CIRCULAR FLOW MODEL, GDP, AND INFLATION 3
STUDENTNO
DUEDATE
Thisreport will seek to elaborate basic fundamental principles that mayaffect General Motors in its day to day economic activities. Thereport will explain the role of economists, the circular flow model,allocation of resources, the Gross domestic product and the Consumerprice index.
Rolesof Economists
Undeniably,economists assume the roles of both Scientist and policy makers. Intheir roles in institutions or while dispensing their duties,economists, make observations that help them in developing theories,data at times is collected that maybe used in analysis and evaluationof theories thusly, this supports the assertion by (Estrada,Chandran & Tahir, 2016)who explains that economists pay meticulous attention to naturalexperiments that have been offered over a time and that makes themscientists. It is after the collection and analysis of that data thateconomists come up with policies that are adopted by institutions.Laws such as the minimum wage laws heavily borrow from the policymaking role of economists. That therefore explains their roles asscientists and policy makers.
CircularFlow Model
Thecircular flow model is a summary of a typical economy and how itworks. The household, the markets for factors of production, firmsand markets for goods and services are the pivots of the economy.Using a real life example of General motors, when it was firstestablished the company needed some land where it would set theplant. The land that the company purchased and the first laborers ofthe organization were provided by the households they provide aninstitution with the basic start up facilities such as labor capitaland land. This takes place at the markets of production where thehousehold sells and the firms buy. The firms hire and use the factorsof production, producing goods and services. At the market for goodsand services the firm sells and the household buys. The moneyacquired from the sales is then revenue to the company. Then thecompany uses the revenue to pay rent, wages and profits as dividendsto the house household then that becomes the income to the household(Hardt,2016).The income is the spent again in the purchasing of goods and servicesand the cycle repeats itself.
Allocationof Resources
Theforces of supply and demand determine the allocation of resources inthe sense that when the supply of a product goes down the littlesupply left gains value since there are many people who want theproduct yet the supply is low therefore the price goes up and theresource is left for the financially able. The government policiescome in hand to cushion the consumers/producers from exploitation. Amarket governed by the supply and demand may result to exploitationof the consumers with high prices therefore the government implementspolicies that seek to strike the balance and ensure equaldistribution of resources.
GrossDomestic Product
Thisisthe Quantitative measure of a countries total economic activity. Itis a representation of the monetary value of goods and services thatare produced a countries borders in a given period of time. There arefour components that are used in the calculation of the GDP that arethe Consumption. This is the measure of both the durable such andnon-durable goods such as food and clothing in addition to services.Government expenditure is another component of the GDP. Thegovernment spends its revenue on infrastructure provision of socialamenities and others. Investment spending is the third component itincludes the Nonresidential and residential in addition to businessinventories. The forth component is the balance of trade ordifference between the exports and the imports.
ConsumerPrice Index
Accordingto Church(2016)the consumer price index is the measure of the overall cost ofservices and/or goods bought by a given or a typical consumer. On apersonal basis, Substitution bias is one of the problems in a realsituation normally I use Cadburys for tea but I realized there iscocoa that is cheaper than my usual. Therefore since the CPI notacknowledge my substitution of Cadburys for cocoa the CPI overstatesthe increase in the cost of living
Conclusion
Asexplained in the body of the report, these are some of the basicfactors that will affect GM in its economic activities. Understandingthe factors will therefore put the committee in a favorable positionto make sound economic decisions.
Reference
Church,J. D. (2016). Comparing the Consumer Price Index with the grossdomestic product price index and gross domestic product implicitprice deflator Monthly Labor Review, 1-6
Estrada,M. R., Chandran, V., & Tahir, M. (2016) An Introduction to theMultidimensional Real-Time Economic Modeling ContemporaryEconomics, 10(1), 55-70. doi:10.5709/ce.1897-9254.198
Hardt,L. (2016). The Recent Critique of Theoretical Economics: AMethodologically Informed Investigation. Journal Of EconomicIssues (M.E. Sharpe Inc.), 50(1), 269-287.doi:10.1080/00213624.2016.1148984