Managers need to understand the impact of the macroeconomic environment on their firms’ and industries’ competitive strategies. In the larger macroeconomic environment, influencing measures include the overall level of income and output produced in the economy, the price level, and the level of employment and unemployment. The latter factors are affected by the spending decisions of individuals and organizations throughout the economy. Thus, macroeconomic analysis focuses on the aggregate behavior of different sectors of the economy.
Upon completion of this assignment, you should be able to:
• Identify the major measures of macroeconomic activity.
Resources
• Textbook: Economics for Managers
• Website: Bureau of Labor Statistics
Background Information
Many variables influence the major macroeconomic goals of policy makers. Many of these policies and changes affect macro events that influence managerial and business-specific decision making. These changes can include measures of the price level and the levels of employment and unemployment. This circular flow of economic activity forms the basis for the analysis of the macroeconomic environment in which managers operate. Inflationary pressures and indicators are measured by the Bureau of Labor Statistics (BLS) and can affect short- and long-term business investment and decision-making strategies.
Instructions
- Before beginning this assignment, read Chapter 11 in Economics for Managers.
- Navigate to the threaded discussion and respond to the following:
a. From the Bureau of Labor Statistics website, find the answers to the following questions:
i. How is the consumer price index (CPI) used?
ii. How is the CPI market basket determined?
iii. What goods and services does the CPI cover?
iv. How are CPI prices collected and reviewed?
v. How can the CPI help businesses manage costs? - Read and respond to at least two of your classmates’ postings,
- Your postings should also:
a. Be well developed by providing clear answers with evidence of critical thinking.
b. Add greater depth to the discussion by introducing new ideas.
c. Provide clarification to classmates’ questions and provide insight into the discussion.
Response – Kristen
Consumer Price Index (CPI) is used to measure how effective enacted economic policies have been and to identify new fiscal government action (CPI home, n.d.). Additionally, the CPI is a tool to deflate dollar values to measure its valuation to purchase products. Finally, it is a means to determine cost-of-living for any changes to wages and government programs such as Social Security.
The CPI market basket is comprised of data gathered from consumers’ purchases and spending diaries (CPI home, n.d.). The CPI includes over 200 item categories for goods and services that each align with one of eight groups. The eight groups are: (a) food and beverages, (b) housing, (c) apparel, (d) transportation, (e) medical care, (f) recreation, (g) education, and (h) communication. These groups also represent numerous governmental taxes and fees. Statistical methods are used to identify representative products and services for each of the categories.
“Data collectors” gather CPI prices by painstakingly reaching out in person, on the internet, or via telephone to stores and offices throughout the United States to get specific information (CPI home, n.d.). Once obtained, the data is passed on to “specialists” for review and then on to “commodity specialists” for analysis on quality.
Cost assessments on a market basket can inform business decisions on product pricing structures. Additionally, employers can use the CPI to ensure that wages are in line with the current cost of living (Mahorney, 2018).
References
CPI home. (n.d.). United States Department of Labor: Bureau of Labor and Statistics. Retrieved from https://www.bls.gov/cpi/
Mahorney, M. (2018, November 20). The consumer price index is a friend to investors.Investopedia. Retrieved from https://www.investopedia.com/articles/04/102004.asp
Response 2 – Amber
a. ) The Consumer Price Index, or CPI, is used to measure inflation and can be viewed as the indicator of the effectiveness of government economic policy. CPI is also used to adjust other economic series for price changes and to translate the series into inflation-free dollars, it can be used to adjust consumers’ income payments, like Social Security, to adjust income eligibility levels for government assistance and to automatically provide cost-of-living wage adjustments of American workers.
b.) The CPI market basket is determined from collecting details over a two year period about spending information from families and individual shoppers on what they actually purchased. There is a delay in the information gathered, for CPI data in 2016 and 2017 it was actually from spending in 2013 and 2014.
c.) The goods and services that are covered in the CPI are classified into more than 200 categories and broken down into eight major groups: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services. Within those major groups are also various government-charged user fees such as water and sewerage charges, auto registration fees, and vehicle tolls. CPI also includes taxes, such as sales and excise, which are directly related to the prices of goods and services.
d.) The prices collected and reviewed for the CPI are gathered by data collectors. The collectors contact the retail stores, either online or in person, to gather information from retail stores, service establishments, rental units and even doctors’ offices throughout the United States. The data is collected for an entire month and every few years for each category. The pricing information is then sent to the national office, where specialists review the data for accuracy and consistency, and make any corrections or adjustments they deem necessary.
e.) The CPI can help businesses manage costs from measuring the changes in the cost of buying goods or services. Using this measurement can help in identifying the inflation as well as deflation rates and using that to calculate the expected demand of a good or service.
Sample Solution
