Principles of Macroeconomics

Apple Inc is a multinational company that has its headquarters in Cupertino, California, United States. Apple Inc deals with hardware, software, consumer electronics and digital distribution. Apple Inc is the most valuable brand, and it is considered to be one of the most profitable companies in the world. Apple Inc has its stores located in around 16 countries, but its products are used across the globe. The hardware products produced by the company include; Apple Watch, iPhone, i-Pad, Mac computers and iPod. Some of the software that is produced by the company includes safari browser, iOS, apple store and iCloud. The company is affected by macroeconomic factors that operate both inside and outside the United States. This paper will discuss microeconomic factors and how some of these factors affect Apple Inc.

Policies that can be used by the government to stimulate the economy can either be fiscal or non-fiscal. The president and the congress play a critical role in stimulating the economy of the United States. It is widely claimed that the Federal Reserve plays a greater role in stimulation the economy but the President and the congress play an equally greater role. The congress should use their legislative role to pass legislation that support the growth of the economy both in the short term and in the long term. Through legislations the congress can ensure there is fiscal discipline in the country where the government is able to address the fiscal priorities of the country in maintaining a sustainable budget. The President and Congress can use their legislative role to implement laws that are geared towards stimulating growth.

The President and the congress are responsible for setting and passing the budget. The budget plays a critical role in the economy, especially on allocations of both recurrent and development expenditures. More money allocated on infrastructure means better and effective ways of conducting business and trade. Infrastructure and developmental expenditure has a positive impact in terms of economic activity in the United States because it brings about connectivity and efficiency. The United States government has been accused of increasing the national debt annually, which serves as a barrier to economic growth. The President and the Congress should come up with effective ways of reducing the national debt in order to stimulate the economy. Economies are stimulated by the availability of more jobs. It is the mandate of both the government and its citizens to create jobs as they have a positive effect on the country’s GDP. One of the ways that President and the congress can create jobs is through an economic stimulus plan. The President can propose for special funds such as women, youth and people with disability funds that are meant to assist the vulnerable groups in the society in creating jobs. Presidents have to uphold their promises in creating jobs.

The fiscal policy is a mandate of the federal government or congress therefore the Federal Reserve does not play any role in fiscal policy. One of the fiscal policies that the government can use in stimulating the economy is government expenditure. It has already been discussed that the government can allocate its budget appropriately for economic stimulation, but in this section, the government can either decrease or increase spending in order to stimulate the economy. The government can increase economic activity by spending more which will increase money in supply in the economy. Increased expenditure is a temporary measure because with time, the aggregate demand for goods exceeds supply which consequently leads to inflation. In order to stimulate the economy again, the government has to reduce money in supply by reducing spending, which will consequently reducing the purchasing power of the population. A reduced purchasing power means a reduced aggregate demand, and therefore there will be deflation, and this repetitive cycle continues (Srithongrung & Kriz, 2014).

The other fiscal policy used by the federal government to stimulate the economy is tax rates. The main source of government revenue in the United States is the tax collections. The government can use taxes to either increase or decrease the purchasing power of households. The main method used by the government to stimulate the economy is tax reductions on individuals and also businesses. A tax reduction on individuals means that they have a greater purchasing power, especially for the low-income households. For businesses, a tax reduction means that the company is able to invest more and contribute to GDP growth and also the company is able to employ more workers.

The last non-fiscal policy that the federal government can use to stimulate the economy is proper institutional management. The president and the Congress should ensure that public institutions that are created by the law are performing effectively. In a developed country like the United States, performing institutions are as important as the fiscal policies applied in economic growth. The President and the congress should be able to appoint skilled and experienced individuals in institutional posts to foster the effective running of such institutions. As much as the individuals are skilled and experienced, they should also have moral and ethical personalities. The economy can be stimulated by officials who are not corrupt but effective.
Monetary policies are implemented by the Federal Reserve and can be used to stimulate the economy. The first monetary policy used by the Federal Reserve is the bank reserves. Bank reserve is the amount of money that the Federal Reserve requires depository institutions should keep in reserve so as to meet unexpected outflows. The Federal Reserve may decide to reduce the bank reserve limit so as to increase money in the bank for lending; this will increase economic activity as there will be more money in circulation (Engen, Laubach & Reifschneider, 2015).

