GBE Lecture 6

1.

Analyzing the Macroeconomic
Environment
Demographic, Social and Cultural
Context of Business
LECTURE 6
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2. Understanding Macroeconomics

Macroeconomics focuses on the behaviour of the
economy as a whole, including inflation,
unemployment and economic growth. It
provides insights that help businesses adapt to the
changing economic conditions and make
informed decisions.
The Key Economic Indicators are:
֍ GDP
֍ CPI (Consumer Price Index)
֍ Unemployment rate
֍ Inflation
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3. Introduction to Levels of Economic Analysis

Microeconomic Analysis
Macroeconomic Analysis
֍Examines economic
decision-making by
individuals and firms.
Studies the economy as a
whole.
֍Analyzes behavior,
choices, and interactions in
specific markets.
֍Employment levels
Examples: Pricing decisions,
consumer behavior,
production costs, etc.
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It deals with economic
aggregates such as:
֍Inflation rates
֍Economic growth rates
֍International trade
Interconnectedness of Micro
and Macro Levels:
Effective economic analysis
considers the overlap between
individual behavior and
broader economic trends.
Example: A pay increase in
one industry can set a new
norm, influencing other sectors
and overall economic
conditions.
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4. Government and the Macroeconomy

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5. Aggregate Monetary Demand

Aggregate Monetary Demand (AD) - the total demand for goods and services in an economy at
a given overall price level and within a specific time period.
It represents the total amount of money consumers, businesses, government, and foreign
buyers are willing to spend on domestic goods and services.
AD = C + I + G + (X - M),
where X = Exports and M = Imports.
Components include:
Consumption (C): Spending by households on goods and services.
Investment (I): Spending on capital goods by businesses and households.
Government Spending (G): Expenditures by the government on goods and services.
Net Exports (NX): Exports minus imports, representing foreign demand for domestic goods and
services.
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Factors influencing AD include:
Price Level: Higher prices tend to reduce aggregate
demand as purchasing power decreases.
Interest Rates: Lower interest rates make borrowing
cheaper, boosting consumption and investment.
Income Levels: Higher disposable income increases
consumption.
Expectations: Optimistic future outlooks can lead to
higher spending.
Exchange Rates: A weaker domestic currency makes
exports cheaper and imports more expensive, boosting
net exports.
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7. Inflation

What is Inflation:
Inflation is the rate at which the general level of prices for
goods and services rises over time. It means that money loses
its purchasing power, and you need more money to buy the
same items.
What causes Inflation:
֍ Demand-Pull Inflation
It occurs when demand for goods and services exceeds supply,
driving prices up.
֍ Cost-Push Inflation
It happens when the cost of production increases (e.g., higher
wages or raw material costs), causing businesses to raise prices.
֍ Built-In Inflation
It results from higher wages leading to higher costs of goods,
creating a cycle of wage and price increases.
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8. Inflation in Uzbekistan, past five years

• Currency Liberalization
Impact (2018)
Inflation peaked around 18.8%
following economic reforms.
• COVID-19 Effects (2020)
Inflation decreased to 11.1%
despite the pandemic's economic
challenges.
• Efforts for Single-Digit
Inflation (2021-2023)
Ongoing attempts to stabilize
inflation close to 10% with a goal
of reaching single-digit levels.
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9. Economic growth

Economic growth is an increase in the production of goods
and services in an economy.
֍Increases in capital goods, labor force, technology, and human
capital can all contribute to economic growth.
֍Economic growth is commonly measured in terms of the
increase in aggregated market value of additional goods and
services produced, using estimates such as GDP.
֍The four phases of economic growth are expansion, peak,
contraction, and trough.
֍Tax cuts are generally less effective in spurring economic
growth than are increases in government spending.
֍If the rewards of economic growth go only to an elite group,
then it is unlikely that the growth will be sustainable.
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10. Economic growth of Uzbekistan last five years

