GDP forecast and investment Rate
The U.S. economy has experienced a positive growth due to the balance of trade items. The GDP of the country has increased by 0.8% in 2016 which is more than the estimated 0.5% rise. The fundamental reason for the increase is due to the rising demand for products and services in the market and the increased of home spending by the citizens. The level of investment in the country reduced in 2016 compared to other years. This can be attributed to the expected election in the country since investors tend to shy away during the election period. The individual consumption level in the U.S. increased by 1.29% compared to 2015, which means that the consumers were willing to spend their income to purchase more products. For the past five years, the level of Personal Consumption Expenditure has been constantly changing (Hodgson, 2016). This can be attributed to the level of unemployment five years ago and the income level. In the next five years the GDP percentage will increase hence improving consumers’ purchasing power if all variables are constant (Magas, 2004). However, the decrease in investment level may affect GDP level in the future since it may affect the level of employment in the country.
Unemployment rate affect consumption expenditure level since few people in the economy have an income to enable them to make purchases. According to recent surveys, the rate of unemployment has reduced gradually. It is estimated that 7.4 million Americans are unemployed, however, this number has been on the decline due to the various legal and institution changes made by the government (Hodgson, 2016). The rise of new investment in the economy has enabled many people to create jobs for others in the society hence enabling them to sustain their livelihood.
Many citizens in the country work in more than one company to ensure that they can sustain their needs in the economy. This has improved their purchasing power. However, the recent statistics showing a decrease in new investments may affect employment level in the country since there is no creation of new job opportunity. This will result in decreased consumption level and a reduction of the GDP percentage (Plummer & Taylor, 2001). After the election period, it is expected that the level of investment will increase hence creating more jobs in the economy. GDP and employment rate relate since employment determines individual spending level in the market. If the unemployment level decreases, they will be high demand for Monster Beverage products. However, the trend of consumption may be worrying for the company since there has been a reduction in the purchase of non-durable products in the market (Magas, 2004). This is the industry that Monster Beverage specializes, which means there is less demand for its products in the market. However, increased employment will enhance the demand for the company products.
The level of personal saving determines how much individuals spend on their purchases. If the personal saving rate is high, the demand for Monster Beverage will be affected. The percentage range of household saving from 2013-2016 is 5.0% to 5.6%, which shows that individuals in the country are using more of the income to buy products in the economy. Savings are affected by the level of income and employment rate in the economy. Research shows that the more people earn the high the level of spending since they have more money at their disposal (Hodgson, 2016). In addition, individuals are able to save more since they have more money to cover their expenses. Unemployment level also affects saving rate since individuals who are employed have more dependents, hence making it impossible for them to save more. If individuals make more saving, then the level of economic growth will decrease hence affecting Monster Beverage. Us a new entrant in the market, the firm requires an economy where citizens are spending more of the income on consumable products. Increased saving means that people are failing to spend their money hence affecting the potential growth of the economy (Magas, 2004). This can be the cause of the decreased investment level in the country since businesses fear that the economy may not support their business goals.
However, recent changes in product prices such as oil can read to a change in spending behavior. This is based on the hypothesis that if people in the country are spending less on gas than before then, the money saved from such products may be used to purchase other goods in the market. Monster Beverage may benefit from this type of behavior since consumers will have more money to spend on its products. Consumer spending pattern affects GDP directly since more spending improves the level of GDP (Hinsen, 2010). The labor market changes in America means that employed individuals will have more income in the future hence increasing their spending. In the next five years, Monster will benefit from these changes since there will be a high demand for consumable products.
Real interest rates forecast
Several factors affect the rate of real interest. These factors include inflation rate and the Gross Domestic Product. The level of interest rate has been increasing in the country, which can be attributed to inflation level. This makes it unattractive to take a loan hence affecting purchasing power. If the consumers are facing a high rate of interest rates to access credit, then they will avoid purchasing since they do not have the money (Hodgson, 2016). The inflation rate in the country has been controlled hence affecting the level of real interest rates. In the next five years, the level of inflation is expected to increase though not an increasing rate. This means that it will be more costly to take a loan (Plummer & Taylor, 2001). The high rate of interest will affect the consumption behavior, which will affect the growth model adopted by Monster Beverage.
Government policy influence on economic growth
A country’s rules governing trade may determine the rate at which the economy grows. If the state increases the level of tax, then economic growth will be affected since investors will shy away from investing in the country since it is costly to do business. If a state decides to reduce tax and offers incentives for small businesses, economic growth will be experienced since it will encourage small investors to start doing operating the businesses (Hinsen, 2010). Policies developed by a government affect both the demand and supply of products in the economy. For instance, a country may tighten its demand policy if there is a huge demand for a product in the market to prevent inflation of prices (Magas, 2004). This policy will affect the prices of products in the market. The goal of government control on the trade is to protect consumers and investors to ensure a balanced trade to encourage economic growth.
