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The Business Role in the Economy Essay

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Updated: Jan 26th, 2020

Role of Business in the Society

The main role of business in the society is to produce both goods and services in order to meet demand created by the public. However, it must do so in such a way that companies also make profits so that they can continue to exist.

Businesses provide goods and services that both the public and governments cannot do without having. In addition to this, businesses also consume both products and services from both the government and the public such as labour. Therefore, it is also the responsibility of any business to give back to society. This way the company will gain acceptability in society.

Business has the moral obligation to the consumers and the public not to produce goods and services that have the potential to cause any harm to people. In addition, it is the responsibility of business not to unreasonably over charge the consumers for its goods and services.

Recently it is has become the responsibility of business to contribute to the wellbeing of the society in which it carries out its business in the sense that a better society means a better environment for doing business.

In fact, a business social dimension is a plus in the conduct of business. It makes the very people who buy services and goods the mere existence of that business. This makes them to want to buy their products, which creates customer loyalty.

Business also has the obligation to trade fairly with other businesses and its suppliers to ensure an optimal business environment and to meet its financial obligations accordingly. It also has the responsibility to obey the laws of the country/state in which it is carrying out its business.

Roles of For-Profit and Nonprofit Organizations in the Economy

Profit and nonprofit organizations contribute to the growth of an economy. They both offer employment and contribute to the GDP. In 2011, for example, nonprofit organizations contributed about 5 % of the United States’ GDP. These organizations also offer employment to youth and create a sense of purpose in society by championing for certain causes.

For profit organizations, on the other hand, exist purely for profit making purposes. They pay tax and contribute to the economic development by employing individuals who in turn pay tax and use their disposable incomes to spur growth in various sectors of the economy.

Additionally, profit organizations engage in social responsibility work. This ensures that they maintain close contact with the business market and shows a sense of responsibility towards their sources of resources.

Impact of Current Fiscal and Monetary Policy on the Economy

The government uses two policies to control money supply in a country. That is, expansionary and contractionary policy with the effect of increasing and reducing money supply respectively. The effect of expansionary policy on the AA-DD model is a shift to the right. This increases the exchange rate of a country’s money with respect to another country. However, this does not happen fast.

It takes on a transitional mode with many factors at play. For example, the real money supply exceeds the real money demand. This, in the short run, means that inflation levels increase quickly.

However, the trend lags as more people convert their money assets into non-money assets to beat or take advantage of the inflation levels. In the long term, the natural effect is that the exchange rate will increase with the amount of cash in the economy.

The US Government employs the contractionary monetary policy when the money supply in an economy reduces. This reduction has the effect of shifting the AA-DD model downwards. When this happens, there is an immediate reduction in Gross National Product of a country. It also leads to a relatively stronger local currency.

Fiscal policy refers to government spending. The government is the biggest consumer and its consumption has many policy effects on the economy. The government uses this power to effect policies in a country through either reduction in spending (contractionary fiscal policy) or increase in spending (expansionary fiscal policy). An increase in government spending causes AA-DD model to shift to the right.

This causes a decrease in the exchange rate. For example, the Canadian dollar would do better than the American dollar in this situation. However, this leads to an increase in the GNP for the country. This is because it may attract more foreign investment as it is favorable to them. There are many causes for an expansionary policy. This includes transfer payments, tax reductions, and government direct spending.

Accessing Global Market through Outsourcing at Toyota

Outsourcing has become a trend in today’s business environment and Toyota is no exception of the firms that are increasingly outsourcing production of goods and services. It is not possible for the firm to produce every component that it requires in the production of its vehicles.

Even if it were possible to produce all these components, it would be more expensive as it may mean having other completely different plans and work set-ups. Additionally outsourcing allows the firm to concentrate on the core business of the firm and hence giving the firm room to be more efficient and effective in doing its core business. It also allows the firm to gain access to higher-level expertise and experience.

This may be unavailable within its staff or which is expensive to employ. Other benefits include legality of the process done on contractual basis, risk avoidance, tax benefit, commoditization, and many more. An example of components that the firm outsources includes wheels and oil.

Toyota, a multi-national company, gets its suppliers all over the word as long as they provide what the company requires and for a reasonable price in accordance with the firm’s intentions. This shows that outsourcing will increase market penetration to countries where Toyota does not operate and further increase its profits.

Corporate Social Responsibility

CSR obligation surpasses what the law requires a firm to do. It is the responsibility an organization takes upon itself to better the social lives of both the workforce and society. Currently, this is a worldwide trend.

This is because of the pressure from society and governments for organizations to feel more responsible for the sources of their resources. The members of society are also more sophisticated than sometime back. The competitive environment is also cutthroat with more companies joining the framework.

Corporate Social Responsibility at Toyota has greatly affected society in different areas of life. Among the greatest beneficiaries is the environment. Toyota has taken up the challenge of conserving the environment, as it is becoming a necessity for the whole of the business fraternity in the world to engage in environmental conservation activities.

Consequently, the world’s society is gaining from Toyota’s efforts, for instance increase in rainfall around the world, reduced global warming etc. The company is producing environmentally friendly cars such as Prius and actively engaging environmental conservation efforts at the corporate level such as planting trees.

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"The Business Role in the Economy." IvyPanda, 26 Jan. 2020, ivypanda.com/essays/business-environment-5/.

1. IvyPanda. "The Business Role in the Economy." January 26, 2020. https://ivypanda.com/essays/business-environment-5/.


IvyPanda. "The Business Role in the Economy." January 26, 2020. https://ivypanda.com/essays/business-environment-5/.


IvyPanda. 2020. "The Business Role in the Economy." January 26, 2020. https://ivypanda.com/essays/business-environment-5/.


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