Major Economic Organizational Issues

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Major Economic Organizational Issues

Ankur Verma

* Business Cycle

The economy tends to move in a series of ups and downs, called Business Cycle, rather than in a steady pattern. The greatest world-wide economic depression of 1930s. Business cycles are an issue for the organizations. During recessions many business go bust, and even for those that survive, profits fall. In contrast during boom, demand for most products rises, profits rise, and most business find it easy to expand.

* Inflation

Decrease in the value of money with an increase in price levels is called Inflation .Inflation matters to organization because it creates distortions in the price mechanism, most notable by eroding the real value of anything accounted for in money terms. Some organization will make arbitrary gains as a result of inflation, and others will lose. A pick-up in inflation is usually the signal for tightening of monetary policy that raises interest rates and brings about a slowdown in the economy. Such downturns in the economy have an adverse effect on most organization.

* Unemployment

In times of low unemployment, organizations will find it difficult to hire scarce workers, especially those with requisite skills. In periods of high unemployment, organizations will often find their employees more interested in bargaining for some measures of job security rather than increased wages.

* Government Budget Deficits

It is a Budget Deficits when the Government spending is more than it is raising from taxation. Organizations worry about budget deficits for two main reasons. First, government borrowing competes with organization's borrowing in capital markets and may raise interest rates for organizations. Second, government in deficits may be forced to raise taxes and thereby reduce profits and consumer demands

* Interest Rates.

Monetary policy involves changes in interest rates, or the money supply, to influence the economy. High interest rates are a symptom of a tight monetary policy. When interest rates are high, organizations find it more costly to borrow, and this makes them more reluctant to invest in expanding their business. Also organizations are usually hit by a fall in sales as consumers with mortgage or bank loans reduce their spending in response to high interest rates. Hence high interests rates tend to reduce demand in the economy. Low interests rates tend to stimulate demand for the opposite reason.

* Exchange Rates

Exchange rates can affect the relative prices, and thereby the competitiveness, of domestic and foreign producers. A significant appreciation of the domestic currency can make domestic goods expensive relative to foreign goods. Organizations doing business abroad must be concerned with exchange rates. If they buy or sell on contracts denominated in foreign currency, they must worry about the sterling value of those amounts at the time when the contract it settled.

* What , How and For Whom

Any Economic organization -whether it is in industrial nation, a centrally planned economy or an isolated tribal nation- confronts and resolves three fundamental economic problems. What commodities should be produced, how these goods should be produced, and for whom they should be produced.

Economic System

Introduction : An economic system is a particular set of social institutions which deals with the production, distribution and consumption of goods and services in a particular society. The economic system is composed of people, institutions and their relationships to resources, such as the convention of property. It addresses the problems of economics, like the allocation and scarcity of resources in a given economy. Economic systems is the category of economics that includes the study of different systems.

The scarcity problem, for example, requires answers to basic questions, such as: what to produce, how to produce it, and who gets what is produced. An economic system is a way of answering these basic questions. Different economic systems answer them differently.

The basic and general economic systems are:

* Market economy (the basis for several "hands off" systems, such as capitalism).

* Mixed economy (a compromise economic system that incorporates some aspects of the market approach as well as some aspects of the planned approach).

* Planned economy (the basis for several "hands on" systems, such as socialism).

* Traditional economy (a generic term for the oldest and traditional economic systems)

* Participatory economics (a recent proposal for a new economic system)
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Planned/Command Economy : Involves a greater role for society and/or the government to determine what gets produced, how it gets produced, and who gets the produced goods and services, with the stated aim of ensuring social justice and a more equitable distribution of wealth (see welfare state). If there were shortages, prices would be raised; if there were surpluses, prices would be lowered.[3] Raising the prices would encourage businesses to increase production, driven by their desire to increase their profits, and in doing so eliminate the shortage. Lowering the prices would encourage businesses to curtail production in order ...

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