Macroeconomic Trends and Offshoring

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Running head: ECONOMICS PRINCIPLES 1

ECONOMICS PRINCIPLES 14

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Economics Principles

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Economics Principles

Every business operates within the context of the economy, which makes it necessary that the management understands the functioning of the economy and the different factors that influence consumer choices and producer policies. Different factors, ranging from the functionality of an economy to how much it produces would influence the decisions in any corporation. The General Motors planning committee ought to understand such economics aspects to be better placed in developing sound plans for the company, which would then be applied in placing the company at a more competitive position in the industry than it currently is. For any business to succeed, the policies made should align with economic principles of production and consumption, resource allocation, total economic output, and consumption capability of the country in question.

The Circular Flow Model

Activities in an economy follow a circular system where products made by producers end up finding their way to the consumers under the influence of the market forces. For a vehicle made by General Motors to be purchased by the consumer, different factors would influence the decision on what type of car the consumer would purchase, after making the decision that he or she is to purchase from the company. First, he or she would consider the availability of the car in the marker (Mankiw, 2012, p. # or para. #). When there is a high supply of a particular product, the prices of the same would reduce. However, the consumers would respond to the reduction in prices by purchasing more of the product, which would eventually create a shortage. The forces of demand and supply are one of the product market forces that influence the consumer choice and contribute to the circular flow model.

Consequently, the company would receive payment from the consumer as revenue from the purchases of the products made by the firm. However, the firm would need to make payment for the rental space it uses as assembly plants, and wages to the employees of the company, in addition to other production expenses. Therefore, the firm ends up giving back part of its revenue to the household, thereby completing the circular flow model. What was taken from the household, in this case the consumer, while making a purchase of the product, ends up returning to the household from the firm in terms of the firm’s expenditure.

Therefore, the planning committee needs to understand the functioning of the business as such and find ways using which the firm would reduce its expenditure and increase revenue. Such a strategy would imply that the firm would have enough capital to expand the business, and possibly explore new markets (Mankiw, 2012). However, the company should also note that it does not solely operate in an environment with no responsive interference. The economic system distributes and redistributes resources using different means to the different economic sectors, which makes it necessary that the planning committee understands the resource distribution process.

Resource Allocation

The economy has a life of its own and balances itself in an effort toto ensure equal resource allocation in all sectors of an economy. For instance, when there is too much supply of labor in the market, the forces of demand and supply set in to create a balance by reducing the wages payable to the now highly available employees (Mankiw, 2012, p. # or para. #). Therefore, there will be a decrease in lucrativeness of the motor industry as an ideal employer, which leads to consequent decrease in the labor supply in the motor industry. The cycle continues, thereby ensuring regulation of the human resource in the industry.

On the other hand, the prices of goods and services influence resource allocation within an industry. Any supplier will always seek to work in a market where he or she is paid as much as possible for the least quantity supplied. On the other hand, a consumer will always seek to obtain his or her products from a market in which he or she pays the least amount possible for the maximum possible amount of product. Consequently, where the price of the factors of production is low, the consumer is likely to produce the products at a cheap price, and sell them at low prices, thus, attracting more consumers. Therefore, the prices of the factors of production largely influence resource allocation by determining the prices commanded by the producers for their products.

Lastly, government policies serve as one of the most distinct sources of control of resource allocation (Mankiw, 2012). By using taxation and subsidies, the government is capable of influencing the market and redistributing resources within an economy. For instance, there exists a significant difference between a V12 engine and a V6 engine on vehicles with the former being considered to be more expensive. The government could decide that consumers purchasing the V6 have more than enough resources, and impose relatively higher and disproportional taxes to the V12 purchasers compared to the V6. Therefore, it would use the tax system to get resources from the rich people using the V12s and give it to the low-income households through other products such as free healthcare. The Aapproach would lead to less popularity of the V12 due to its high cost compared to the V6 engine.

The Gross Domestic Product

The team also needs to understand the concept of the Ggross Ddomestic Pproduct, popularly known as GDP. As the name suggests, the GDP includes the total productivity of an economy and is a summation of expenditure by the firms, households, the international market, and the government. The four contributors to the GDP make up its four primary components. First, the household expenditure includes the expenses by different families including the water bills, rent, and consumption. Secondly, government expenditure occurs through subsidies and grants. Third, net exports make up the international market’s contribution, and consist of the difference between the cost incurred in importing and the revenue generated from exporting the total number of products in the country. Finally, the firms contribute to the GDP through the levels of investments made. Notably, households also contribute to the investment component of the GDP. For instance, the total worth of business expansion made by General Motors in the past year, or the total value of investment made by the company receptionist over the past year.

