Macroeconomic factors impact on the performance of a business

Macroeconomic factors have an impact on the performance of a business. Business
owners must ensure that they analyze the macroeconomic factors to have a deeper
understanding of the workings of the economy. Major business decisions must be based on the
existing macroeconomic factors. In the case of AutoEdge, the decision of whether to stay in
South Korea or return to the United States must be based on a comparison of the existing
macroeconomic factors in the two countries. These factors include the gross domestic product
(GDP), unemployment rates, interest rates, and inflation.
Gross Domestic Product
Gross Domestic Product is one of the main indicators that is used to measure the
performance of an economy. The GDP measures the output of an economy. It is calculated
through the determination of the total value of goods and services produced within a country’s
borders. Through the GDP, it is easy to measure economic growth. The GDP in the United States
currently stands at 214,427 billion dollars (International Monetary Fund, 2020). The United
States has recorded a GDP decline of 5.9 percent in 2020. The GDP decline is attributed to the
restrictions following the economic effects of the COVID-19 pandemic. On the other hand,
Korea reported a GDP of 1.13 trillion dollars in 2020 (Trading Economics, 2020). Korea has
reported a decline of 1.2 percent (International Monetary Fund, 2020). The country has not been
hard hit by the Covid-19 pandemic, and despite the economy going into recession, the country
has shown relative resilience. Based on GDP, the United States is favorable for business
expansion compared to Korea. However, Korea has a resilient economy that could grow going
forward.

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Unemployment Rate
The unemployment rate represents a percentage of the individuals who cannot secure
employment despite being actively involved in a job search. The fluctuating levels of
unemployment are connected to business cycles. As the demand for products declines,
companies have to lay off workers. Workers who cannot secure jobs have reduced purchasing
power. The implication is that it reduces the revenue for businesses. Businesses respond by
cutting down on costs, and this may mean laying off workers, which in turn compounds the
situation. Unemployment is undesirable, and governments globally seek to ensure that they
eliminate the rate of unemployment. In economics, there is a certain unemployment level that
cannot be eliminated. However, huge levels of unemployment could be undesirable for business.
The level of unemployment in the United States stood at 10.2 percent in July 2020 (U.S.
Bureau of Labor Statistics, 2020). In December 2019, the rate of unemployment stood at 3.5
percent (U.S. Bureau of Labor Statistics, 2020). To this end, the rate has gone up, and this can be
attributed to the effects of the Covid-19 pandemic. In comparison, Korea reported a lower
unemployment rate, which stood at 4.20 percent in July 2020. In October 2019, the rate of
unemployment in South Korea stood at 7.3 percent (Ceic Data, 2020). Evidently, the
unemployment rates have improved, and South Korea has reported an improvement in the levels
of unemployment. Consumers in Korea are thus more inclined to spend money on goods and
services, which is good for business.
Interest Rate
Interest rates reflect the cost of borrowing in a country. With a high-interest rate, the cost
of borrowing is high. This means that a business may not access business loans with ease. The

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profitability of the business is thus adversely affected. On the other hand, with low-interest rates,
businesses can borrow money with ease. Businesses can, therefore, borrow money with ease and
fund various business projects (Kasman, Vardar, & Tunç, 2011). The implication is that a
business can achieve high levels of profitability. The ability of customers to pay is also affected
by interest rates. With high-interest rates, consumers are not able to borrow, and this makes it
difficult to finance expenditure. Low-interest rates, however, ensure that consumers can be able
to borrow to finance their expenditure. In the United States, the Federal funds rate stood at 0.08
percent in July 2020 (Federal Reserve Bank of St. Louis, 2020). The interest rate had declined
from 2.40 percent in 2019. On the other hand, Korea reported a 0.50 percent interest rate in May
2020 (“South Korea Central Bank key rates 2020,” 2020). The United States has a more
favorable interest rate compared to Korea.
Inflation
Inflation is defined as the general rise in the prices of goods and services over a certain
period of time. Inflation results in a unit of currency buying less compared to what it did in the
previous periods. The end result is a decline in the purchasing power of a currency. Inflation has
an impact on the cost of living (Visnja et al., 2016). It also affects the cost of doing business in a
country. With controlled levels of inflation, consumers are able to purchase more goods (Istrat,
Visnja et al., 2016). Controlled levels of inflation also ensure that the unemployment levels are
kept in check. Controlled levels of inflation can help a country to recover from periods of
economic recession. In periods of rising prices, the business may not be able to pass the prices to
the consumers. This means that the business may report a decline in profitability. In the United
States, the inflation rate currently stands at 0.6 percent. On the other hand, inflation stands at 0.3
percent in Korea (“Inflation rate, average consumer prices,” 2020). In 2019, the United States

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reported an inflation rate of 1.8 percent. Korea reported an inflation rate of 0.4 percent. Both
countries have reported a decline in the inflation rate (“Inflation rate, average consumer prices,”
2020). The United States has reported a huge decline in the inflation rate. However, Korea still
has a lower inflation rate compared to the United States. The implication is that the average
consumer prices in Korea are lower compared to the United States. Korea is thus favorable
compared to the United States.

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References

Ceic Data. (2020). Korea Unemployment Rate. Retrieved August 26, 2020, from
https://www.ceicdata.com/en/indicator/korea/unemployment-
rate#:~:text=South%20Korea’s%20Unemployment%20Rate%20dropped,an%20avera
ge%20rate%20of%203.60%20%25
Federal Reserve Bank of St. Louis. (2020, 1). Effective federal funds rate. Retrieved from
https://fred.stlouisfed.org/series/FEDFUNDS
Inflation rate, average consumer prices. (2020). Retrieved from
https://www.imf.org/external/datamapper/PCPIPCH@WEO/OEMDC/USA/KOR
International Monetary Fund. (2020). Real GDP growth Annual percent change.
Retrieved August 26, 2020, from
https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/USA/KOR
Istrat, Visnja & Jovičić, Jelena & Arsovski, Sasa & Živković-Drezgic, Mira & Badjok, Darko.
(2016). Economic Factors Affecting Business Decision Making. 396-403.
10.20544/AIIT2016.48.
Kasman, S., Vardar, G., & Tunç, G. (2011). The impact of interest rate and exchange rate
volatility on banks’ stock returns and volatility: Evidence from Turkey. Economic
Modelling, 28(3), 1328-1334.

South Korea Central Bank key rates 2020. (2020, May 28). Retrieved from
https://countryeconomy.com/key-rates/south-korea

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Trading Economics. (2020). South Korea GDP growth rate | 1960-2020 data | 2021-2022
forecast | Calendar. Retrieved from https://tradingeconomics.com/south-korea/gdp-
growth
U.S. Bureau of Labor Statistics. (2020, 2). Unemployment rate. Retrieved from
https://fred.stlouisfed.org/series/UNRATE