F1/FAB – ACCA (2011-2012)

Accountants in

Business READ CAST by Hafiz Muhammad Adnan Rana

The Student College at Sialkot (StuCo)

0346-538-8-538

The Macro-Economic Environment

2. Macro-economic factors a) Define macro-economic policy.[1] b) Explain the main determinants of the level of business activity in the economy and how variations in the level of business activity affect individuals, households and businesses.[1] c) Explain the impact of economic issues on the individual, the household and the business: [1] i) inflation ii) unemployment iii) stagnation iv) international payments disequilibrium. d) Describe the main types of economic policy that may be implemented by government and supra-national bodies to maximise economic welfare.[1] e) Recognise the impact of fiscal and monetary policy measures on the individual, the household and businesses.[1]

Business Context

Macroeconomic factors affect all aspects of managing organizations as the economic climate alters consumers’ demand requirements as well as the price and availability of raw materials and the labour force. Newspaper reading is encouraged at this stage (www.br.com) – Business Recorder Newspaper

Qualification Context

An understanding of this topic will assist with P3 (Business Analysis). But we must appreciate that we are accountants not economists.

Exam Context

Macro-economic factors might be considered a peripheral part of the syllabus, but the pilot paper contained nine marks for questions on this topic.

ECO2NOMICS – is badThe study of production, distribution and consumption of goods and services.

Q Injections into the economy are:

A Consumption and InvestmentB Investment and Government ExpenditureC Investment, Government Expenditure and Export DemandD Consumption, Investment, Government Expenditure and Export Demand

Gross domestic product (GDP) is defined as "the value of all final goods and services produced in a country in 1 year"

Gross National Product (GNP) is defined as "the market value of all goods and services produced in one year by labour and property supplied by the residents of a country."

National income and output (Billions of dollars)

Period Ending 2003

Gross national product 11,063.3

Net U.S. income receipts from rest of the world

55.2

U.S. income receipts 329.1

U.S. income payments -273.9

Gross domestic product 11,008.1

Private consumption of fixed capital 1,135.9

Government consumption of fixed capital 218.1

Statistical discrepancy 25.6

National Income 9,679.7

NDP/NNP: Net domestic product is defined as "gross domestic product (GDP) minus depreciation of capital"

GDP per capita: Gross domestic product per capita is the mean value of the output produced per person, which is also the mean income.

The branch of economics that deals with the performance, structure and behavior of the economy as a whole.

Macroeconomic is concerned with followings:

Everyone outside of Pakistan asking single question – IS GNP FIT ?

I – Inflation rate

S – Spending (National Expenditures)

G – Growth of GDP

N – National Economic Trend

P – Productivity Levels (factors of production)

2. Macro-economic factors a) Define macro-economic policy.[1] d) Describe the main types of economic policy that may be implemented by government and supra-national bodies to maximise economic welfare.[1]

F – Foreign Exchange rates

I – Interest rates

T – Tax rates

Government of Pakistan will have similar macroeconomic aims: Economic Growth (people have happier life) Low Inflation Low Un-employment Balance of Payment (Stable Foreign Exchange Rates, Dr and Cr of National Accounts

equal)

SADLY Pakistan is like a CAGE for investors to invest money.

S – Supply of Finance (House, Car, CAPEX)

A – Aggregate Demand (Business, Individual, Household)

D - Advancement in Factors of Production (Skills and Education Level – HSBC)

C – Confidence (Vicious Circle – Fear of losing job will – Preference Theory)

A – Awareness (Exhibitions)

G – Government Policy (Spending, Contraction)

E – Exchange rate movement (Pak Rupee getting stronger or weaker)

2. Macro-economic factors b) Explain the main determinants of the level of business activity in the economy and how variations in the level of business activity affect individuals, households and

Q Which one of the following would cause a fall in the level of aggregate demand in an economy.

A decrease in the level of imports B fall in the propensity to save

C Decrease in Govt Spending D Decrease in income tax