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Macroeconomics Journal

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Macroeconomics Journal

Growth and Development

During the course, among other themes, I have studied the theme of economic growth and development. It can be applied in practice, including managing businesses and professional careers. An example of a business, where the concept can be used, is a car production company. The concept can provide economic growth and development to the industry, its employees, and the whole economy, as well. When the company develops, it can improve the standard of living for its employees as well as its customers. As the productivity of this company rises, the standard of living (including the salaries and social packages) for its employees and customers rises, respectively. The standard of living depends on many factors. The most important of them is productivity, which, in turn, is determined by several conditions.

The example of a car manufacturing company will be used to explain the growth of productivity and the standard of living determined by productivity. The most important factors that influence the car production industry’s productivity are human capital and technology. Vehicles production requires many educated workers with relevant skills, which represent human capital. If the firm wants to improve its productivity, it should improve its human capital. For instance, it can educate its employees. As a result, their productivity grows. Technologies determine productivity, too. If the company wants to produce more cars using the same resources, it can improve its technologies. New technologies will allow producing a higher amount of cars with the same resources and at the same production costs. Therefore, productivity grows, and cars become cheaper. It may lead to a higher standard of living for employees and customers. Employees will rich a higher standard of living due to higher salaries depending on production volumes. Customers will have a higher standard of living because they will be able to buy a higher amount of cheaper cars. This process can be illustrated with the production possibilities curve. The initial curve is curve A. The firm can either invest resources in the capital or produce cars (consumer goods). When the company has more resources due to better human resources and technologies, it turns into curve B. The company can make more investments or produce more consumer goods as it has more resources.

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The concept of economic growth and development applies to my future career, as well. I plan to become a manager in the sphere of production or human resources. I do not know in what industry I will work yet, but the theory can be applied to different industries. For example, the company I will work for uses particular human resources and technologies that can be improved. Thus, I can train employees making them more productive or educate them on producing goods of higher quality. As a result, the firm will be enabled to increase its productivity and produce more goods and services still employing the same amount of resources. As productivity grows, the standards of living will grow, respectively. Thus, employees will improve their standard of living because they will get higher salaries. Customers will improve their standard of living because they will be able to buy cheaper goods or services as productivity grows. Therefore, I will be able to influence economic growth and development within a company.

The production possibilities curve can be applied to illustrate this process. My company initially has some resources, and it can invest them in capital or produce consumer goods. It is curve A. After the improvement of productivity and standard of living, it has more resources. It turns into curve B and can make more investments or produce more consumer goods as it has more of the required resources.

Business Cycles

The theme of business cycles was studied during the course. This topic applies to the company that produces cars, as well as to my future career as a manager. The company that produces cars depends greatly on business cycles. In general, cars are not necessities. Therefore, the demand for them depends on the business cycle. For example, during the economic expansion, demand for cars is expected to grow because most consumers have a high income. During the economic recession, demand for cars is likely to decline because average consumer income declines and unemployment grows. The firm that produces cars should consider those factors. The company can try to adapt to the business cycle and make its sales more stable. For instance, it can offer more expensive cars during economic expansion and cheaper ones during the recession. It is likely to make sales more stable from expansion to the recession.

The issue of inflation should be considered by the car producing company, too. As prices for all goods, prices for the raw material it uses tend to grow as all prices grow. It is not necessary to study all the prices in the market. Nevertheless, the company can study inflation for prices for the raw materials it uses. Such knowledge can help to plan expenses accurately for a long period, as well as control the cost of production and the final prices for cars. For instance, if inflation for raw materials prices is too high, the company can shift to cheaper materials to stabilize retail prices for cars.

Unemployment is determined by the business cycles, and it can be applied to this company, too. It can study unemployment tendencies in the vehicle production industry in order to make business decisions. If the unemployment rate in this sphere grows, the company can use this phenomenon and offer more vacancies. Thus, it will be able to find employees faster. If frictional unemployment grows, it can offer more vacancies, too. Employees will be found quickly if the company offers better conditions than its competitors in the market. If structural unemployment in the car production industry grows, the company can use this situation, as well. For instance, if employees cannot find a new job because they do not have the necessary skills to work with the newest equipment, the company can invite them and train to work with the new equipment, and then hire. Therefore, the car-producing company can wisely use the business cycles for its benefits.

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In my future career as a manager, the business cycle knowledge can be applied. As a manager, I would be responsible for my firm, and the firm depends on the general economic situation in the country, including business cycles. A good manager should be able to adapt the company to business cycles and try to benefit from the latter. Therefore, a good manager should watch the economic situation and study analysis and predictions of experts about business cycles. The manager should be able to adapt the company to business cycles. For instance, during the recession, the company can turn to offer cheaper goods and services to its customers. During the economic expansion, the company can sell more and offer more expensive products. As a manager, I should consider inflation in my work. For example, if inflation for our raw materials is lower than inflation for other consumer goods, our company can benefit because prices for its goods will grow slower than prices for other goods. Controversially, if the prices for raw materials are growing faster than other prices, a manager should find a way to cut costs, for instance, find cheaper raw materials.

