Many economies follow a steady upward trend in the business activity cycle due to increases in population. The general level of business activity can be measured by many different variables known as economic performance indicators. The purpose of analysing the general business environment is to identify the occurrence of favourable and unfavourable changes or trends. This information will enable entities to determine what opportunities and challenges exist for their particular business. Illustration IV Governments can use monetary or fiscal policy, or both, to combat inflation and unemployment.
Monetary policy refers to how a government controls the size of a nation s money supply.
Expansionary monetary policy puts more money into circulation, decreasing interest rates, allowing businesses to borrow more to expand, creating more employment. Restrictive monetary policy reduces the money supply and helps reduce inflation. Fiscal policy concerns government revenue and expenditure. Increased government spending can increase economic activity and reduce unemployment. In contrast, a tax increase lowers people s income and spending, slowing inflation.