Macro Environment

Macro Environment Definition

The macro-environment refers to the economic condition which is largely derived from the Country’s Gross Domestic Product, Spending patterns, inflation, and the monetary policy framework laid down by the federal reserve and is generally consist of the economic factors as a whole rather than measuring the individual performance of the sectors.

Types of Macro Environment

Below mentioned are some of the types/components of the macro environment.

macro-environment

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For eg:
Source: Macro Environment (wallstreetmojo.com)

Examples of Macro Environment

Below mentioned are some of the examples of the macro environment.

  • In the US, although the population is low as compared to other countries, the spending patterns of the people are quite high due to increases wages and better facilities by the government. In this case, it is possible only because the population is under control. Thus for the Economic growth of America, population plays a macro role in steering the economy ahead.
  • Alternatively, in China, it’s the reverse case, though their economy is one of the top economies of the world in spite of the population. Since the Chinese are all Asian with a very minor population of other countries, it is a big factor to play.
  • Political Scenario : Eg: In the US before the presidential elections of Donald Trump, there were many policies with regards to the trade barriers, Entry in US etc which were liberal and was pretty easy for people to execute, but after Donald Trump became the president of the united states, there were macro-level changes in the country since he started securing the borders by not allowing specific people to enter the country from specific countries. This had a significant impact on the country’s economy since there was a complete change in the processes with regards to the entry and exit into or from the united states to any other country
  • Other examples: GDP, Inflation, social impact, political stability, financial soundness, interdependence in the economic system

Advantages of the Macro Environment

Below are some of the Advantages :

  • Identification of threats: Macro environment analysis helps the economy to identify the potential threats and also suggest measures to control it.
  • Forecasting the future: It helps in budgeting the financial and economic needs of the future years keeping in mind the macro-environmental factors that will play a larger role.
  • Helps in achieving objectives: It helps in achieving the desired objectives by keeping a close eye on the factors that affect the macro environment.
  • Strength and weakness: It highlights the strengths and weaknesses of the economy as a whole as the impact of the macro factors can be high.

Disadvantages of Macro environment

  • High Risk of handling sensitive information: There is a risk as to the handling of the sensitive information which relates to the macro-environmental factors.
  • Difficult to collect data: Data on the macro-environmental factors is not readily available and needs to be collected from various sources.
  • Regulations may differ from country to country: There might be differences in the rules and regulations of two countries. Hence what is impacting for one country may not be that impacting for the other.
  • Political instability: Political stability is one of the most important criteria to have a healthy economy since all the top-level decisions are been taken by the political leaders. In the absence of political stability, would be difficult for any country to prosper and grow in the future since the political will is not there to steer the economy ahead.

Conclusion

Macro environment is one of the most complex topics to talk about and research since many things need to be taken into consideration while forming an opinion on the macro environment and its impact on the economy as well.

This has been a guide to what is Macro Environment and its definition. Here we discuss the various types of macro environment with the examples. We also discuss the advantages and disadvantages. You can learn more from the following articles –

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