The second monetary policy used by the Federal Reserve is the Federal Reserve markets. The Federal Reserve Market is a private financial market between financial institutions who can borrow on a short-term basis from each other when they do not have enough reserves. The Federal Reserve Market operates on an interest rate known as the funds rate which is set by the Federal Reserve. To stimulate the economy, the Federal Reserve can reduce the funds rate, which will in turn reduce the bank interest rates, leading to more borrowing and increasing consumers’ purchasing power.
The third monetary policy used by the Federal Reserve is Open Market Operations (OMO). OMO is the buying and selling of government securities by the Federal Government. To stimulate the economy, the Federal Reserve can buy securities from the banks, which in turn it increases the bank reserves. This means that there will be more money for the bank to lend to their customers.

The Federal Reserve can also influence the foreign market operations in stimulating the economy. Even though the Federal Reserve does not have targets with regards to foreign exchange rates, it can get involved in the exchange rate markets by countering anomalous behavior or movements in the market. For instance, in periods that the dollar is not performing very well, the Federal Reserve has been involved by purchasing dollars in order to absorb some of the ceiling pressure.

There are three main reasons why the policymakers would stimulate or contract the economy. The first reason is price stability. For the economy to grow, the prices need to be stable, inflation can lead to major shifts and inefficiencies that can cause the economy not to meet its objectives, and therefore it is necessary for policymakers to either stimulate or contract the economy to counteract any effects such as inflation that may lead the economy to destabilize. The second reason for contracting and stimulating the economy is to obtain full employment. A full employment occurs when there is no deficient-demand employment. Full employment is the acceptable level of unemployment in an economy, and therefore the policymakers strive to achieve this by contracting and stimulating the economy as may be required or as the situation demands. The last reason is to obtain a stable economic growth. A stable and sustainable growth is economic growth that is not excessive and can be sustained in the long term. An unstable economic growth such as excessive growth may exhaust resources and create economic problems. A stable growth in the economy avoids economic problems that come with fluctuating economic growth.

The Federal Reserve policy goals are similar to motivators of contracting and stimulation the economy. One of the policy goals by the Feds is price stability by maintaining the inflation rate at a 2% percent average rate. The second policy goal by the Fed is to have a stable economic growth by maintaining the Federal Reserve rate at ¼ to ½ percent (Steiner, 2016). The Federal Reserve has a dual mandate to maintain stable prices and full employment. According to Leubesdorf (2015) the Fed could reduce the unemployment rates but this could lead to inflation therefore the United States has not been able to meet its maximum employment. The average unemployment rate currently in the United States is 5%. The Federal Reserve latest evaluation of the economy as of 2nd March as reported by the New York Times (2016), is that the economy is expanding in most parts of the country. The dollar has grown stronger, and the oil prices have reduced, the consumer spending together with home sales has increased. Consumer inflation has been steady, while in the labor market has been growing and it is healthy. The wage rate has not yet stabilized, but the Feds are optimistic that the pay will increase. The manufacturing sector and export have been hard hit by the strong dollar, according to the Feds.

Apple Inc operates on the dollar, and therefore a strong economy may have both positive and negative effect on the company. The strength of an outside economy such as Germany where Apple sells its product would mean that the dollar will weaken against Euro; this means that the profits of Apple Inc realized in Germany will lessen after conversion to dollars. The effect of a strong German economy means the purchasing power of Germans has increased and therefore more Apple products would be bought. A weakened dollar due to the growth of a foreign economy would favor the exports but will not favor imports. What this means for Apple is that it will be easy for the company to sell its products abroad, but it would be difficult to import the raw materials that the company needs.

To improve its competitive strategy, Apple should realize that it’s more of a software company than a hardware company. Apple consumers appreciate more what their products do for them, and this is the work of the software, not the hardware. A good example is the i-Phone 4 that upgraded to iPhone 4s, the only thing that changed was the software but not the hardware and the consumers bought more of the product. I-Phone 5 was more of changing the hardware than the software, which was met by mixed reactions in the market. Apple should have better marketing strategies that are geared towards informing the users what their new product do for them better. I-Phone 5 was criticized for just having a bigger screen with more icons on the screen; this is not a positive aspect in terms of usability. They should come up with apps and software that add value to users. Lastly, Apple needs to split its stocks which are rather expensive and reward their loyal consumers so that they can be part of the future growth of the company.

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