Economic Factors Of The Economy

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ECONOMIC FACTORS Economic factors refer to the character and direction of the economic system within which the firm operates. Economic factors include the balance of payments, the state of the business cycle, the distribution of income within the population, and governmental monetary and fiscal policies. The impact of economic factors may also differ between industries. BALANCE OF PAYMENTS. The balance of payments of a country refers to the net difference in value of goods bought and sold by citizens of the country. To decrease the Kenyan shilling value of goods imported into the country, it is common practice to construct barriers to entry for particular classes of products. Such practices reduce competition for firms whose products are protected by the trade barriers. BUSINESS CYCLE. The business cycle is another economic factor that may influence the operation of a firm. Purchases of many long lasting products can be postponed during periods of recession and depression, as can purchases of new equipment and plant expansions. Economic downturns result in lower profits, reductions in hiring, increased borrowing, and decreased productivity for firms adversely affected by the recession. Positive consequences of recessions may include reductions in waste, more realistic perceptions of working conditions, exit of marginally efficient firms, and a more efficient system. Some organizations may benefit from an economic downturn. Eg banks cause there will be a lot of saving hence
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