of two of the macroeconomic variables on business environment.

2) Discuss different types (frictional, structural and cyclical) of unemployment and the impact of each type of unemployment on businesses. Are all three types of unemployment undesirable? Explain.

3) Macroeconomic environment influences the performance of a firm and the magnitude of influence is mostly tied to the stage of a business cycle. Discuss macroeconomic environment associated with recessionary and inflationary periods and how such environments affects businesses.

4) Classical economists belief that prices and quantities adjust to the changes in the forces of supply and demand and that the economy produces its potential output in the long run. On the contrary, Keynesian economists believe because of price and wage rigidities the economy’s equilibrium output in the long run may be less than its potential output. What is price-wage rigidity? Do you agree with Keynes assessment that wage-price rigidity requires government’s involvement in the markets? Why? Why not?