ECON545: Project 2�Macroeconomic Analysi
Project 2 on macroeconomic analysis.
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ECON545: Project 2—Macroeconomic Analysis
Each of the scenarios has a list of Macroeconomic areas you are to address, with sources, in
your answer. Briefly you are to research and show how these apply to your scenario: GDP
growth rate (20 points), the business cycle (30 points), fiscal policy and level of
unemployment (50 points), monetary policy and interest rates (50 points), international trade
(40 points), and demographics (20 points).
Cousin Edgar is always thinking of the next business idea. This time, he plans to invest in buying four gas
stations. He reckons American consumers have come to accept the high gasoline prices, and estimates world
prices for gasoline to increase even further with high demand from India and China. Besides, Cousin Edgar
thinks he will make a good profit on the sale of convenience items at each station. But before buying the gas
stations, he decides to ask for your advice because you are taking this course in business economics.
Answer – The new business idea of Cousin Edgar is very innovative but being an
intelligent businessman Edgar should look for all the broad macroeconomic conditions in
the U.S economy where he is planning to buy four gas stations and to set up the stores of
convenience items at each station. Being a student of economics, I would like to give him
few ideas and some broad perspectives which Edgar should be taken care of before
investing such a huge amount at one instance.
We will start from the overview of the U.S economy, the current GDP volume and the
contribution by each sector. The inflation rate and the unemployment rate would also have
great impact on the growth and the operations of the business in U.S. With crude oil prices
over $120 per barrel, it is no wonder that gas prices are so high. Oil prices affect not only
gasoline, but everything that revolves around gasoline as well. Groceries are more
expensive, anything that is delivered by a semi-truck is higher than and even something as
simple as ordering a pizza is costing a little more these days. Therefore, the price elasticity
of other goods is higher than the price elasticity of demand for Gasoline. Hence, Edgar
ECON545: Project 2—Macroeconomic Analysis
Each of the scenarios has a list of Macroeconomic areas you are to address, with sources, in
your answer. Briefly you are to research and show how these apply to your scenario: GDP
growth rate (20 points), the business cycle (30 points), fiscal policy and level of
unemployment (50 points), monetary policy and interest rates (50 points), international trade
(40 points), and demographics (20 points).
Cousin Edgar is always thinking of the next business idea. This time, he plans to invest in buying four gas
stations. He reckons American consumers have come to accept the high gasoline prices, and estimates world
prices for gasoline to increase even further with high demand from India and China. Besides, Cousin Edgar
thinks he will make a good profit on the sale of convenience items at each station. But before buying the gas
stations, he decides to ask for your advice because you are taking this course in business economics.
Answer – The new business idea of Cousin Edgar is very innovative but being an
intelligent businessman Edgar should look for all the broad macroeconomic conditions in
the U.S economy where he is planning to buy four gas stations and to set up the stores of
convenience items at each station. Being a student of economics, I would like to give him
few ideas and some broad perspectives which Edgar should be taken care of before
investing such a huge amount at one instance.
We will start from the overview of the U.S economy, the current GDP volume and the
contribution by each sector. The inflation rate and the unemployment rate would also have
great impact on the growth and the operations of the business in U.S. With crude oil prices
over $120 per barrel, it is no wonder that gas prices are so high. Oil prices affect not only
gasoline, but everything that revolves around gasoline as well. Groceries are more
expensive, anything that is delivered by a semi-truck is higher than and even something as
simple as ordering a pizza is costing a little more these days. Therefore, the price elasticity
of other goods is higher than the price elasticity of demand for Gasoline. Hence, Edgar
2
cannot keep much higher prices for his products at Gasoline station. It would not be
necessary that everybody who is going to visit the station would purchase the goods from
the Edgar’s store. (Bank, 2014)
Oil companies are having a hard time keeping up with the rapid growth of India and
China. If these trends continue, it is likely that oil prices could reach $200 per gallon or
more.
Oil prices are also affecting the rest of the economy. With people spending so much more
money on gas and groceries, they are spending much less on other products. As this
continues inflations is becoming an ever growing threat. The limited budget of the people
should be allocated as efficiently as possible.
The government has constructed an economic stimulus packet to help compensate for high
gas prices and also to help stimulate the economy. By sending out free money, they are
hoping that people will run out and start spending, however, recent polls show that most
people will be using the free money to pay bills or to invest. The aggregate demand in the
economy will increase which will further push up the expenditures by the people on the
Gasoline and its products. (Fed, 2010)
The demand of products at Gasoline station would depend on the demand of the Gasoline
by the consumers. Higher the demand of Gasoline, more people would visit the Gasoline
station. The current demand for Gasoline in U.S is , and the demand for Gasoline is
inelastic too. It means that if there is rise in the price of Gasoline by say $5 per barrel, then
there will not be fall in the demand for Gasoline. This is because Gasoline is an essential
good and there are also no close substitutes available for Gasoline. Hence, Edgar would
earn a reasonable amount of revenue if he sets up his business at Gasoline station.
cannot keep much higher prices for his products at Gasoline station. It would not be
necessary that everybody who is going to visit the station would purchase the goods from
the Edgar’s store. (Bank, 2014)
Oil companies are having a hard time keeping up with the rapid growth of India and
China. If these trends continue, it is likely that oil prices could reach $200 per gallon or
more.
Oil prices are also affecting the rest of the economy. With people spending so much more
money on gas and groceries, they are spending much less on other products. As this
continues inflations is becoming an ever growing threat. The limited budget of the people
should be allocated as efficiently as possible.
The government has constructed an economic stimulus packet to help compensate for high
gas prices and also to help stimulate the economy. By sending out free money, they are
hoping that people will run out and start spending, however, recent polls show that most
people will be using the free money to pay bills or to invest. The aggregate demand in the
economy will increase which will further push up the expenditures by the people on the
Gasoline and its products. (Fed, 2010)
The demand of products at Gasoline station would depend on the demand of the Gasoline
by the consumers. Higher the demand of Gasoline, more people would visit the Gasoline
station. The current demand for Gasoline in U.S is , and the demand for Gasoline is
inelastic too. It means that if there is rise in the price of Gasoline by say $5 per barrel, then
there will not be fall in the demand for Gasoline. This is because Gasoline is an essential
good and there are also no close substitutes available for Gasoline. Hence, Edgar would
earn a reasonable amount of revenue if he sets up his business at Gasoline station.
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Document Details
University
DeVry University
Subject
Economics