In the aspect of macroeconomics, economists measure and evaluate the current condition and characteristics of a certain region’s economy based on the production ability and condition of the said population. This economic production value is summarized under the computation of the Gross Domestic Product of said the region.
GDP is mainly the summary of the value added at every stage of production of all final goods produced by the subject region in a given period of time. Its computation include the total consumption of the population of the said region added with the gross investment of the private sector at the given period and the total money value of the government spending thus, summarizing the total production output of all the sectors in the society.
In particular, the computation of GDP only includes the final goods and services for a particular year. This does not include the value of stocks and used goods that are bought and sold. This is mainly because the value of the said goods have already been included during the particular period on which they are originally produced thus, the second term of their usage are not being considered as this would only result to redundancy in the computation. Thus, to come up with the proper and effective measurement of GDP value, goods are only measured during the period that they were originally produced at that particular period of time.
Regarding the aspect of contribution towards the GDP value of the involved region, the business firms in particular have a significant influence to the generation of the GDP of their region. Business firms are considered to be in the private sector of the business economy and their gross investment or capital becomes their contributory value towards the GDP generation.
For them to affect positively the GDP value of their economy, they can increase their gross investment value towards the economy such as expanding their operation or increasing their production at the period being considered. Through which, they can effectively increase the value of GDP in their region characterizing the growth in their economy.
2. Define consumption and MPC. What is your MPC has it increased or decreased through time?
Another important element in the computation of GDP is the value of public consumption generated by the spending characteristics of the population. This is mainly the gross money value generated by the financial and economic transaction such as producing, buying, and selling of the population in the given period. Intuitively, higher consumption requires higher income for the population for them to have the financially capability to buy goods in the market. Increased in the consumption through this added with the increase in the production of goods being sold in the market would result to higher GDP for the subject region.
An important concern in evaluating the consumption value is the MPC or the Gross Propensity to Consume. This is mainly the proportion in the aggregate raise added in the income level of an individual or the population in general, which is added to his or her ability to consume as opposed to savings. Considering this value, the increase in MPC would be affected by the current condition of the economy and the decision of the person on whether to save or consume the additional value to his or her income.
1. How has business cycle impacted you and/or a business you have information about? How do changes in price level and production (real GDP) might have an affect on you or a business?
The business cycle is generally considered to be a natural occurrence affecting the condition and characteristic of the business firm. This is mainly the event of the upward and downward growth trend in the business, which are cyclical in nature affected by the several factors internally and externally. This cycle is characterized by periods of trough, recovery, peak and recession reflected upon its value of real output. Included in the factors influencing this cycle are the price level and production level in a given period of their economy.
Generally, increase in price level would likewise affect the profit level of the business, as they would generate more revenue from selling their production. On the other hand, the current production level will likewise affect the business wherein a high level of GDP would likely result to lower prices due to the surplus of products circulating in the market. The low price level would in turn, affect the business with the reduction of their income and profit level.
2. Assume that you are a business owner and looking into future, you want implement a long-term plan to expand your business what are the macroeconomics variable you will appraise to make an effective and successful business expansion?
In developing a long-term expansion plan for a business organization, it is important to consider the macroeconomic variables that are influential in the business operation. In the expansion plan, it is important to consider the future possibilities of the society in which the business plan to conduct their operation. The macroeconomic variables such as the current production and price level trends are important in this plan as they would general affect the profit generation of the business.
Projecting an increase in the price level would likely result to higher income for the production operation as they would generate more revenue in selling their goods thus, expanding operation during this condition can be beneficial. On the other hand, if the production level of the business’s product is high then it is likely that the good will have a surplus in the market thus, lowering their value in the market. This condition indeed would not be much ideally for the organization. Indeed, analyzing the current condition of the market is important for the expansion, as this will determine the ideal and effective moment for the organization’s plan.
3. Put the hat of a Keynesian economist on and convince your classmates why Keynesian economics polices are effective to control inflation and unemployment in the economy.
The Keynesian economics is mainly characterized by its mixed value towards the state and private sector towards the development of the social economy. In this aspect, combining the gross production ability of the state and the private sector through developing strategies to equally maximize their output will effectively benefit the social economic condition. In particular, the Keynesian economic principles are effective in controlling the inflation and unemployment problems in the economy.
Through encouraging greater investment and lesser savings, business organizations will be encourage to expand their operation thus, generating more jobs for the public. With this, production level will also likely increase thus, increasing the available goods in the market. In this condition, price level would likely decrease due to the surplus of economic goods thus, negating the negative factors of inflation in the subject regions’ economy.
McConnell, Campbell R. & Brue, Stanley L. (2006). Macroeconomics. McGraw-Hill/ Irwin
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