1. Economic Reforms (2017-2018)
• Major reforms were initiated to transition from a state-controlled economy to a more marketoriented system. The government implemented currency liberalization, which boosted
foreign investment but initially caused economic volatility.
2. Strong Growth Before the Pandemic (2018-2019)
• GDP growth rates were around 5-6% annually, supported by increased foreign investment,
especially in energy, agriculture, and manufacturing. Infrastructure projects and liberalized
trade policies contributed to economic expansion.
3. Impact of COVID-19 (2020)
• Growth slowed down to 1.6% in 2020 due to the pandemic's disruptions in trade, tourism,
and remittances. The government provided stimulus packages and social support programs
to mitigate the economic impact.
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11. Cont’d

4. Recovery Phase (2021-2022)
• The economy rebounded strongly with GDP growth of 7.4% in 2021, driven by a recovery in
trade, remittances, and industrial production. Continued reforms, including privatization efforts
and banking sector improvements, supported growth. In 2022, growth was slightly lower at
5.7%, influenced by external factors such as the Russia-Ukraine conflict, affecting regional
trade and energy prices.
5. Current Trends (2023)
• The economic growth rate remains steady around 5.5-6%, with the government focusing on
diversifying the economy and boosting exports.
• Structural reforms in agriculture, energy, and digitalization are ongoing to sustain long-term
growth.
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12.

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13. Reducing Unemployment

Unemployment occurs when individuals who are actively seeking work are unable to find a job. It
is a key macroeconomic indicator that reflects the health of an economy.
In most democratic states the goal of full employment is no longer part of the political agenda;
instead government pronouncements on employment tend to focus on job creation and
maintenance and on developing the skills appropriate to future demands.
Frictional Unemployment: Short-term unemployment that occurs when people are between
jobs or entering the labor market for the first time.
Structural Unemployment: Results from a mismatch between the skills workers have and the
skills needed for available jobs, often due to technological changes or shifts in the economy.
Cyclical Unemployment: Linked to the business cycle; increases during economic
recessions and decreases during economic expansions.
Seasonal Unemployment: Occurs due to seasonal variations in demand for certain jobs (e.g.,
agriculture, tourism).
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1. Economic Reforms and Early Trends (2018-2019). The government initiated significant economic reforms
aimed at liberalizing the economy. Unemployment rates were relatively high, hovering around 9-10%, as the
economy was transitioning and restructuring. Efforts were made to improve labor market conditions and reduce
informal employment, which affected the official unemployment statistics.
2. Impact of the COVID-19 Pandemic (2020). The pandemic led to a sharp increase in unemployment, reaching
around 14-15% due to lockdowns and disruptions in trade, tourism, and remittances. Many migrant workers
returned home as job opportunities abroad diminished, further increasing domestic unemployment. The government
introduced emergency support programs to mitigate the impact, such as cash transfers and temporary
employment schemes.
3. Recovery Phase (2021). As the economy began to recover, the unemployment rate declined to around 11% in
2021. Government efforts focused on stimulating job creation through public investment projects and support
for small and medium-sized enterprises (SMEs). Training and reskilling programs were launched to help
workers adapt to new job market demands.
4. Continued Efforts and Structural Reforms (2022). Unemployment decreased further to approximately 10% in
2022, with ongoing labor market reforms and initiatives to improve business conditions. Efforts were made to
reduce informal employment and integrate more workers into the formal economy, which affected official statistics.
External factors, such as regional economic conditions and commodity prices, also influenced the labor market.
5. Current Situation (2023). In 2023, unemployment stabilized around 9-10%, with the government targeting further
reductions by promoting economic diversification. Key sectors like agriculture, energy, and services have been
prioritized to create more job opportunities. The government continues to focus on youth employment and rural
development programs to address regional disparities.
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15. Factors Affecting Unemployment in Uzbekistan

Economic Transition: Ongoing shift
from a state-controlled economy to a
market-based system.
Demographic Pressures: High
population growth and a young labor
force increase the need for job creation.
External Shocks: The COVID-19
pandemic and geopolitical factors, such
as the Russia-Ukraine conflict, have
impacted the labor market.
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16. Controlling public borrowing

Government Revenue and Spending
Governments raise revenue mainly through taxation to fund public
goods and services.
• Budget surplus: Occurs when annual revenue exceeds government
spending; the excess is often used to repay past debt.
• Budget deficit: When spending exceeds revenue, leading to a
public sector borrowing requirement (PSBR).
National Debt
• Represents the accumulated debt from past and present
governments.
• As of 2023, Uzbekistan's national debt stands at approximately $29
billion, or around 37% of GDP.
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17.

