MBA Business and Economic Evironment Essay Example | Topics and Well Written Essays - 1000 words

MBA Business and Economic Evironment - Essay ExampleAs the bear oningness rates change, so do the spending and saving patterns of the people. When affair rates increase the damage of acceptation property increases and and then people borrow lesser where as when there is a decrease in interest rates people atomic number 18 more inclined to borrowing money because the cost of borrowing is lower. This affects the aggregate demand and aggregate supply of a country because money is the basis of all transactions that find place in an parsimoniousness and if the cost of borrowing money decreases the money demand in the economy would tend to increase and people will be more inclined to spend that money and hence the aggregate demand would increase and this would lead to more people being employed if the economy is not already operating at optimal level of productivity. On the other if interest rates tend to increase then the cost of borrowing increases and people are not willing t o borrow, hence the aggregate demand for the economy would decrease and the would have adverse effects on the labor as well. An increase in the interest rates in Australia would definitely have the same effects as well and a decrease in aggregate demand is expected.Industrial point of ViewIf the interest rates are increasing the cost of borrowing for industries would go sky high because industrialists require huge sums of loans because of the industry and the operations that they need to carry out. A very important decision for the firms is based on the interest rates and their trends, the question is to expand or not to expand The answer lies with the interest rates, if they are very high then the bon ton might postpone their expansionary plans but if they are lower and within a safe limit then the company can go and expand. This applies to whole industries, if industries expand there would be much more labor required and there would be an increase in use of goods and services le ading to an increase in aggregate demand. Hence if any government is looking to give a boost to its industrial set up it should take special care when dealing with interest rates because it might charter the course of a whole industry and any industry is important to the economy because it has a lot of other units such as labor and exports dependent upon such industries, though some governments have come up with industrial interest rates but still they serve the same function.Exchange RatesThe convince rates of a country play an integral part in determining where the country is heading in the near future and also has far reaching consequences in policy making. Interest rates play a very important role in determining what a countrys exchange rates would be, in fact they are also a tool to muck around with the exchange rates. If the interest rates are increasing in an economy, ceteris paribus, then there would be an inflow of foreign currency into that country because people would take to save their money in that countrys banks because that would give them a higher return on their investments, when this takes place the demand for a countrys currency on the foreign exchange market increases. On the other hand if the interest rat