Do you know Macroeconomics?

GDP 1

GDP 3

GDP

Gross Domestic Product (GDP) is an important economic component that usually guides policymakers and organization in making appropriate financial and business decisions respectively. The GDP tends to portray the economic growth of the nation (Mankiw, 2018, Ch. 5). Not only does it allow businesses to determine the level of income of consumers, but also their spending and investment levels to assess the prices as well as output levels of their products. Moreover, many economists prefer the real GDP because of its ability to accurately gauge the growth of an economy so they can make other essential business decisions. Besides, given the data from the Federal Reserve Economic Data (FED) about the GDP of the United States and the economic environment where Yogurtland finds itself, the company might make several business decisions. From the graph, the real GDP has been increasing steadily from 2000-2007 (Economic Research, 2018). As such, during this period, the U.S. economy was performing well and growing respectively. Also, this indicated that individuals’ income as well as spending was high. Therefore, Yogurtland might have decided to increase production units of its frozen yogurt since the market demand would be high.

Increasing the production units of products would meet the high market demand and in turn generate substantial profits to the company. In essence, when the incomes and spending levels of individuals are high, increasing production units would be an appropriate business decision since the firm would have both offset the excess demand a well as get more profits to enhance its operations (Mankiw, 2018, Ch. 5). Another decision that Yogurtland would have made during this period would regard pricing. Since the incomes and spending levels of consumers would be high, this meant that the demand was also high, therefore the business would have slightly increased prices of its yogurt varieties to earn more profits. Fundamentally, when consumers have higher incomes, they would not mind spending a little more to acquire products or services. Therefore, Yogurtland’s decision to slightly adjust its prices would not have adversely impacted the profitability of the business. It would also not have scared away consumers to opt for the products of the rivals.

Moreover, from 2007 to 2009, the GDP of the U.S. reduced significantly mainly due to the financial crisis of 2008 that significantly impacted the U.S economy. Therefore, during this period, Yogurtland would have decided to limit its production level since both the income and spending level would have been reduced. Increasing or maintaining the output level would have been a poor strategy since there would be no market demand to consume the more product units. Similarly, the business would have been forced to reduce prices since the market would not have enough income to pay for higher prices.

Nevertheless, apart from the nation’s real GDP, other business environmental changes would also have affected the firm’s decisions or profitability. For instance, increased industry competition would have made Yogurtland limit its output level to get time to deal with the rivalry either through improving its quality or marketing activities. High competition would also have adversely impacted the profitability of the organization. Another business environment factor that might have affected the company’s decision would change in consumers’ tastes and preferences. In case customers opted for the products of rivals, Yogurtland would have limited its output as well as adjust its pricing to remain competitive.

References

Economic Research (2018). Real Gross Domestic Product. Retrieved from https://fred.stlouisfed.org/series/GDPMC1

Mankiw, N. G. (2018). Principles of macroeconomics. Cengage Learning.

Videos, Chapter 5