The chart includes:
National Debt (Billion USD) shown in blue, indicating the steady
increase from $15 billion in 2018 to $29 billion in 2023.
Debt-to-GDP Ratio (%) shown in green, reflecting the rise and
fluctuation in the ratio, which peaked at 38% in 2021 and
stabilized around 37% in 2023.
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18. Exchange rate

The exchange rate is the value
of one currency in terms of
another currency.
Example: If 1 USD equals
11,000 Uzbek soums, then the
exchange rate is 11,000
UZS/USD.
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19. Types of Exchange Rates

Fixed Exchange Rate:
1. The value is set and maintained by the government or central bank.
2. The currency is pegged to another currency or a basket of currencies.
Example: Some countries fix their currency to the US dollar.
1.Floating Exchange Rate:
1. Determined by market forces of supply and demand for the currency.
2. Can fluctuate freely based on economic conditions.
Example: The US dollar and the euro have floating exchange rates.
2.Managed or Pegged Exchange Rate:
1. A mix between fixed and floating.
2. The government influences the exchange rate to keep it within a certain range.
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20. Government and the Macroeconomic: Policies

Governments throughout the world play various key roles in their
respective economies.
These include the following functions:
֍ consumer of resources (e.g. employer, landowner);
֍ supplier of resources (e.g. infrastructure, information);
֍ consumer of goods and services (e.g. government spending);
֍ supplier of goods and services (e.g. nationalised industries);
֍ regulator of business activity (e.g. employment laws, consumer
laws);
֍ regulator of the economy (e.g. fiscal and monetary policies); and
֍ redistributor of income and wealth (e.g. taxation system).
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21. Types of Macroeconomic Policies

Fiscal Policy
Monetary Policy
Involves changes in
government spending and
taxation.
Focuses on managing the
money supply and interest
rates.
֍Expansionary fiscal
policy: Increases
spending or reduces taxes
to stimulate economic
growth.
֍Lower interest rates
encourage borrowing and
spending, boosting
economic growth.
֍Contractionary fiscal
policy: Reduces spending
or increases taxes to
control inflation.
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֍Higher interest rates can
help to reduce inflation.
Direct controls are
government interventions
aimed at achieving specific
macroeconomic objectives.
֍It is used as additional
policy instruments
alongside fiscal and
monetary policies.
֍It is designed to achieve
targeted outcomes, such as
controlling inflation,
improving the balance of
payments, or addressing
regional economic
disparities.
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22. Macroeconomic Policies of Uzbekistan

Monetary Policy
Fiscal Policy
֍The Central Bank of Uzbekistan (CBU) is
responsible for implementing monetary policy.
֍Uzbekistan’s fiscal policy focuses on
stimulating economic growth while maintaining
debt sustainability.
Main objectives: Control inflation, maintain price
stability, and ensure financial stability.
֍In recent years, the CBU has adopted a tight
monetary policy to curb inflation, with the inflation
rate targeting framework introduced in 2019.
֍The interest rate has been used as a key tool,
with adjustments made in response to economic
conditions (e.g., raising rates to combat inflation
or lowering them to stimulate growth).
֍There has been a gradual move towards a
floating exchange rate since 2017 to allow for
more market-driven currency valuation.
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֍Government spending has increased
significantly for infrastructure projects, social
programs, and public sector wages.
֍There have been efforts to reform the tax
system to increase revenue and improve
efficiency, including the introduction of a flat
income tax rate.
֍Public investment is directed towards sectors
such as energy, transport, and social services
to boost economic development.
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23. Demographic, Social and Cultural Context of Business

