Month: October 2009

Fiscal Policy

Fiscal Policy, a very vital part of economics, is referred to as the government spending as well as revenue collection of a country. Fiscal Policy has two main instruments that are; •    Government spending •    Taxation. There are certain changes in the composition and level of government spending and taxation that impact the following variables in the economy of a country: •    Aggregate demand and the level of economic activity. •    Resource allocation pattern. •    Distribution of income. The overall effect of the budget outcome on an economic activity is termed as Fiscal policy of a country. There are three particular stances regarding the fiscal policy of a country that are; neutral, expansionary and contractionary: •    A neutral stance regards a balanced budget where “Government spending = Tax revenue” (G = T). The government spending is funded by tax revenue and the overall effect of the budget outcome is neutral on the economic activity. •    Expansionary stance of the fiscal policy denotes a net increase in Government spending (G > T) through rises in government spending or a fall in taxation revenue or a combination of the two. The effect usually leads to a larger budget deficit or a smaller budget surplus than the Government previously had, or a deficit if the Government previously had a balanced budget. Expansionary fiscal policy is mostly associated with budget deficit for an...

Read More

The Boston Consulting Group (BCG) Matrix

The BCG matrix is a tool for the management of organization business portfolio developed by Bruce Henderson of the Boston Consulting Group in 1970s. The BCG matrix position the business units into the matrix based on relative market share and growth rate of industry. The Organization can track the business unit performance based on cash inflows and outflows by using BCG matrix. The BCG matrix is composed of four quadrants, first quadrant is the question mark second quadrant is star third is cash cow and fourth is dog. Each business unit position is based on relative market share and growth rate of the industry, relative market share can be calculated by dividing business unit market share with the leading competitors market share. The relative market share is positioned on X-Axis and industry growth rate on Y- Axis both are measured in percentage. As discussed there are four quadrants in BCG matrix each one explain the business in terms of relative market share and growth rate. Question Marks [adsense1] The business unit with low market share and having high growth rate is positioned in first quadrant of BCG matrix which is called the question mark and also known as problem child.The strategy for question mark business units are a bit complicated because it can either become successful or failure. The business units lies in this quadrant fetches more money on...

Read More

Quantitative Strategic Planning Matrix (QSPM)

The Quantitative Strategic Planning Matrix is a strategic tool which is used to evaluate alternative set of strategies. The QSPM incorporate earlier stage details in an organize way to calculate the score of multiple strategies in order to find the best match strategy for the organization. The QSPM comes under the third stage of strategy formulation which is called “The Decision Stage” and also the final stage of this process. The best thing about QSPM is that it never insist the strategist to enter the information on assumptions, it extract the information from stage 1 The Input Stage and stage 2 the the matching stage. The input stage is based on EFE Matrix, IFE Matrix and CPM and stage 2 made up of TOWS matrix, SPACE Matrix, BCG Matrix, IE Matrix, Grand Strategy Matrix.The QSPM combine the intuitive thinking of managers with the analytical process to decide the best strategy for the organization success. Format of Quantitative Strategic Planning Matrix [adsense1]There are four main columns in QSPM, the left column list down the key internal and external key factors which are same as in EFE and IFE matrix. Adjacent column to key factors is Weight (relative importance of the factor) which hold the numeric value obtained from EFE and IFE matrix weight column. The next to weight is AS stands for attractive score assign priority to key factors using...

Read More

Product Pricing Strategies

New Product Pricing Strategies The most challenging stage of product is introductory stage. In introductory stage of new product companies face the challenge of setting the prices for the first time. Companies have only one chance to get new product price right. They can choose among the two strategies i.e. market skimming pricing and market penetration pricing. Market Skimming Pricing Companies interested in profitable sale set initially high price for a product to skim maximum revenue from the segments which is willing to pay high price and then slowly move to low price. Market Penetration Pricing Companies interested in large market share set low price for a product in order to attract large number of customer. Product Mix Pricing Strategy The strategies of setting the price for a product when the product is part of product mix. Product Line Pricing Same product with different features the price is kept on the bases of the cost difference between the products in product line and customer evaluation of features and competitor prices. For example Sony offering different television with different features at different prices. Optional Product Pricing It’s the pricing of the main product with the accessories or optional product for example car with power window CD changer and car without power window and CD changer. Captive Product Pricing Pricing of the product which must be used with the main product...

Read More

Singles Entry Bookkeeping

The accounting method used by most of the companies is double entry bookkeeping. To explore the benefits of double entry system it is important to understand the single entry bookkeeping. The single entry bookkeeping is similar like a checkbook register which have only single column each transaction. Single entry bookkeeping record positive and negative amount in one column as mentioned in the example below. The above example clearly shows that each transaction value is maintained in the single column and after calculation the ending balance is the difference of revenues and expenses. The revenue and expense are recorded in single column which makes it difficult to segregate the accounts type and the final values of total expenses and revenues are also not calculated. The expense and revenue stream are important for mangers and without knowing these account total figure budgeting is not possible for company. In order to separately record revenues and expenses transactions an extra column is added as mentioned in the example below. Although revenue and expense are recorded in different columns and ending balance is also available but still this method is called single entry bookkeeping. For each transaction only one entry is recorded, in double entry bookkeeping two entries are recorded for one transaction. The single entry can be expanded to show more useful information. For example, Company wants to view the information of different...

