Do Business Students Need Macroeconomics?

Nowadays many business programmes (undergrad or postgrad) do not include any Economics paper. Some only offer Microeconomics (although they may call it principles of Eonomics or introduction to Eonomics). I had a conversation with a MBA graduate last week about this and according to her, business students do not need Macroeconomics. She said (quote)"business student only need to know Microeconomics such as demand, supply and elasticities. They do not need to know how to calculate GDP and unemployment rate"

This is my opinion as an Economics graduates to the question "Do business students need to learn Macroeconomics"

I think Business student need Macroeconomics more than they need marketing, logistic, human resource management etc. Macroeconomics is not a study of approaches to determine GDP or Unemployment rate. Macroeconomics is a study of the relationship of aggregate variables in Economics. Macroeconomics determine the effects and consequences of a change in an aggregate economics variable to another (or more) aggregate economics variable(s).

If unemployment rate increases, what will happen?

If money supply increases, what will happen?

If tax increases, what will happen?

Since business (firm sector) is a subset of Economy (other agents include consumer/ household, government and international sector), It can affect the economics and vice versa.

The best example of how Economy can affect business (firm sector) is during an economic crisis. Sub-prime crisis in 2007 started when Federal Reserve increased the money supply and decreased the interest rate after the Dot-Com bubble in 2001. Eventually it led to the overshooting of money supply and GDP and we all know the consequences after that.

During the crisis, the firm with best management team in the world either suffered decrease in profit, huge loss or even faced bankruptcy.

WHY?

I did a simple correlation of profit of firms in Malaysia, Singapore and Hong Kong. I used 3 economics variables: GDP, unemployment and money supply (M1) and 3 management variables: gearing ratio, company credit rating and quick ratio.

The result speaks for itself.

Correlation with profit:

GDP = 78.32%

Unemployment rate = 91.12%

Money supply = 92.85%


Gearing ratio = -18.5%

Credit rating = 38.75%

Quick ratio = 62.33%


In essence, Economics is a study of choices occurred results from unlimited wants and scarce supply. So Economics students study the management of resources and the flow of income.

For me, Economics graduates are similar to Business graduates. Only different is Economics students study the management of an (aggregate) economy while Business students study the management of a firm.