Consumer Price Index

The consumer price index is an analysis of changes in the consumer’s ability to make purchases. The GM planning team would be interested in the measure since it provides an overview of the market’s capability and potential. Without the index, it could develop plans for the company, only to realize later that they were made for the wrong market. The first step into constructing a price index is identification of a base year, which is used to determine possible changes in price between then and the present. The average change in price is the price index and could be used to determine the existence or absence of inflation in an economy. Understanding inflation would help the company in planning for levels of production and possible expenditure levels in the forthcoming financial year.

<The conclusion would be improved if it reviewed all the major elements of the paper as outlined in the syllabus. Note: The conclusion should be more extensive than the introduction; it should draw some conclusions rather than simply list the contents of the paper.

Reference

Mankiw, G. N. (2012). Principles of macroeconomics. Mason, OH: Cengage Learning

Hello,

Your paper demonstrated a cursory understanding of the circular flow model, GDP, and inflation. What unanswered questions do you have on the economic concepts covered in this paper?

Here's my feedback on your Week 1 Circular Flow Model, GDP, and Inflation Report . . .

Criterion	Unsatisfactory/ Below Minimum Requirements	Satisfactory/ Meets Minimum Requirements	Exceptional/ Exceeds Minimum Requirements
Content and Development (50%)
Explain the role of an economist as a scientist as well as a policymaker. Include at least one real-world example of an economist (a real person) and the role he or she plays.	The report would be improved if it explained the role of an economist as a scientist as well as a policymaker and included at least one real-world example of an economist (a real person) and the role he or she plays.	The report explained the role of an economist as a scientist as well as a policymaker and included at least one real-world example of an economist (a real person) and the role he or she plays although some of the information was either incomplete and/or incorrect. Please see my comments within the paper.	The report explained the role of an economist as a scientist as well as a policymaker and included at least one real-world example of an economist (a real person) and the role he or she plays, and all the information was complete and correct.
Explain the interconnections displayed in the circular flow model with specific real-world examples of: (1) households, (2) firms, (3) product (goods/services) market, and (4) factor markets. Explain the flow of money and goods in an economy.	The report would be improved if it explained the interconnections displayed in the circular flow model with specific real-world examples of: (1) households, (2) firms, (3) product (goods/services) market, and (4) factor markets.	The report explained the interconnections displayed in the circular flow model with specific real-world examples of: (1) households, (2) firms, (3) product (goods/services) market, and (4) factor markets although some of the information was either incomplete and/or incorrect. Please see my comments within the paper.	The report explained the interconnections displayed in the circular flow model with specific real-world examples of: (1) households, (2) firms, (3) product (goods/services) market, and (4) factor markets, and all the information was complete and correct.
Explain how an economy's scarce resources are allocated by: (1) the forces of supply and demand, (2) prices, and (3) government policies. Include at least one specific real-world example of one of the above allocation mechanisms.	The report explained how an economy's scarce resources are allocated by: (1) the forces of supply and demand, (2) prices, and (3) government policies. It would be improved if it included at least one specific real-world example of one of the above allocation mechanisms.	The report explained how an economy's scarce resources are allocated by: (1) the forces of supply and demand, (2) prices, and (3) government policies. It also included at least one specific real-world example of one of the above allocation mechanisms although some of the information was either incomplete and/or incorrect. Please see my comments within the paper.	The report explained how an economy's scarce resources are allocated by: (1) the forces of supply and demand, (2) prices, and (3) government policies; it also included at least one specific real-world example of one of the above allocation mechanisms, and all the information was complete and correct.
Define the term gross domestic product (GDP) and provide a specific real-world example of each of the four major components of GDP.	The report defined the term gross domestic product (GDP). It would be improved if it provided a specific real-world example of each of the four major components of GDP.	The report defined the term gross domestic product (GDP) and provided a specific real-world example of each of the four major components of GDP although some of the information was either incomplete and/or incorrect. Please see my comments within the paper.	The report defined the term gross domestic product (GDP) and provided a specific real-world example of each of the four major components of GDP, and all the information was complete and correct.