Read More

Shortcomings of GDP

GDP is the accurate measure of economy it shows how well or how bad the economy is doing. True said, nothing is perfect in the world  there are some shortcomings of GDP which are important to consider in the country economy. Non-market Transactions GDP calculate the transactions occurs in the market place other than that its out of its scope, non-market transaction are not occur in the market and no proof is available to make it part of GDP. Suppose, a motor mechanic repair his own car by working whole day, people do the job of gardening by themselves. These type of transaction never counted in the GDP, only the transactions occurs in the market are considered in GDP. Leisure In recent years, the working hours are reduced to great extent like in USA in few years weekly working hours reduced from 56 to 36 in addition to this increase in sick leaves, casual leaves, annual leaves, maternity and paternity leaves bring relief in people life. This leisure surely improve the employees performance but unfortunately the leisure is not part of GDP although its quite clear that people are working less and producing more output which shows improvement in productivity and well being of peoples. Improved Product Quality GDP is the quantitative measure of product and services rather than qualitative measure, it fails to gauge the quality improvement in...

Read More

Levels of Market Segmentation

Market Segmentation Dividing the market into different groups because of the different needs, wants, choice, characteristics and behavior of customer might require different products and marketing mixes. Why Market Segmentation is important? Market segmentation makes it feasible for the firm to adapt the marketing mix for specific target markets it will help the firm to better satisfy the need of customer instead of offering the same marketing mix to the different customer with different needs. Levels of Market Segmentation It discussed in importance of segmentation that consumers have different needs and good sellers have to satisfy them by designing a separate marketing program for each buyer. That s why market segmentation can be carried out at different levels segments, niches, local areas, individuals and mass marketing. Mass Marketing In simple words seller offer same product for all the buyers with different needs and seller engages in the mass production, mass distribution, and mass promotion of one product for all buyers. Niche Marketing A niche is a more closely defined group, it is dividing the segment in to sub segment and it can be divided by identifying the distinct trait of consumer which might need special combination of benefits this sub segments are made for those consumers whose needs and wants are not satisfied. Local Marketing Local marketing focus on brands and promotion to the needs and wants of local...

Read More

Balance Scorecard

As we parade through the darkness towards the light, so do our efforts to make life easier. The balance scorecard is one such management concept that is used in business organizations which tries to align the mission and vision concept of that particular organization. Originally originated by Dr. Robert Kaplan of Harvard Business School and David Norton, as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more ‘balanced’ view of organizational performance. The balance scorecard is used in order for the organization to work in an efficient manner keeping its direction on the mission and the vision that is to be achieved. In order to truly make use of the balance scorecard, a firm must understand the two important aspects of the firm: •    “The company’s mission statement” •    “The company’s vision statement” After that the firm needs data on the following: •    Financial status of the organization •    The current structure and operations of the organization •    Level of expertise of the employees •    Level of customer satisfaction The metrics should be S.M.A.R.T (Specific, Measurable, Achievable, Realistic and Timely), one can’t improve what can’t be measured, and the metrics must be aligned with the company’s strategic plan. The balance scorecard directs us to visualize the organization to have four perspectives that are inter-dependent, yet improving one...

Read More

Economic Goals

The economic policy is developed in every country to achieve some economic goals. Following are the main economic goals which are widely known in the world. Economic Growth – Increase in the production of product and services to boost the economy and improve the living standards. Full Employment – Opportunities should be available or created for the people of country who are willing and able to work. Economic efficiency – Improve productivity by utilizing the resources in a better way, this approach will reduce the expense overhead of the product and services and allow the manufactures to sell their products at lower prices in the market. Price- Level Stability – Variable up and down in the prices of goods and services reduce people trust on government. It is better to control the major upswings and downswings in the price level. Equitable distribution of Income – Government have to ensure the proper distribution of income among people to lower the percentage of poverty level. Economic Security – The people which are disable, chronically ill, laid off, aged or earning low income should be supported. Balance of Trade – Overall balance in international trade with other countries and financial...

Read More

GDP – Gross Domestic Product

The widespread measure of the total output in a country’s economy is called  GDP (Gross Domestic Product). GDP is basically a measure of the market value of all services and final goods produced in a country during a year. It as well is equal to the sum of the value added to the product at every phase of production by all the industries within a country, plus the taxes and subtraction of the subsidies on products, in the period of a year. It is also equal to the total amount of the income generated by production in a country in a year. We will find that there are two ways to measure GDP •    Nominal GDP : Measured in actual market prices means the inflation factor is not involved in nominal GDP. •    Real GDP : Calculated on constant or unvaried  prices. Real GDP is the most widely used measure of output of an economy; it provides a carefully monitored pulse of any nation’s economy. Even though, short term fluctuations may occur at different occasions regarding the business cycles, but advanced economies generally show a steady hand at long-term growth in the real GDP which also results in an improvement in the living standards, the process is termed as “Economic Growth”. There is a term in economics “Potential GDP”: which signifies the maximum sustainable level of production that the...

Read More
  • 1
  • 2