Recognition

Running head: RECOGNITION POSITION Recognition Position Team B University of Phoenix Accounting for Managerial Decision Making ACC//539 Facilitator: Kari Standley October 8, 2009 Big Drive Auto Business decsions are often influenced by monetary policy. That is to say unit pricing, day to day operations and opportunity costs hinge upon monetary policy and the economic behavior of a given poplulation-at-large. Accodrding to statistical data provided, the decision-making process of Big Drive Auto appears to have been heavily influenced by several variabes of monetary policy and consumer demad. The revenues of Big Drive Auto are generated from several sources. Recognizing that some business diversification can be beneficial, Big Drive not only depends on car sales for profits, the company also generates revenues from providing automotive service and supplies such as tires, motor oil and coolant. Additionally, Big Drive provides the aforementioned products and/or sevices in several states thereby exposing themselves to a larger audience (University of Phoenix, 2009). Money Market MonConnell & Brue (2004) describe the money market as where the supply and demand for money are combined. Business transactions as well as the degree of asset demands collectively determine the the total demand for money. The gross domestic product (GDP) is directly related to transaction demand. Now, according to Turano (2009), “The four components of GDP (Y) [that] contribute to the aggregate demand for goods and services [are] Y= C + I + G + NX.” (p. 3) Conceptually, when the economy experiences a rise in overall price levels, the number of goods and services available will rise as well. Businesses want ot take advantage of the potential profit margin and therefore provide the consumer with more surplus. This effect is demonstrated in the year 2007. Big Drive had the second highest unit sales, 163,000, in nine years priced at the third highest price, in the same nine year period. Furhtermore, when interest rates were at a high, the firm, having borrowed money for operations and production, passed that cost on to the consumer. The opposite happens when prices are low. Businesses have no desire to have a surplus of product and or serives on the books. Additionally, firms attempt to minimize opportunity cost as do consumers. Macroeconomic equilibrium, where there is no inventory surplus or demand excess, occurs when aggregate demand (AD) and aggregate supply meet. At this same point, GDP is in equilibrium as well. For the consumer, “The interest rate is the opportunity cost of holding money as an asset; the higher that cost, the smaller the amount of money the public wants to hold (McConnell, 2004, p. 277) Therefore, unlike the positive correlation between price and supply, an inverse relationship exist between the demand for money (Dm) and interest rate. In 2001, Big Dirve Auto experienced the lowest vehicular unit sales, 133,00, in history. Consumers were unwilling to spend because the year prior, Feds increased interest rates in an attempt to avoid a recession in the U.S. economy, which despite efforts, still happened. Business Planning and Conclusion How a firm operates is not soley dependent on interest rates. Sometimes, no matter how low the interest rate may be, people and businesses alike, are unwilling to borrow. In preparation for a potential recession, the public may react by holding on to money and atempting to decrease indeptness. However, this occurrence is infrequent. Business operations, and thereby the decision-making process is also dependent upon consumer price index (CPI), GDP and other variables such as fiscal policy like decreasing government spending and/or increasing taxes . When CPI is up along with cost of living (COL), the consumer is less willing to spend as the purchasing power of the dollar is effectively reduced. Therefeore, when the COL is high, businesses such as Big Drive Auto must decrease unit price or overhead or both. As far as GDP is concerned, when U.S. exports become more expensive to purchase, businesses mus be aware that consumers may choose to purchase the import over the domestic product. Hence, domestic businesses must be competitive with foreign counterparts. Fiscal policy like interest rates can affect the overall economy and business decisions are similarly reflective of that. References McConnel, S. & Brue, R. (2004). An Introduction to Economics and the Economy. The McGraw-Hill Companies. Irwin: New York. Available at the University of Phoenix eBook Collection database. Parkin, M. (1998). Economics 4th Ed. Addison-Wesley Publishing Company, Inc. Reading: MA. Turano, G. (2009, August 31). Week #5 Lecture [Msg. 22]. Message posted to University of Phoenix course materials forum, Eco/561-Economics course Web site. University of Phoenix. (2009). Big Drive Auto. Supplemental material posted to University of Phoenix course materials forum, Eco/561-Economics course Web site.