The issue of unemployment can also be used by a manager. It is necessary to study unemployment trends in the industry where the firm operates. In the case of growing frictional unemployment, the firm can offer more vacancies because there are more available candidates. When structural unemployment grows because not all employees can adapt to new conditions or technologies, a manager can provide training for them to gain new knowledge and skills and then hire new employees.

International Finance

Like many other companies in the modern economy, the car producing industry is involved in international finance. Therefore, the knowledge of this aspect can be used to receive many benefits and avoid possible risks. Foreign exchange rates and markets are extremely important to consider. Car producing companies often buy details and materials abroad, which presupposes using foreign currency to make payments. At the same time, it sells its ready cars to other countries, and they are likely to pay in dollars. Therefore, exchange rates are important to the company. When the company buys parts abroad, it should consider exchange rates. For instance, the firm has a choice of buying similar parts from two different countries. It should consider exchange rates and their dynamics. For instance, if the currency of a particular country is becoming more expensive in relation to the dollar, it will be more expensive to buy parts from this country. Controversially, if the currency is becoming cheaper, it is better to buy parts from that country because they will be cheaper in dollars.

The car-producing company should consider international loans and investments in its operations. If the interest rate in the US is higher than in other countries, it is likely that many foreign investors and lenders prefer the American market because of higher interest rates. Therefore, a car-producing company will be able to attract more foreign investors and lenders. However, if the interest rate in the US is lower than in other countries, foreign investors and lenders are likely to leave the American market. In such a case, a car producing company should focus on domestic investors and lenders.

As a manager in the future, I will lead a company, and it is likely to be involved in international relations and international finance. The knowledge of international finance will help me to use the benefits of international finance for my company and avoid the possible risks. For example, the manager should consider foreign exchange markets and foreign exchange rates. I do not know what products my company will produce, but it is likely to buy raw materials abroad or sell some consumer goods abroad. Therefore, foreign exchange rates should be considered. For instance, when my company buys parts or raw materials from foreign vendors, it is likely to pay for them in the currency of their country. It is important to know foreign exchange rates and their trends. If my company has several alternative vendors with the same goods but from different countries, a manager should study tendencies for each foreign exchange rate. For instance, if the currency is becoming more expensive in relation to the dollar, products from that country will be more expensive in dollars, too. In this case, it is possible to choose an alternative vendor from the country where the currency is cheaper. Thus, their goods will be cheaper in terms of the dollar.

As a manager, I expect to work with foreign investments and loans for my company. Thus, it is important to consider interest rates in the US and the currency of other countries. If the interest rate in the US is higher than in other countries, foreign lenders and investors are likely to provide more investments and loans to the US. My company can use these benefits. Controversially, if the interest rate in the US is lower than in other countries, foreign lenders and investors are likely to shift from the US to other countries. In such a case, a manager should focus on national lenders and investors.

 

Complete Model

The complete model is useful to any company, and it should be studied to know the current economic situation and adapt to it. Monetary policy of the FED and its influence on business cycles can affect car producing companies, too. In order to control the situation, the company should study the current situation with FED’s monetary policy. During the expansionary monetary policy, the interest rate falls, and economic activity grows. In this case, the company can benefit from economic expansion by increasing its sales. Controversially, during the restrictive monetary policy, interest rate grows, and economic activity declines. A car producing company should be able to watch this situation in advance and try to avoid possible issues connected with the economic downturn.

The aggregate demand and supply should be considered. If the general price level grows, it is likely that sales of cars will go down. Therefore, the company should try to change something. For instance, it can lower prices to attract more customers. At the same time, it would be better to import more raw materials as they will be relatively cheaper. Controversially, if prices fall, the company will benefit from higher sales, but it should cut imports as they will be more expensive. A car-producing company should also study the changes in aggregate supply and demand. For example, during the stagflation, when aggregate supply declines, average prices grow and the firm can benefit from it.

During the economic recession, aggregate demand declines. In this case, a car-producing company can try to cut prices to sell more. During the expansion, aggregate demand grows, and the company can set higher car prices. The labor market is important, too. For example, if wages on average grow, labor supply grows, as well. A car-producing company can hire more employees. If average wages decline, the company can offer higher wages than its competitors to attract more employees.

As a manager in the future, I will study the FED’s current policy as it influences the current economic situation in the country and my company. During the expansionary monetary policy, the interest rate falls, and economic activity grows. The company can benefit from this situation by selling more goods and services. However, during the restrictive monetary policy, interest rate grows, and economic activity declines. In this situation, the manager should be able to avoid all possible problems for the firm. For example, it can cut costs or prices to remain in the market.

As a manager, I should study aggregate demand and supply in the economy. If the general level of prices falls, my company can benefit from lower prices and higher sales. If the average prices grow, my company can try to offer lower prices than its competitors to attract more customers. With a higher level of prices, it is better for my company to import more because imports become cheaper. If prices decline, the imports become more expensive, and it is better to find vendors within the US.

It is also important to watch the labor market. For instance, if average wages are low, labor supply declines. A manager should try to increase wages to attract more employees. If the average wage rises, it is likely that our company finds more employees, but it will be forced to pay them more.

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