ASSESING ECONOMIC AND GLOBAL CONDITION

Impact of economic growth on business performance

Economic growth represents the change in the general level of economic activity. Sometimes economic growth is strong, and other times it is relatively weak.

Two common measures of economic growth are the level of total production of products and services in the economy (also called gross domestic product) and the total amount of expenditures (also called aggregate expenditures)

An alternative indicator of economic growth is the unemployment level:

  • Frictional unemployment
  • Seasonal unemployment
  • Cyclical unemployment
  • Structural unemployment

Impact of inflation

Inflation is the increase in the general level of prices of products and services over a specified period of time. The inflation rate can be estimated by measuring the percentage change in the consumer price index, which indicates the prices on a wide variety of consumer products such as grocery products, housing, gasoline, medical services, and electricity.

Inflation can affect a firm’s operating expenses from producing products by increasing the cost of supplies and materials. Wages can also be affected by inflation. A higher level of inflation will cause a larger increase in a firm’s operating expenses. A firm’s revenue may also be high during periods of high inflation because many firms charge higher prices to compensate for their higher expenses.

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