ILM Level 4 8605-426 Understanding the Macro Economic Environment Assignment Answer Help

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Assignment task 1: Understand the impact of the domestic economic environment on the organisation

AC1.1 Evaluate the impact of the current domestic economic environment on the organisation 

The domestic economic environment directly influences organisational growth. Evaluation of this impact includes: 

• Economic Growth Rates: when economic growth rates are higher, the spending or investment of the consumer increases. This benefits the organisation with a higher demand for products and services. If the economic growth rate decreases, demand decreases, affecting the overall revenue generated by the organisation. 
• Inflation Rates: When rising inflation is in play, everything becomes costlier, like operational costs and goods and service costs. This affects the purchasing power of the organisation. To counteract increased costs, companies adjust their budgets in spending.
• Unemployment Rates: low employment rates provide skilled employees for the organisations but also increase operational costs and increase in wages, and high unemployment affects consumer spending, impacting sales.
• Consumer Confidence: when confidence is high, consumers are likely to spend more, which increases the demand. A decline in confidence can lead consumers to spend cautiously, which negatively affects revenues.

Conclusion: The current domestic economic environment plays an important role in building the strategy and operational decisions of the organisations. Analysing this carefully will help lessen the risks.

AC 1.2 Assess the likely impact of current domestic fiscal and monetary policy and its implications for the organisation in the short to medium-term

Fiscal Policy:

Government Spending: Increased public spending can open up new opportunities in sectors like infrastructure, health care, and education. Reduced spending can limit these opportunities

Taxation: higher taxes lead to low consumer spending as their disposable income is reduced. While lower taxes increase profits.

Monetary Policy:

Interest rates: higher interest rates discourage borrowing, which affects growth, and lower interest rates can increase consumer spending on expansion and investments to grow. 

Money supply: The availability of credit is influenced by central bank policies. This directly impacts consumer spending rates and business operations.

ImplicationsIn the short term, organisations may be affected by fiscal or monetary policies. Strategic planning is required to lessen the effect on operational costs and revenue in the mid-term.

Assignment task 2: Understanding the impact of the international economic environment on the organisation

AC 2.1 Evaluate the impact of the current international economic environment on the organisation 

The global economic environment influences organisations significantly; the impact includes:

• Global trade dynamics: changes in trade agreements, tariffs, and export-import regulations affect supply chains and directly impact profitability
• Exchange Rates: the changes in the value of currency affect international transactions, pricing, and competition in the global market.
• Global inflation: when global inflation increases, the cost of imported goods is also increased, which affects the production and pricing strategies.
• Economic performance of key markets: the economic health of trading partners can affect the demand for products and services.
• Supply chain disruptions: Factors like geopolitical tensions, natural disasters, or pandemics can lead to delays in supplies and increased costs.

AC 2.2 · Assess the likely impact of current international fiscal and monetary policy and its implications for the organisation in the short to medium-term 

• International Fiscal Policy:
  • Government spending: Export prospects may arise from higher government expenditure in overseas markets.
  • Taxation Policies: Profitability may be impacted by adjustments to import taxes in foreign markets or changes to corporation tax rates.
• International Monetary Policy:
  • Interest Rates: interest rates have an impact on international competitiveness, trade finance, and foreign investment, according to international monetary policy.
  • Quantitative Easing/Tightening: Global financial flows are influenced by liquidity policies in major economies such as the US or the EU, which have an effect on operations and investments.

Implications: In order to control expenses and take advantage of new possibilities in the near to medium term, organisations need to adjust to global fiscal and monetary developments.