US Economys Impact on the Microsoft Growth Plan - Essay Example

U.S Economy’s Impact on the Microsoft Growth Plan

Introduction

For the strategic plan of a company to be successful, it has many factors that will affect it. Some of these factors will be internal while some will be external. The strategic plan of Microsoft Company will be impacted both positively and negatively by the US economy. If adverse impacts of the economy on the aggressive plan of Microsoft Company are more than the positive impacts, the strategic plan is likely to fail in the next five years. This paper, therefore, seeks to evaluate the economy of US during a period of five years and the impact it will have on the aggressive plan of the Microsoft Company after relocating to Puerto Rico. The paper will analyze the history of economic changes and it to forecast for the next five years, discuss how government policies can influence economic growth, and analyze how monetary policy could affect the long-run behavior of price levels, inflation rates, costs, and other real or nominal variables. It will also describe how trade deficits or surpluses can influence the growth of productivity and GDP as well as the importance of the market for loanable funds and the market for foreign-currency exchange to the achievement of the strategic plan.

Historical changes in US economic factors

The modern economy of the US traces its roots to the 16th century. The economy then progressed to the civil war which l aid a foundation for the current economic system. Heavy spending by the government reignited inflation. However, the Federal Reserve controls the price levels by raising the interest rates whenever inflation poses a threat. The economy started as communism and later translated into capitalists or individualism. After 1990, the new president Bill Clinton pushed to strengthen the some sectors' market forces and in reducing welfare benefits which made the economy healthy. Moat innovations took place during this era. Employment opportunities increased. The economy of America then integrated with the other economies in the world through global economy integration system which made the US economy to grow tremendously.

By the year 2000, the rates of unemployment had decreased, and the interest rates lowered. In the year 1981, the rate of interests had gone as high as 20 ().However, the rates of interest have continued to decrease over the years. Investment increased from the year 2000. Comparing the changes that took place in the economy of the US over the years, the next years are expected to be better. This will favor the relocation of the Microsoft Company. The hike in price levels will have an adverse impact on the company in the next five years while the lowering price levels will be an advantage to the company.

Influence of the government policies on economic growth

Government policies have always influenced the economic growth and the growth of businesses. There has been an increase in policy uncertainty in the U.S as the political differences between the official political increases on display. The current level of policy uncertainty has made forward economic planning. Policy uncertainty lead will result in a lack of growth of the business which will, in turn, affect the level of employment in the country. Policy uncertainty will result in delayed investment. When there is high policy uncertainty, businesses delay hiring and investment (Bryan, 2013). The rise in policy uncertainty reduces the level employment by millions at both the industry and the firm level.

Government policies also affect the corporate capital investment. The economic effect of policy uncertainty is substantial. The policy uncertainty that was experienced by the US between 2006 and 2011 led to a loss of 2.3 million jobs and reduced the industrial production by 4% (Minniti, 2008). Therefore since Microsoft is a firm with a high degree of investment irreversibility, the effects of policy uncertainty would be higher.

Government policies have both direct and indirect effects on the US economy. There is a relationship between good government policies and the increase in the economic growth. There is an interconnectedness that exists between the economic conditions and the policies made by the government of the US.

Uncertainty about long-run and short-run fiscal policy can affect consumption negatively in a great way. Output and investment will have large, and the economies will be depressed. However, when the monetary authority is not restricted by zero lower bounds, the effect of the fiscal policy is small.

Influence of monetary policy on the long-run behavior of price levels, inflation rates, costs, and other real or nominal variables.

Monetary policy is rising as one of the significant responsibilities of the government. It is perceived to provide a powerful and a flexible instrument in achieving the objectives of stabilization. This is because, it can easily be adjusted to respond to macroeconomic developments (Blackwell, Griffiths, & Winters, 2007).

The monetary policy considers inflation targeting rather than the money supply targeting. In monetary policy, an intermediate variable is announced unlike in the inflation targeting. This variable links the monetary policy objectives to the instruments which are controlled by the bank. Variations in the interest rates affect the aggregate demand in a substantial way. This leads to direct effects the rate of inflation. Recent research showed that monetary policy had effects on the output and prices ((Blackwell, Griffiths, & Winters, 2007). The unexpected rise in the short-term rate of interest reduces the amount of output. The effects are mostly noted after a year is over. However, the change in the level of prices is usually slower in response to monetary policy than the interest rates.

Influence of trade deficits and surpluses on the growth of productivity and GDP.

Trade deficits and increased imports are bad to the economic growth of the country. On the other hand, the trade surplus is an advantage to the economy. The trade policies should aim at promoting the amounts of exports to be greater than the amounts of exports. In the US the imports are not subtracted from the GDP (Blackwell, Griffiths, & Winters, 2007). They are subtracted after the last calculation of the GDP. This is because they are not considered part of the domestic production. They are also not perceived as a leakage of the abroad demand.

