Essay Example: The Global Economic Environment

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486 words
University of Richmond
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Macroeconomics can be described as a branch of economics that deals with structure, performance, behavior and decision-making of an economy. Some of the indicators studied by macroeconomists include unemployment rates GDP, price indices, national income and lastly, the interrelations among the different economic sectors, in an effort to understand how the entire economy works. Macroeconomics therefore presents an important issue requiring an exploration into its concepts, distinguishing features, and the ways in which national economies have an effect in business strategies.

This branch of economics encompasses a variety of concepts as well as variables which include; unemployment, inflation and phenomena of output. National output or as otherwise referred to as GDP, is the most important concept among the three. It is the total amount of goods and services produced by a country. Macroeconomists mostly use real GDP because it puts inflation into consideration, unlike nominal GDP, which shows price changes only. A high nominal GDP also means a high inflation rate, it therefore does not necessarily indicate higher output levels, and rather, it is indicative of higher prices only. Unemployment is second; it used to tell macroeconomists the number of that is unable to secure employment from the labor force. Study shows that a growth of the economy results to low unemployment levels. This is because a rising real GDP means a higher output and as a result, more laborers are hired to keep up the high production levels. Inflation is the third factor that macroeconomists look at. It is primarily measured in two ways; GDP deflator and the consumer price index. In cases where the nominal GDP is greater than the real GDP, it is assumed that prices have been on the rise. The GDP deflator and CPI tend to move in the same direction and have a very minor difference.

Regionalization and economic integration are often formed due to the expected benefits among them, the likelihood of conducting free trade among members, which in turn promotes rapid economic growth (Mwasha, 2007). Such gains come up as a result of the dynamic effects of integration. Businesses around the world are affected by an external environment the same way they are affected by the competitors. Some of the factors are; social- which relate to issues concerning social changes, legal- which relate to issues concerning changes in laws and regulations set by the government, economic- which relates to issues to do with global economic change, political- changes in government policies and the government as a whole, and lastly, technological factors which influence the business world by making it adopt new inventions and innovations. Considering the contemporary global trend, it is clear that trade deals and negotiations are increasingly carried out under regional blocs, giving the international society a reason to support regionalization.



Mwasha, O. N. (2007). The Benefits of Regional Economic Integration for Developing Countries in Africa: A Case Study of East African Community (EAC). 69-92.


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