The Relationship Between GDP and Consumer Purchasing Power

The Grrealiseestic Product (GDP) is among the key indicators that are used to assess the performance of any country. In short, GDP can be perceived as the value of goods and services produced in a company within a specific period, in most cases, it is evaluated yearly. Steger and Bleischwitz (2017, p. 181) stated that when the GDP is strong, firms are likely to hire more, can afford to pay more salaries and wages, which eventually leads to more consumer spending on goods and services. From this explanation, it is clear that a country’s GDP is directly correlated with the consumer's purchasing power. In other words, if the GDP reduces, there is a likelihood that the consumer’s purchasing power will also reduce. For students seeking economics dissertation help, understanding all the dynamics of GDP and its impact on consumer behavior is very critical. A study by Dimsdale and Thomas (2019, p. 61) confirmed that countries with lower GDP also have a lower consumer purchasing power parity. Kilickan (2018, p. 15) added that a common feature among countries with lower GDP is that the consumers in these countries are focused on spending only on the essential commodities, and will always prefer cheaper commodities in the market. The same trend was also observed in developed countries such as the United States, Canada, and the United Kingdom. When the economy is in recess, hence a lower GDP, most European and American consumers shifted their preferences to basic and cheaper goods.

Apple has a reputation for producing quality products (electronics and machinery), although these products are relatively expensive as compared to rival products such as Samsung. As much as some analysts have labelled Apple products as ‘goods of ostentation,’ it is clear that when the GDP is low, most consumers are likely to go for a cheaper alternative. In countries with very low GDP, consumers are likely to forgo such products entirely since they are perceived as luxuries. The same can be confirmed through the data on how apple products are fairing on in African and Asian markets versus in the European Market. Moreover, the sales of Apple products massively dropped during the 2009-2013 economic crisis in the European Union, and the 2008-2009 crisis in the USA. Therefore, it can be concluded that the GDP of a country determines if apple products will be successful in that particular market or not.

Interest rates are the rewards given to a financial institution for giving loans to individuals. Therefore, when there is much money circulating in an economy, the government will increase the interest rates to prevent inflation in the future. Therefore, this is the main reason behind the constant shifting of interest rates (Di Maggio, Kermani, Keys, Piskorski, Ramcharan, Seru, and Yao 2017). Besides, through changing the interest rates, the government tries to attain the maximum employment rates (inflation leads to unemployment), stable prices of commodities and a sustainable growth level. When the interest rates drop, consumers are likely to increase their spending. In short, lowered interest rates among other factors increases the consumer purchasing power of consumers, and when such happens, a company like Apple is likely to realise more sales.

The labour market can either be flexible or rigid. Flexible labour markets are characterised by low minimum wages and flexible government structures that do not constrain the hiring and firing of employees, while a rigid market is a contrary. Most flexible markets tend to have a higher population of skilled workers who are ready to offer their services in exchange for lower wages (Campolmi and Gnocchi 2016); this is the case of China. China has a large and educated population, and besides, the Chinese government has not placed many restricts on employment as compared to the European and American countries. With the availability of cheap labour in China, Apple enjoys reduced costs of production and ultimately maximises on its profit margins.

Inflation

Inflation is among the factors that diminish consumer purchasing power. When under recessions, most consumers will avoid purchasing luxury goods and will instead focus on the basics. So far, most products manufactured by apple are luxury goods. Therefore, it means that in cases of inflation, apple should consider lowering the prices of its products to attract clients, or maintain the pre-existing product prices and lose out on most clients, who will not be willing to spend on luxurious goods.

Most fiscal policies are majorly aimed at preventing an economic disaster or improving the economy further. In some cases, the government has opted to borrow money to settle some issues, while in other regimes, governments have issued bonds to citizens. In any case, if the government reacts by taking loans, these loans must be paid, and the surest way to raise money to settle debts is by increase the tax (D’Acunto, Hoang, and Weber 2015). If tax is increased, the likely possibility is that apple’s products are likely to have a lower demand as compared to when such interventions had not been taken. Besides, if the government adopts a fiscal policy that aims at improving the living standards, and the economic well being of citizens, the outcome would be an increase in Apple's products.

Apple is among the few companies that have succeeded in distinguishing itself from its competitors because of its inventions in the digital market. Another competitive advantage that makes Apple stand out, even in the face of an economic crisis, is the fact that the company has the capability of producing both the hardware and software, unlike its competitors who have to source for various elements from different suppliers. Therefore, even in a recession, Apple still maintains its cost of production, unlike other companies that record higher costs of production. Apple has successfully managed to cut down on the unnecessary middlemen or chain that would increase the price of their product when it reaches the final consumer. The company has located its stores in areas that are easily accessible to clients, where clients can buy new products, repair any damaged product and even in some cases, trade-in their old devices for new ones. Such a

strategy has made the company stand out, even when the consumer purchasing power parity is low, and the prices of the products are high.

References

Campolmi, A. and Gnocchi, S., 2016. Labour market participation, unemployment and monetary policy. Journal of Monetary Economics, 79, pp.17-29.

D’Acunto, F., Hoang, D. and Weber, M., 2015. Inflation expectations and consumption expenditure. Chicago Booth Global Market Working Paper Series.

Di Maggio, M., Kermani, A., Keys, B.J., Piskorski, T., Ramcharan, R., Seru, A. and Yao, V., 2017. Interest rate pass-through: Mortgage rates, household consumption, and voluntary deleveraging. American Economic Review, 107(11), pp.3550-88.

Dimsdale, N. and Thomas, R., 2019. GDP Data for Analysing Business Cycles. In UK Business and Financial Cycles Since 1660 (pp. 55-69). Palgrave Macmillan, Cham.

Kilickan, Z., 2018. Investigation the Correlation between Purchasing Power Parity, Per Capita Gross Domestic Product and the Price Level Indices with Panel Data Analysis: Evidence from New Zealand, USA, Germany, Canada and Turkey. International Journal of Economics and Financial Issues, 8(6), p.15.

Steger, S. and Bleischwitz, R., 2017. Decoupling GDP from resource use, resource productivity and competitiveness: A cross-country comparison 1. Sustainable growth and resource productivity (pp. 172-193). Routledge.

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