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24. The demographic, social and cultural context of business

Demographic Context:
This includes aspects like age
distribution, gender ratio,
population growth rate,
migration patterns, and life
expectancy. These factors
influence the labor market,
consumer demand, and longterm economic planning. For
instance, an aging population
may increase demand for
healthcare services and
retirement planning products.
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Social Context:
Social factors encompass
changes in societal norms,
lifestyles, and attitudes. Trends
like increasing environmental
awareness, shifts in family
structures, or changing work-life
balance preferences can shape
business strategies, as
companies adapt their offerings
to align with evolving consumer
expectations.
Cultural Context:
Culture affects business
practices, marketing strategies,
and product acceptance. It
includes values, traditions,
language, and beliefs that differ
across societies. Understanding
cultural nuances is crucial for
businesses, especially those
operating in international
markets, to ensure that their
products or services resonate
with local consumers.
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25. Demographic Factors

Demographics refer to statistical characteristics of
populations, such as age, gender, education, income,
and ethnicity.
Impact on Business:
֍Aging population may affect product demand (e.g.,
healthcare, retirement services).
֍Youth-dominated markets may drive demand for techsavvy products and fashion.
֍Changes in population size or migration patterns can
influence labor supply and market size.
Examples: Businesses may adapt marketing strategies
based on age groups or target products to specific
demographic segments.
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26. Cultural Factors

Culture encompasses values, beliefs, customs, and
behaviors shared by a group of people.
Influence on Business:
֍Cultural differences can affect consumer
preferences and marketing approaches.
֍Understanding local customs and cultural norms is
essential for international business success.
֍Language and communication styles may impact
advertising and customer interactions.
Examples: Multinational companies often adapt
products and promotional materials to suit local
cultural norms.
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27. Social Factors

Social factors include societal trends, lifestyles,
education levels, and social attitudes.
Impact on Organizations:
֍Changes in lifestyle preferences can affect product
demand (e.g., organic food, eco-friendly products).
֍Social attitudes towards work influence employee
expectations and workplace culture.
֍Corporate social responsibility (CSR) is increasingly
important due to growing social awareness.
Examples: Companies may emphasize sustainability
efforts or social impact to align with consumer values.
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28. The Interconnectedness of Demographic, Cultural, and Social Factors

These factors often interact to shape the business landscape.
Examples of Interactions:
• Demographic shifts (e.g., aging population) can influence cultural norms
(e.g., family structures).
• Social movements may lead to cultural changes that impact business
practices (e.g., rise in ethical consumption).
Strategic Implications: Businesses must consider these factors together when planning strategies.
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29. Challenges for Business Organizations

֍Adapting to demographic changes can require
modifying products or changing target markets.
֍Navigating cultural differences is crucial for global
business expansion.
֍Responding to social expectations, such as
sustainability and ethical practices, can be
challenging but rewarding.
֍Staying relevant in the face of rapid social changes
(e.g., shifts in technology use or consumer behavior).
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30. Application: Market Segmentation

Marketers have long
recognised the
importance of
demographic, social
and cultural factors in
shaping people’s
demand for goods and
services. This is
exemplified by the
concept of market
segmentation .
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31. Thank you for attention Any questions?

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32. References

* Li, G., Tribe, J. and Miller, G. (2018) The business environment, Pearson
* Worthington I., Britton, C. and Thompson, E. (2018), The business
environment: A Global Perspective, 8th edition, Pearson Education.
* Claire, C. (2009) Understanding the business environment: inside and outside
the organisation
* Brooks, I., Weatherston, J. and Wilkinson, G. (2011) The international business
environment: challenges and changes, 2nd edition, Prentice Hall.
* Keenan, D. & Riches, S. (2019) Business Law, 9th ed., Longman.
Begg, D., Fischer, S. & Dornbusch, R. (2008), Economics, 9th edition, Mc Graw
Hill.
* Morrison, J., (2006). The international business environment: global and local
marketplaces in a changing world. Palgrave.
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