BUSINESS ECONOMICS Class 3 26 November, 2009

Recap – Unit 4  Market Structure  Monopoly  Imperfect Competition  Perfect Competition  Pricing  Determination of Price  Strategies for Pricing  Government Intervention

Macroeconomics  National Income  Expenditure method  C + I + G + X – M = GDP  Inflation  General price rise  Unemployment

Case review  IAF Team  To present findings and  Recommend two short-listed contractors  MoD Team  Present evaluation of political environment  Select one contractor

Inflation  Degrees of Inflation  Hyperinflation – excessive growth of money supply  Deflation – low growth of money supply  Measurement of Inflation  CPI – consumer price index  WPI – wholesale price index  GDP deflator – difference of real GDP and GDP at current prices

Effects of Inflation  General effect – increase in prices leads to decrease in purchasing power of the currency.  Negative effect – cost-push inflation can prompt employees demanding higher wages, hoarding, savings withdrawal, sets of the business cycle  Positive effect – debt relief for borrowers, real investments in capital projects

Unemployment  Unemployment occurs when a person is available to work but currently without work  The prevalence of unemployment is usually measured using the unemployment rate, which is defined as the percentage of those in the labour force who are unemployed.

Types of Unemployment  Cyclical unemployment  based on demand, supply  Structural unemployment  productivity, efficiencies  Classical unemployment  Labour laws, taxes, regulations  Frictional unemployment  Choice of the labour force to voluntarily be unemployed

Inflation-Unemployment  Inflationary conditions will result in high unemployment rate in a free market  This triggers the recession in the economic or business cycle