Explain the five steps in how the consumer price index (CPI) is constructed. The course text lists three problems inherent in the measuring changes in the cost of living - from your experience as a consumer, provide a specific real-world example of one of those three problems.	The report explained the five steps in how the consumer price index (CPI) is constructed. It would be improved if it provided a specific real-world example of one of those three problems.	The report explained how the consumer price index (CPI) is constructed and provided a specific real-world example of one of those three problems although some of the information was either incomplete and/or incorrect. Please see my comments within the paper.	The report explained how the consumer price index (CPI) is constructed and provided a specific real-world example of one of those three problems, and all the information was complete and correct.
Grade on Content and Development is 4.5 of a possible 7.5 points.
Organization (20%)
The structure of the paper is clear and easy to follow. The paper's organization emphasizes the central theme or purpose and is directed toward the appropriate audience. Ideas flow in a logical sequence. The introduction provides sufficient background on the topic and previews major points. Paragraph transitions are logical and reinforce the flow of thought throughout the paper. The conclusion reviews the major points.	The paper would be improved if it included an introduction and a conclusion and/or discussed all the topics previewed in the introduction. It would also be improved if the organization emphasized the central theme of the assignment and the ideas flowed in a logical sequence.	The conclusion reviewed, some, but not all, of the major elements of the paper.	The introduction previewed all the major elements of the analysis as listed in the syllabus. It also included a brief thesis statement. The organization emphasized the central theme of the assignment, and all the ideas flowed in a logical sequence. The conclusion reviewed all the major elements of the paper.
Grade on Organization is 2.25 of a possible 3.0 points.
Format (10%)
The paper, including citations and the reference page, follows guidelines given in the University of Phoenix-approved style guide. The paper is laid out effectively and uses reader friendly aids (e.g., sections, summaries, table of contents, indices, and appendices), when appropriate. The paper uses references appropriately. Features such as headings and italics aid in the readability of the paper and are not overused. The paper is neat, with attention given to format requirements.	The paper omitted major elements of APA format including a reference page and/or in-text citations. An effective way to improve the format of your papers is to consult the resources found the UOPX Center for Writing Excellence.	The paper included in-text citations and a reference page although it would be improved if these elements were correctly formatted. Please see my comments within the paper. An effective way to improve the format of your papers is to consult the resources found in the UOPX Center for Writing Excellence.	The paper included all the required elements of APA format, and most of these elements were correctly formatted.
Grade on Format is 1.25 of a possible 1.5 points.
Grammar, Punctuation, and Spelling (10%)
Rules of grammar, usage, and punctuation are followed. Spelling is correct	The paper included many errors in grammar, punctuation, and spelling. Please note: The spell checker is a handy tool for improving grammar, punctuation, and spelling. Also, the UOPX Center for Writing Excellence is an excellent source of information on the rules of grammar and punctuation.	The paper included a few errors in grammar, punctuation, and spelling. Please note: The spell checker is a handy tool for improving grammar, punctuation, and spelling. Also, the UOPX Center for Writing Excellence is an excellent source of information on the rules of grammar and punctuation.	The paper included very few errors in grammar, punctuation, and spelling.
Grade on Grammar, Punctuation, and Spelling is 1.5 of a possible 1.5 points.
Readability and Style (10%)
Sentences are complete, clear, and concise. Sentences are well constructed, with consistently strong, varied structure. Sentence transitions reinforce the flow of thought. Words used are precise and unambiguous. The tone is appropriate to the content and assignment. Tables, charts, and bulleted lists were used appropriately to enhance paper's readability.	Many phrases and sentences were imprecise, incomplete, and/or ambiguous. The tone was also inappropriate for a college paper.	A few phrases and sentences were imprecise, incomplete, and/or ambiguous. The tone was appropriate for a college paper although it would be improved with the use of bulleted lists, tables, or charts.	The phrases and sentences were complete, clear, and concise, and the wording was unambiguous. The tone was appropriate, and the paper included bulleted lists, tables, or charts where appropriate.
Grade on Readability is 1.5 of a possible 1.5 points.
Overall Grade is:	11	of a possible 15.0 points.	Please see my comments within the report.

After your references page, your paper should include a brief addendum that discusses how you implemented/used the feedback you received on your Circular Flow Model, GDP, and Inflation paper to improve your Macroeconomic Trends and Offshoring Paper. Your addendum should consist of a bulleted list of at least 2 bullets and no more than 5 bullets; the word length of each bullet should be at least 5 words and no more than 10 words.