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Describe the role of business in the economy, including the factors of production and the key dimensions of the business environment.
Business is the engine that drives the economy, providing jobs, purchasing raw materials from producers, and providing the products and services that all consumers use, improving the value of life for everyone in the environment. The income of the economy is distributed through the factors of production. The three main factors of production are labor, land, and capital (Mankiw, 2012, p.393). Companies employ many people, providing jobs and money for the economy through labor. Companies will continue to demand more labor until the cost begins to outweigh the value of this production factor. This is an important factor because these employees are also consumers who pump most of the money they receive right back into the economy in one way or another. Companies need available land, both for commercial production and for retail sales sites or office buildings. They pay for the land initially, but also put money into the economy by maintaining the land over time. Businesses also need capital so that they can make major purchases and increase production capabilities. They acquire capital from banks or investors who profit from these transactions, making more capital available to other businesses and individuals.
The business environment often has a critical influence on the overall economy and there are five key dimensions of this business environment. The economic environment, the competitive environment, the technological environment, the social environment, and the global environment all play a vital role in whether the economy will flourish or collapse (Kelly & McGowen, 2011, p.7). Any one of these factors can cause major problems in the business environment, such as a major recession in the economic environment, or conflicts in the global environment. A technological development could provide a potential boon for businesses, however.
2. Compare and contrast the roles of for-profit and nonprofit organizations in the economy.
There are many similarities between for-profit and nonprofit organizations when it comes to their impact on the economy. Each type requires large amounts of capital to operate and quality employees in their respective labor forces, so they both provide jobs and take in money either through investment or charity. Like for-profit organizations, nonprofits will often require large tracts of land to build on or, in certain cases, to preserve for future generations. Though they may not provide products or services that the general public will purchase, nonprofits also add value to society by providing some type of value for society, whether it is through the arts, charity programs or any other way that society is enhanced.
Though both require large amounts of capital to continue operations, nonprofits do not receive funding from investors nor do they generate large amounts revenue for themselves. Therefore it is imperative that they find a steady stream through debt, grants and philanthropy. Unlike for-profit organizations, nonprofits are often staffed by many volunteers, who contribute their time and receive no income for their work. Because there is limited income from operations, nonprofits are also forced to carefully weigh the amount of debt they are willing to absorb and must continue to find new funding sources to stay solvent (Epstein & McFarlan, 2011, p.30).
3. Discuss the impact of current fiscal and monetary policy on the economy.
Governments can attempt to impact the economy through either fiscal or monetary policies. The tactics available through fiscal policy implementation include cutting taxes to increase consumer spending. In this scenario, the assumption is that consumers will use the extra money to make purchases, thereby strengthening the economy. Currently there is much debate over whether to extend the "Bush era tax cuts" in the United States, with President Obama wanting to extend them for anyone making less than $250,000 per year. Many economists would like to see all taxpayers continue to receive the tax cuts to help improve the economy. The second option available to the government is to increase spending so that more money is put into the hands of private businesses. This was done when President Obama took office with the stimulus package. This type of spending takes a longer time to work its way through the economy and also raises the amount of debt the government…[continue]
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