IAI Actuarial Core Principles · Business Economics · Relationship between economics and business
A large Indian private bank is deciding how many branches to open in Tier-2 cities and what interest rate to offer on its fixed deposits to attract customers. Which description of this decision is most accurate?
It is a microeconomic issue. The bank is making decisions about its own branch network and deposit pricing in particular markets, which concerns individual firm and customer behaviour rather than economy-wide aggregates such as national output, inflation or overall interest rate policy.
- AA macroeconomic issue, because banks are part of the financial system
- BA microeconomic issue, because it concerns the choices of an individual firm and its customers in particular marketsCorrect
- CA macroeconomic issue, because interest rates are involved
- DNeither, because it is a purely accounting matter
- A macroeconomic issue, because it affects national savings
Explanation
Microeconomics studies decisions of individual firms, households and specific markets. Branch location and deposit pricing are choices by one bank facing its own customers and competitors. The mere presence of interest rates does not make it macroeconomic, since the bank is setting its own price rather than analysing economy-wide aggregates.
Did you get it right without looking?
One question tells you little. A timed set on Relationship between economics and business shows your real accuracy, how long you take and where you lose marks.
More Relationship between economics and business questions
- A firm in Pune sells 200 units at Rs 50 each. Its total cost is Rs 6,000 at this output. The firm is considering raising output by one unit,…
- Rohan runs a small advisory firm earning accounting profit of Rs 9 lakh a year. He invested Rs 40 lakh of his own savings in it, which could…
- Which of the following questions would a life insurer's economist most naturally address using macroeconomic analysis rather than microecono…
- A steel manufacturer in India finds that its own sales fall sharply even though the economy-wide index of industrial production is rising. W…
- Ananya can produce either 40 policy documents or 20 claim assessments per day. Rohan can produce either 30 policy documents or 10 claim asse…
- Each household in an economy decides to save more of its income, which is individually sensible for each household. If the result is lower t…