Identify and explain the impact of governmental, monetary and economic policy on decision making

Learning outcomes assessed: 1 • Explain the principles of business and financial economics in an international context. 2 • Identify and explain the impact of governmental, monetary and economic policy on decision making in a business context. 3 • Describe and apply macro and micro concepts and models to business decision making. 4 • Interpret financial information (external and internal) and apply to decision making within a business context. 5 • Discuss the rationale and impact of decisions for business strategies to 6 • Examine and discuss the relationship between theory, application in business and financial economics in an international context. Assignment Questions (Answer all three questions) 1. Using the business economics concepts taught in the module, discuss the following statements: a. The Apple mission statement: "Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone and App Store, and has recently introduced iPad 2 which is defining the future of mobile media and computing devices." . [Hint: Students are advised to include the following concepts in their answer - market structure, business organization, globalization. Empirical evidence from the actions of the company should also be included. Relating the question to additional concepts from the module would lead to a better answer] b. The AA May 2017 fuel price report: "Unleaded prices have fallen 2.4p from 118.7 p/litre to 116.3 p/litre. Diesel prices have fallen 3.1p from 120.5 p/litre to 117.4 p/litre. The price difference between diesel and unleaded has fallen to 1.1 p/litre." [Hint: Students are advised to include the following concepts in their answer - demand and supply, types of goods, macroeconomics. Hypothetical examples should also be included. Relating the question to additional concepts from the module would lead to a better answer] c. "All parts of the economy are growing - but the government still has a huge amount to do by continuing to create jobs and supporting businesses to grow". [Hint: Students are advised to include the following concepts in their answer - competition policy, fiscal policy, supply-side policies. Empirical evidence from the UK should also be included. Relating the question to additional concepts from the module would lead to a better answer] (Learning Outcomes 1,2, 3 and 6) 2. Managers are required to make decisions about a firm's finances. Discuss using the accounting and finance concepts taught in the module. (20 marks) [Hint: Students are advised to include the following concepts in their answer - Financial Statements, Financial planning, and control, capital budgeting. Hypothetical examples should also be included. Relating the question to additional concepts from the module would lead to a better answer] (Learning outcomes 4 and 5) 3. - a. Choose one financial statement from the list on GSM Learn, and calculate five (5) financial ratios, one each from the following categories– liquidity ratio, market value ratio, asset management ratio, debt management ratio and profitability ratio for the year 2014. Then analyze these ratios either by comparing it to the industry average, or a similar company or earlier years for the same company to determine the health of the company by deciding if each ratio is either, good or poor. In your answer, identify the sources of your financial statements. [Hint: Financial ratios.] b. Suppose Gary decides to deposit $700 each year for three years in a savings account that pays 8% interest per year. If Gary makes the first deposit one year from today, how much will be in the account immediately after he makes the final deposit in year 3 [Hint: Discounting.] c. Two projects being considered are mutually exclusive and have the following projected cash flows: Year Project A Project B 0 -£50,000 -£50,000 1 17.000 0 2 17,000 0 3 17,000 0 4 17,000 0 5 17,000 99,500 If the required rate of return on these projects is 10.25 percent, which would be chosen and why? Show your calculations/explanations. [Hint: Net Present Value] (Learning outcomes 4 and 5) End of Assignment Brief. Concepts to include in your answer (1) Globalization (2) Growth strategy of firms (3) Business organizations (4) Market structure Write on average 600 words to answer question 1(a) How to answer the question Discuss each concept in relation to the statement. For example, (a) Explain the globalisation concept, then relate this to Apple. For example, show that because of globalisation, Apple can locate their production in various countries and can ship and sell products worldwide (b) Explain the growth strategy concept, show how firms such as Apple grew their business (c) Explain market structure particularly in relation to how Apple can be categorised. (d) Explain the concept of business organisations and relate this to Apple, example the type of business organisation and the internal organisation of the Apple • Include both theory and application in your answers • All application of the theory must relate to Apple. Globalization of Business • Improvements in transportation and communications including internet firms such as Amazon, DHL • Political clout of consumers • Cost of developing new products has increased, example copyrights are used to prevent mass replication so innovation is needed • Multinational firms are able to shift production to wherever costs are lowest, example, iPhone produced in China Growth Strategy • Growth by internal expansion – financing internal growth – firms can borrow from the bank, issue shares on the stock exchange, and using profits to expand – means of achieving internal growth • product differentiation: updating or restyling a product, example: iphone 