Macroeconomic Measures of Output, Prices and their Justification in Planning
Big Drive Auto tracks vehicle unit sales and its own price index of vehicle sales prices with 2000 as the base year. Using Real Gross Domestic Product (GDP) and Consumer Price Index (CPI), an aggregate demand and supply curve can be generated to determine vehicle pricing levels as well as supply levels of inventory. The Real GDP takes into account consumption, gross investments, government spending, exports, and imports. Specifically, the GDP subcategory of motor vehicle durable goods can be tracked and used for planning of staffing and prices.
Given that a large volume of vehicles are imported, this is important that imports are included in the GDP. Big Drive Auto needs to determine the mix of American and foreign autos and trucks to keep in inventory. The exchange rate and tariffs will also play a part in how much of the GDP is comprised of imports.
The Relationship between Big Drive Auto??™s Data and the Macroeconomic Measures
The output relationship between Big Drive Auto??™s vehicle sales can be compared to GDP by vehicle industry for the United States (Bureau of Economic Analysis, 2009). The Motor Vehicles Output chart below shows Big Auto vehicle sales trend with the United States GDP for Motor Vehicles over the same years of 1998 to 2007 (ibid).
The output relationship between Big Drive Auto??™s Index of Sales (base year = 2000) is compared to the United Stated GDP Price Index by motor vehicle industry in Motor Vehicle Price Index chart below. This chart shows that Big Drive Auto??™s real dollars, compared to year 2000, has remained constant from 1997 to 2007. The United States??™ real dollars, compared to year 2000, has trended downward at a large rate of change compared to Big Drive Auto. This indicates that compared to year 2000, the average price for motor vehicles has declined comparatively in the United States, although Big Drive Auto??™s prices have remained the same compared to year 2000.
3. Explain how specific planning and operating decisions at the organization can be improved using the macroeconomic data. JONATHAN
Obtaining Reliable Forecasts of Macroeconomic Variables
In order for a company such as Big Drive Auto to be able to have reliable forecasts, they must review many of the key macroeconomic variables before they can determine what is most suitable and efficient in achieving their goals. These variables include the Consumer Price Index, the Per Capita Growth Rate, the nominal exchange rate, and the money market rate. By properly evaluating all these variables, a reliable forecast can be attained.
Dealing With Uncertainty in Macroeconomic Forecasts
With planning on how to deal with the uncertainties in the macroeconomic forecasts, Big Drive Auto should look into precedence from other companies and even their own past economic experiences. When there are uncertainties, there is no way of actually knowing how to deal with any crisis circumstances. There are three types of macroeconomic forecasting to handle these circumstances. One is event outcome forecasting, which tries to forecast the outcome of an uncertain event; time series forecasting, which uses past and present values of a variable to forecast its future value; and event timing, which attempts to determine when a particular event will occur. Big Auto Drive should use all three of these macroeconomic forecasting types to help them get through uncertainties.
6. How do business cycles affect the performances of Big Drive Auto What could the organization do to mitigate any undesirable effects of business cycles
The circled area is the time prior to the start of the last recession. Notice how there was a sharp decline in the growth rate for GDP. Look at 1994 and 1996. Both of these years gave a false signal. Most recessions have had false signals. Since inflation was reigned in during the early 1980??™s, Per Capita Real GDP growth has averaged about 2% per year. The current rate of 1.5% is certainly not excessive. The last two expansions have been about ten years in length. The current expansion is less than seven years old.
???Small fluctuations in the business cycle cause greater fluctuations in the car industry, although there will be other variables that also contribute??? (Miguel Angel Arino, Africa Arino, Roberto Garcia Castro, 2008).
7. Identify to what extent tariffs or quotas would affect international trade in your product MELISSA
8. How would you pay for imports, receive payment for exports, and manage exchange rate risk JONATHAN
University of Phoenix. (2008). Big Drive Auto scenario. Retrieved June 5, 2009, from University of Phoenix, Week Five, rEsource. ECO561??”Economics course website.
U.S. Bureau of Economic Analysis. http://www.bea.gov/ . Retrieved June 20, 2009
McConnell?Brue (2004), Economics, 16th Edition, The McGraw?Hill Companies
Miguel Angel Arino, Africa Arino, Roberto Garcia Castro (2008), Measuring the Impact of the Business Cycle on Your Industry (Original document: A Model to Evaluate Transient Industry Effects), Managerial and Decision Economics, Volume 29 Issue 8, Pages 629 – 637