There is no evidence in the past years which shows that the increasing imports levels and the increase in the trade deficits have had adverse effects on the economy of the US (Arestis, & Sawyer, 2002). When the trade deficits were increased since 1980, the economy of the US grew more than thrice faster than the other periods when the trade deficit contracted as a part of the GDP. Increase in imports and trade deficits saw the US stock market appreciation, job growth and the manufacturing output grow more significantly ((Arestis, & Sawyer, 2002). Therefore, the US should not aim at promoting their exports at the expense of the imports. They should aim at maximizing the freedom of its people to trade their goods and services in the global market.

The increase in economic growth despite the growth of imports and trade deficit does not mean that the trade deficit does not have negative effects on the economy of the US. It can harm the economy in both indirect and direct ways. It leads to a reduction of employment levels. For instance, trade deficits that have been experienced in the United States in the last two decades have led to millions of the Americans of their jobs. Most job losses have resulted from trade deficits experienced in the US. The sector that is most affected by the loss of employment if the manufacturing industry since it is concerned with the sale of manufactured goods. Microsoft Company is an example of a manufacturing industry. Therefore, while the trade deficits brought about by the increase in imports are affecting the economy of America, Microsoft will also be affected.

The fall in exports to countries such as Japan and Korea which are affected by the Asian Financial crises are likely to increase the trade deficit by a hundred of billions over the next five years. The economy of Japan is already contracting as a result of the crisis (Arestis, & Sawyer, 2002). The US will not be able to exports large amounts of Gods to these countries. This expected rise in the trade deficit could result in another loss of billions of jobs if no actions were taken to lower the rate of interests and reduce the rate of rising unemployment. Microsoft would suffer from this loss since it is one of the companies that exports products to these countries. Microsoft expects Japan and Korea to be the main exporters of their product. However, these two economies are falling at a high rate as a result of the crisis. This means that Microsoft Company will make a lot of losses since their exports will have to go down. Consequently, the employment levels will reduce since the number of products manufactured and sold will have to be reduced.

Trade deficits will also have a greater impact on wages. The loss of employment will result to increase unemployment with a span of five years. The composition of employment will also be affected. The wages of workers who are not employed in the manufacturing industry will look for jobs in other sectors in the long run, whose wages are much lower. Pressure on the wages of the workers in the United States will also go down if the rate of imports goes up. When the prices of imports fall, there will be downward pressure on the prices of goods in the US. This will force the domestic industries and firms to reduce their costs of labor or cut the wages of their workers.

Importance of the market for foreign-currency exchange and the market for loanable funds in achieving the strategic plan

The net foreign exchange is concerned with foreign currency exchange and the loanable funds. The market for loanable funds is a simplified perception of the financial system. This is the place where all the people who want to save come to the market of loanable funds to put their savings. Additionally, the people who want to get loans either for spending or investing also obtain loans from this market. The savings equals all the income that both the public and private sectors save. It is a representation of the national savings. Net capital flows and national investment are demanded from the economy. To obtain equilibrium, the savings must be equal to the investments and the net foreign exchange (Adelman, 2000). The supply of the loanable funds will determine the amount of investments that occurs in the country. If the market of loanable funds is not moving or does not have enough money, there will not be enough supply of money in the economy. It is the continuous running of the market of the loanable funds that keeps the economy running. As a firm that has spends a lot of money in investment, Microsoft will have to borrow a lot of money from the market of loanable funds. The market of foreign currency exchange is the place where the foreign currencies are exchanged for domestic currency. When this market is doing well, it means that the government is not selling its assets to other countries. The equilibrium is determined by

Recommendation

From the above explanations, it is clear that the state of the economy will affect the strategic plan of Microsoft. There are factors that the company cannot control but will ultimately affect the company. Government policies will have a high impact on the economy (Adelman, 2000). The high rate of economic growth will lead to the success of the strategic plan. The strategic plan will be successful despite forecasted factors that may affect the plan negatively. The company can prepare adequately on how to cope up with the changes that may take place in the span of five years. Microsoft Company should look for further markets outside US, Japan, and Korea so that when the Asian crisis hits the economy of the US, Microsoft will be able to retain its high number of sales. It can avoid the high rates of interests by ensuring it invests heavily in the first years of its relocation. It will not be necessary for the company to borrow money from the market of loanable funds while the interest rates are high. This will enable the company to thrive faster and manage its strategy plan successfully.

Conclusion

The success of a business is directly and indirectly affected by the state of the economy. If the economy of the United States is growing, businesses in the country are likely to thrive well. The strategic plan of a company can only be successful if the economy of the country in which the company is located is doing well. In this case, having relocated to Puerto Rico, Microsoft Company will only be able to thrive if only it will be impacted positively by the economy of the US. The aggressive strategic plan. The paper has clearly shown how the economy can significantly affect the strategic plan of the company. The monetary policy will affect the interest rates if it is not controlled. If the exports made by the US to the neighboring countries are reduced, Microsoft will have no otherwise than reduce the rate of their manufacturing. Consequently, they will have to lay off a large number of their employees. The strategic plan will be successful if the positive impact of the economy of the US will be more than the negative effects on the company. The company should only be prepared on how to cope