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Economics Analysis Paper Three

Abstract. This study aims to identify some of the macroeconomic variables and analyze the impact of these variables on the demand and supply of Toyota automobile vehicles in Economics Analysis Paper Three 2 By inborn accumulated and samples for this analysis. This analysis will also look at the long term correlation of these variables with Toyota car sales. Results shows that a slowdown in U. S income growth could short-circuit the surge in consumer spending including the sales of vehicles manufactured by the U.

S automotive manufacturers, such as Toyota Motor Corporation Macroeconomic Analysis Economics use variety of models to explain how the U. S national income is determined, including the aggregate demand-aggregate supply (AD-AS) model. The model is taken from the basic circular flow concept that explains how income flows between household and firms. The aggregate demand curve, labeled AD shown below is a curve that shows the relationship between the price level and the quantity of real GAP demanded by households, firms and the government (Bruce, McConnell, Flynn, 2014).

It consist of the amount of households plans to spend on goods (C), plus planned spending on capital investment (l), plus government spending (G), plus export (X), minus import (M) from

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abroad. The standard equation is AD = C + I + G + The short-run aggregate supply curve shows the relationship in the short-run between the price level and the quantity of real GAP supplied by firms. In the short- run, the real GAP and price level are determined by the interaction of the aggregate demand curve and the short-run aggregate supply curve.

As shown below the demand curve is a visual representation of the behavior of buyers in a market while the supply curve is a visual representation of the behavior of sellers in a market. At only the equilibrium price will we have suppliers willing and able to bring to the market exactly what demander want. Table 1 AS -AD Model Determinants of Aggregate Supply and Aggregate Demand The supply and demand of the automotive industry in the U. S, as well as the profit derived from the sector are clearly impacted by the microeconomic variables.

From research, the industry history demonstrates the trends it follows in the business cycle and how these variables have impacted the performance of the industry over the years. Government policies, employment and consumer income, reign demand, interest rate, credit availability and inflationary expectations are some variables to assess the state of the automobile industry, using Toyota Motor Corporation that engage in the design, manufacture, assembly and sales of passenger cars, minivans, commercial vehicles and related parts in the U.

S. And other countries (Helmut, 1994). Government policies The government uses fiscal and monetary policies to pursue and achieve macroeconomic policy objectives, thus shifting aggregate demand curve. For example, in May 1981, with the American auto industry mired in recession, Japanese ar makers agreed to limit exports of passenger cars to the United States. This “voluntary export restraint” (EVER) program, initially supported by the Reagan administration, allowed only 1. 68 million Japanese cars into the U. S. ACH year. The program was terminated in 1994 (Benjamin, 2008) One key long-run consequence of the EVER program stems from the provision that any Japanese cars produced in the U. S. Were excluded from the limits. Beginning with Hand’s Marseille, Ohio, plant in 1982, Japanese makers responded to this provision by investing heavily in U. S. Production facilities. By 1990, Toyota and other Japanese makers including Ionians, Mazda, and Mediumistic had Joined Honda in producing substantial numbers of cars in the U.

S (Steven, Elevations, Peaks, 1999) Also following the dramatic drop in automobile sales throughout 2008 because of the global scale recession, General Motors (MM), Ford Motor Company, and Chrysler requested emergency loans from the government in order to address impending cash shortage. So to prevent liquidation – causing massive Job losses at these companies and reverberating throughout the industry at the cost of thousands more, the U. S. ND Canadian government provided uncial bailout ($85 billion) to prevent the disappearance of GM in particular with its roughly 100,000 Americans and its central place in the chain of suppliers, part manufactures, and dealers. The bailout have been held up by President Obama and his supporters as a great success story – proof that, by working together, government through its economic policies and business can save Jobs and strengthen the economy (Kicky, T. 011) Employment and Consumer Income The car industry is a major employment sector, employing more than 48 million people worldwide, that is about 1% after subtracting those unable to work. This is also one of the reasons the government of many countries like the U. S, Germany and others are historically heavily dependent on their own car production (COCA, 2009). Current income is the most important variables determining the purchase of consumer product including the sales of new cars.

New cars are normal goods with high income elasticity of demand, so when real incomes are rising there will be an expansion of demand for new vehicles as they become affordable, reverse is the same. In 2008 this factor is likely to cause the dramatic drop in automobile sales cause millions of consumers have either experience a pay freeze, pay cut or being lay off from work causing real disposable income to fall.

According to the Bureau of Labor Statistics report, personal income and outlays for December, 2013. Personal income increased $2. 3 billion, or less than 0. 1 percent, and disposable personal income (DIP) decreased $3. 8 billion, or less than 0. 1 percent, in December. Personal consumption expenditures (PACE) increased $44. 1 billion, or 0. 4 percent. In November, personal income increased $29. 8 billion, or 0. 2 percent, DIP increased $14. 4 billion, or 0. Recent, and PACE increased $74. 8 billion, or 0. 6 percent, based on revised estimates. So if real household wealth (the difference between the value of a household’s assets and the value of its debts) increases (decreases), then aggregate demand will increase (decrease), which is one of the reasons the aggregate demand curve is sloping downward (Bruce et al, 2014) Expectations When it comes to changes in the expectation of consumers and firms, a big factor is economic confidence.

This is an economic indicator that measures the degree of optimism consumers feel about the overall state of the economy and their personal inference index (CLC), a monthly release designed to assess the overall confidence, relative financial health and spending average of the U. S. Average consumer. If consumers become more optimistic about their future income, they are likely to increase their purchasing power. This increased in spending activity will shift the aggregate demand curve to the right. For example, table 2 below shows that the U. S. Economy inflation and historical interest rates, with growth in the gross domestic product (GAP) of 2. 9 percent for 2010, compared with a decline for all of 2009. In 2010 nonuser confidence improved from the low levels experienced during the recession, the consumer confidence index exhibit a moderate upward trend in the first quarter of 2011. Likewise manufacturing firms, such as Toyota Motor Corporation can become more optimistic about the future profitability of investment spending shifting the aggregate demand curve to the right. New and improved technologies can enhance expected returns on investment and aggregate demand.

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