ECON545: Project 2�Macroeconomic Analysi

Project 2 on macroeconomic analysis.

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1ECON545:Project 2MacroeconomicAnalysisEach of the scenarios has a list of Macroeconomic areas you are to address, with sources, inyour answer.Briefly you are to research and show how these apply toyour scenario: GDPgrowth rate (20 points),the business cycle(30 points), fiscal policy and level ofunemployment(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 gasstations. He reckons American consumers have come to accept the high gasoline prices, andestimates worldprices for gasoline to increase even further with high demand from India and China. Besides, Cousin Edgarthinks he will make a good profit on the sale of convenience items at each station. But before buying the gasstations, he decides to ask for your advice because you are taking this course in business economics.AnswerThe new business idea of Cousin Edgar is very innovative but being anintelligent businessmanEdgar should look for all the broad macroeconomic conditions inthe U.S economy where he is planning to buyfour gas stations and to set up the stores ofconvenience items at each station.Being a student of economics, I would like to give himfew ideas and some broad perspectives which Edgar shouldbetaken care of beforeinvesting sucha huge amount at one instance.We will start from the overview of the U.S economy,the current GDP volume and thecontribution by each sector. The inflation rate and theunemployment ratewould also havegreat impact on the growth and the operations ofthe business in U.S.With crude oil pricesover $120 per barrel, it is no wonder that gas prices are so high.Oil prices affect not onlygasoline, but everything that revolves around gasoline as well.Groceries are moreexpensive, anything that is delivered by a semi-truck is higherthan andeven something assimple as ordering a pizza iscosting a little more these days. Therefore, the price elasticityof other goods is higher than the price elasticity of demand for Gasoline. Hence, Edgar

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2cannot keep much higher prices for his products at Gasoline station. It would not benecessary that everybody who is going to visit the station would purchase the goods fromthe Edgar’s store.(Bank, 2014)Oil companies are having a hard time keeping up with the rapid growth of India andChina.If these trendscontinue, it is likely that oil prices could reach $200 per gallon ormore.Oil prices are also affecting the rest of the economy.With people spending so much moremoney on gas and groceries, they are spending much less on other products.As thiscontinues inflations is becoming an ever growing threat. The limited budget of the peopleshould be allocated as efficiently as possible.The government has constructed an economic stimulus packet to help compensate for highgas prices and also to help stimulate the economy.By sending out free money, they arehoping that people will run out and start spending, however, recent polls show that mostpeople will be using the free money to pay bills or to invest. The aggregate demand in theeconomy will increase which will further push up the expenditures by the people on theGasoline and its products.(Fed, 2010)The demand of products at Gasoline station would depend on the demand of the Gasolineby the consumers. Higher the demand of Gasoline, more people would visit the Gasolinestation. The current demand for Gasoline in U.S is, and the demand for Gasoline isinelastic too.It means that if there is rise in the price of Gasoline by say $5 per barrel, thenthere will not be fall in the demand for Gasoline. This is because Gasoline is an essentialgood and there are also no close substitutes available for Gasoline.Hence, Edgar wouldearn a reasonable amount of revenue if he sets up his business at Gasoline station.

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3The supply of Gasoline would also play a significant role in the business status of Edgar,Since the supply of Gasoline would depend on many factors from where it has beenimported and also the international tariffs and tax structure,thereforethe marketequilibrium quantity and price of Gasoline will be affected by foreign demand of Gasolineby countries such as India and China.Supply and demand analysis of Gasoline can beseen in the graph below:-As we are aware that the prices of Gasoline have been rising over the time as there is highconsumption of fuel in the country, it has been creating a spiral in the country which willaffect all businesses in the country. The prime reason behind this spiral is the setting up oflow interest rates by the Federal Reserve and the most importantis sub-prime mortgages.They are spending more money just to get to work every week, and the thought of usingexcess gas to go on vacation or a shopping spree is enough to make you shudder.According to the latest GDP inU.S,the figure was $16.24 trillion in 2012. The populationof U.S was313.9 million in 2012.The GNI per capita in U.S in 2012 was $52,340and it hasbeen rising thereafter.Therefore, it shows that the country is coming out of the 2008crisisPRICEQUANTITYSUPPLY
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Document Details

Course
ECON 545
Subject
Economics

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