How Inflation Affected Ford Motor During the 2007-2009 Recession - Essay Example

How Inflation affected FORD MOTOR during the 2007-2009 Recession Two major factors would have forced FORD MOTOR to make major economic decisions: the lost revenue that occurs when real income falls below potential income and the increased inflation rate that often develops when the economy is performing above the potential income of FORD MOTOR. As actual income increases when compared to the potential income, resources are fully employed, so it became difficult for FORD MOTOR and other corporate to find idle capital, labor, and natural resources to produce services and goods.

As a result, the scarcity of commodities makes prices to rise and hence inflation sets up. The damans of the machineries from FORD MOTOR decreases and hence the company cannot sustain a large number of workers. The table below shows how the recession affected the employment in FORD MOTOR and other companies in America.year2006200720082009 2010Unemployment 4.64.75.89.39.6As a result of inflation and reduced purchasing power, the entire income raised by households is spent on necessities. As such there is little disposable income to invest in shares.

This is seen when the number of outstanding shares of the FORD MOTOR gradually increased as a result of decreased demand during the recession as shown in the table below:Outstanding sharesyear2006200720082009 2010Common stock1,777,590,2461,809,771,8351,827,947,5742,182,758,3113,149,667,003Class B stock70,852,07670,852,07670,852,07670,852,07670,852,076When real income falls below potential income due to a recession, FORD MOTOR laid off workers, so the unemployment rate goes up and hence households earn less income.

The cyclical unemployment rate increases during recessions as FORD MOTOR could not raise sufficient revenue to sustain a large number of workers. Other consequences of the 2007-2009 recession includes reduced profitability in FORD MOTOR and increased competition in the industry among others.References William B, Alan (2015). Economics: Principles and Policy. Toronto: Cengage Learning.