A state’s level of spending may also affect economic growth. If a government is focused on developing infrastructures, then it will create an environment where business can operate hence stimulating economic growth. However, this has been an issue for debate for scholars since some argue that a government needs to control its spending to avoid inflation since they will more supply of money in the market (Plummer & Taylor, 2001). In addition, more spending by the government may affect its budget deficit since it may have to borrow more to finance its projects. Controlled government spending will enhance the GDP of the country since it enables protection of property and enforce contracts (Hodgson, 2016). This makes it compulsory for the government to intervene to stimulate growth. For instance, a government can increase import duty to encourage consumption of local products, which will boost the economy of the country since businesses will sell more of their products. However, if a state adopts unfavorable policies, then the economic growth will be affected negatively since it will be difficult to operate businesses.
Monetary Policies are rules that aim at controlling the money supply in the market. The goal of these policies is to improve currency exchange rate, control interest rate or inflation, and improve price stability. The inflation rate is directly affected by the supply of money in the market. If consumers have more money to spend then the prices of goods will increase and trust of currency will reduce affecting the conversion rate of the country’s currency (Hinsen, 2010). When the inflation rate rises the purchasing power of the currency reduces hence affecting both exports and imports. A state must control the credit interest rate to encourage or discourage borrowing depending on the supply of money level in the economy. Money supply in the economy determines the level of products or services supply in the market. This in the long-run determines affects the GDP of a country since the consumer purchasing power is controlled. The Federal Reserve is responsible for determining the type of policy to adopt to control the money supply. Monetary policy determines the long-run level of inflation in the economy. This means that they are key in determining the growth of the economy since they make an adjustment in areas that need to be corrected to enhance growth (Magas, 2004). It is difficult for an economy to grow when the inflation rate is high since the currency will be devalued making exports cheap and imports costly for businesses.
Trade deficits or surpluses influence on the growth of productivity and GDP
Controlling balance of trade is a key aspect in improving GDP and encouraging productivity in the economy. GDP improves when a country exports more of its products and services that it imports (Plummer & Taylor, 2001). However, if consumers in an economy purchase more of foreign goods that those produced locally it leads to a trade deficit hence lowering the GDP. A trade surplus, on the other hand, means that an economy is consuming more of its homemade products than imports, which increases GDP and encourages the growth of local industry (Hodgson, 2016). In addition, more consumption of domestic products improves the currency of a country. U.S. economy has a high deficit since the country imports more than it produces locally.
Deficit may be essential when controlling inflation rate since some products are cheaper when imported rather when manufactured locally. This means that consumers are able to purchase such products at a favorable price. However, this is risky for local companies making similar products since they will be forced to reduce their prices to encourage consumption of its products hence making losses (Hinsen, 2010). This discourages local investors hence lowering the growth rate of the economy. If the local industries are not protected from the cheap imports, it may lead to loss of jobs which affects the purchasing power of consumers. A country can increase customs duties for imports to balance trade since it will raise the cost imports enabling local businesses to sell the products at a profit (Magas, 2004). The increase of imports affects the stability of the currency which in turn affects the purchasing power of money held by consumers in the country.
Loanable funds and the market for foreign-currency exchange
Market for loanable funds is determined by the saving level in an economy since it is the primary source of loans. The more an economy saves, the more loanable funds it has to offer to investors and consumers as credit. These create a trade cycle since the money loaned is demanded with interest by the lender. Foreign currency exchange market is determined by the level of net exports and capital outflows (Hinsen, 2010). For the achievement of the proposed growth plan for Monster Beverage, there should be loanable funds for the business and consumers. The business will benefit since it will be able to finance its operation. For the strategic plan to work the foreign-currency exchange rate should be favorable for its globalization strategy. This will enable importers to buy the company products are a good price to enable them to make a profit (Plummer & Taylor, 2001). Monster Beverage will grow depending on these two factors since they will determine the price of its products and consumer purchasing power.
Achievable Strategic Plan
Based on the analysis above Monster Beverage can achieve its globalization strategy by diversifying its market to U.S. since the consumer purchasing power is high. Additionally, the saving rate is lower compared to the level of spending making it possible to market its products to encourage purchase. The countries policies favor local businesses, hence the company needs to relocate to U.S. to benefit from the policies set. Exports are also encouraged in the country to be lowering customs duties to balance the trade deficit (Magas, 2004). This change will enable the enterprise to sell its products at a low price. Additionally, the market for foreign-exchange currency for the dollar is high, which will enable the firm to increase its profit.