Effects of Economic Growth, Unemployment, and Inflation on the Business Community

Put simply, a business’s goal is to maximize profits. This requires any company to remain competitive in its market and this in turn requires management to make decisions. These decisions are influenced by the ‘business environment’. Macroeconomic factors including economic growth, unemployment, and inflation are part of the business environment and highly influence the decisions of the business.

Inflation
Fluctuating levels of inflation creates uncertainty and firms may be reluctant to commit funds to capital purchases or spend money on R&D. This leads to consumers of the end-products also becoming uncertain and reluctant to spend. Both of these factors could reduce the long term level of economic growth with a slow down in the economic activity.

Inflation also affects a business’ international competitiveness. If prices in one country are increasing more rapidly than in competitors’, the business cannot compete on price factors. And if less money is spent o...