Economics for Business 4 - Essay Example

Economics of Business 4 Introduction The multinational American corporation, Apple Incorporation has been in the market for close to four decades now. The company deals in designing, developing and selling computer-related devices. Apple Inc. develops such items like iPads, iPhones, Macs, OS X, iWork, iLife and watches. The company posted a consistent rise in income all the way from 2005 to 2014, with the peak being in 2012 when the corporation recorded over forty one billion dollars (Apple Inc.

: Net income 2005-2014 | Statistic, n.d.). Discussion Various macroeconomic variables such as inflation rates, interest rates and Gross Domestic Product (GDP) have played a major role in shaping the company’s impressive performance over the years. A rise in GDP since 2010 implies that the company sales/profits have consistently been on the rise. The GDP of the United States rose by an impressive 1.2% in the year 2007 (Marcellino, 2002). On the other hand, there was a significant fluctuating trend in the interest rates through the years, right from 2010 to 2014.

The following graph shows a general trend in the movement of the macroeconomic variables for the past few years. Series 1 represents the percentage change in inflation; series 2 represents the percentage change in interest rates and the third series is a graphical representation of the country’s GDP. A high rate of interest implies that the cost of borrowing is very high, and as such, the firm’s borrowing capacity is limited. Few or no major investments are made by the company during the years when banks and other financial lending institutions charge high interest rates.

A lack of borrowing culminates in minimal rates of investment and low levels of annual net income. However, if the financial lending institutions lower their interest rates, borrowing becomes attractive because the amount repayable by the borrowers will be low. Thus, whenever, there are low interest rates, the company management takes advantage and borrows in bulk. A result of the high rate of borrowing and subsequent high investment projects is a rise in the annual income levels. The years 2012, 2013 and 2014 had relatively low interest rates, low inflation levels and fairly high GDP.

The low interest rates enabled Apple Inc. to borrow heavily and thus broadening their investment portfolio. The huge investment plan coupled with the high Gross Domestic Product levels imply that the firm made big profits. Considering the current economic situation in the United States, it is reasonable to assume that the inflation rates would fall further down from 2014’s 5% or rise by a very small margin. Inflation rates fluctuate due to temporary factors which tend to get eliminated as the economy of the country grows and stabilizes (Inflation Forecast 2014-2015: Continued Mild Price Increases, n.d.).

The interest rates are rising, but at a mild pace as directly influenced/directed by the Federal Reserve’s economic policy activities. The implication is that, even if the same rise in 2015 the firm’s investment capacity will not be affected so much. The company will still make major investments and probably post good revenue returns. The GDP trend as shown by the graph above indicates that there will be a significant rise in the same, come the year 2015. A projected general outlook for the year 2015, for Apple Incorporation, may look like this: Inflation rate 4% Interest rate 2% GDP 3.

2% Sales $220 Billion Net Income $49 Billion Significance of the U.S Macro economy in the IT Industry In the 1990s, there was a reasonably high rate of growth in trading activities in the United States of America. During the mid-90’s period, American consumers increased drastically and bought commodities at an exponentially high rate. The dramatic rise in trade wasn’t a fluke, and as such, the madness continued into the new millennium. The rise in trading activities opened up an opportunity for expansion in labor productivity.

The Finance sector of the American economy turned to be a major investor in the IT industry. The computerization of activities in all financial institutions through the 90s and into the new millennium opened up a significant market share for the IT companies. Eventually, it seemed that “security and commodity “firms and “investment and other holding offices” are the industries that experienced an upsurge in productivity. However, banks did not enjoy the same productivity gains. The rise in productivity causes a need for the concerned companies to generate more returns to cover the expenses incurred.

The technology industry generated higher sales compared to previous periods before the increased need to raise labor productivity standards in the economy. However, the increased sales come at a price. The lending companies making continual investments in IT have to raise their lending rates. The high interest rates force the IT industry to shy away from huge investment projects. The High interest rates are a negative factor for the development of the IT industry. High sales in the IT industry mean that there is a direct improvement in the labor productivity capacity of the economy.

For instance, purchasing more computers by an insurance company leads to a direct improvement of the services offered from the insurance company. The insurance company employees can easily process their clients’ records within short durations. The improved efficiency enables the employees to process more client requests. The end result in the economy is a cumulative rise in the national expenditure. The rise in national expenditure increases the country’s GDP levels. High GDP levels are a direct implication of high sales margins in the IT industry.

It is, therefore, prudent to say that the macro economic variables are helping the growth of the IT industry. Currently, the government is pushing for a rise in interest rates for the simple reason that global savings demand are rising at a slower rate as compared to the global credit demands. The government policies will most likely lead to a slower growth in demand. Costs in the IT industry are definitely expected to go up since most of the manufacturing activities are funded by loans. Since the loans command high interest rates, the costs of manufacturing must also rise in response to the same.

Conclusion The current macroeconomic policies are not so favorable to Apple Inc. The policies aim at reducing the possibly high inflation rates that are anticipated in the year 2017 (Conerly, n.d.). In order for the IT companies to make good of the current policies or at least mitigate the effects of the same, their trading practices have to be changed. The companies should swap the American lending companies for other international lenders who offer lower interest rates on loans. Reference List Apple Inc.

: Net income 2005-2014 | Statistic. (n.d.). Retrieved April 12, 2015, from http://www.statista.com/statistics/267728/apples-net-income-since-2005/ Conerly, B. (n.d.). Interest Rate Forecast 2015 - 2016. Retrieved April 12, 2015, from http://www.forbes.com/sites/billconerly/2015/03/05/interest-rate-forecast-2015-2016/ Inflation Forecast 2014-2015: Continued Mild Price Increases. (n.d.). Retrieved April 12, 2015, from http://www.forbes.com/sites/billconerly/2014/04/28/inflation-forecast-2014-2015-continued-mild-price-increases/ Marcellino, M. (2002). Forecasting EMU macroeconomic variables.

London: Centre for Economic Policy Research