5, iphone 6, etc. • vertical integration: expanding to a different stage of the production process, example a distributor buying the raw material supplier • Diversification: expand product range, example, Apple produces phones, computers, etc. The Firm as a Legal Entity • The sole proprietor -limited scope for expansion; unlimited liability • The partnership • Companies – – limited liability which enables investors to limit their losses on equity investments, – most UK businesses are limited companies – Managed by directors on behalf of shareholders, examples include: • public limited companies (plc) -public issues of shares; shares traded on the stock exchange • private limited companies • consortia • public corporations • co-operatives - consumer co-operatives, producer cooperatives such as John Lewis Partnership Market Structures • There are four market structures: – Perfect competition: A market in which all producers and consumers of the product are price takers – Imperfect competition: The collective name for monopolistic competition and oligopoly • Monopolistic competition: There are many firms and freedom of entry into the industry, but where each firm produces a differentiated product and thus have control over its price • Oligopoly: There are few enough firms to enable barriers to be erected against entry of new firms – Monopoly: A market structure where there is only one firm in the industry QUESTION 1(B) Concepts to include in your answer (1) Demand and supply (2) Types of goods (3) Macroeconomic variable – inflation Write on average 600 words to answer question 1(b) How to answer the question In your answer, Discuss the concepts of (a) price elasticity, the determination of equilibrium price (b) The various types of goods in relation to the statement such as complementary goods (c) Inflation Including the causes of inflation • Include both theory and application in your answers • Use hypothetical examples that relate to the statement. Price Elasticity of Demand • The determinants of price elasticity of demand – the number and closeness of substitute goods: the more substitutes there are, the greater will be the price elasticity – the proportion of income spent on the good – the higher the proportion of income we spend on a good, the more we will have to reduce our consumption following a price rise. – the time period – the longer the time period after a price change, the more elastic is the demand likely to be. Types of Goods • Substitute goods – A pair of goods which are considered by consumers to be alternatives to each other. As the price of one goes up, the demand for the other rises. • Complementary goods – A pair of goods consumed together. As the price of one goes up, the demand for both goods will fall. • Normal goods – Goods whose demand rises as people’s incomes rise. They have a positive income elasticity of demand. Luxury goods will have a higher income elasticity of demand than more basic goods. • Inferior goods – Goods whose demand falls as people’s incomes rise. Such goods have a negative income elasticity of demand. Inflation • Inflation measures the annual percentage increase in prices. The most commonly used measure of inflation is that of consumer prices. • Demand-pull inflation is caused by a persistent rises in aggregate demand and is typically associated with a booming economy. • Cost push inflation is caused by persistent rises in the cost of production such as an increase in wages, firms with monopoly power pushing up prices, or an increase in the price of imports. QUESTION 1(C) Concepts to include in your answer (1) Competition policy (2) Macroeconomic objectives and Fiscal policy (3) Supply side policies Write on average 600 words to answer question 1(c) How to answer the question In your answer, Discuss: (a) The concept of competition policy (b) The four key macroeconomic objectives and how government uses fiscal policy to achieve these objectives (c) The supply side policies of government • Include both theory and application in your answers • Use empirical evidence (facts) from the UK economy. The Key Macroeconomic Objectives • The macroeconomic environment influences all aspects of business, including their markets, their costs and their profitability. • Macroeconomic objectives of governments can be grouped into four key elements: –economic growth is the rate of growth in national income, and governments seek to keep it high and stable –unemployment is the number of unemployed expressed as a percentage of the labour force, and governments seeks to keep it low The Key Macroeconomic Objectives – Inflation is the general increase in prices and governments seek to keep low and stable – balance of payments (BOP) is the record of the country’s transactions with the rest of the world and governments seek to avoid BOP deficits, while the exchange rates is the rate at which one national currency exchanges for another and governments seeks to avoid fluctuations • Government influence these four key elements through macroeconomic policy which controls various intermediate variables such as interest rates, money supply, taxes, and government expenditure. Fiscal Policy • The purpose of fiscal policy are to prevent the occurrence of fundamental disequilibrium such as preventing a recession and to smooth or fine tune fluctuations in the economy, such as reducing expenditure in a boom phase of the business cycle to prevent the economy from overheating. • Fiscal policy is also used to influence aggregate supply, for example, infrastructure or tax incentives to promote business and thereby affect the capacity of the economy • The budget deficit is when government spending is greater than taxes Supply-side Policy • Market-orientated supply-side policies .