Big Auto Drive Econ 561

The automobile sales and service manufacturing that Big point Auto dealership is in, is a commerce that has both pro-cyclical (grows in economic growth periods) and counter-cyclical (growth in economic slowdowns) characteristics. Anticipating business sector cycles right and making appropriate business decisions according can greatly benefit the bottom line of Big Drive Auto. By examining the companys ten-year historic data we can intimately see the interaction of these two characteristics during the business cycles. As an workout let us look at the period among 1998 and 1999. During this period gross domestic product in the auto and parts industry grew from $434.7Bn to $494.4Bn. In this period we also see a double outgrowth (pro-cyclic) in the unit sales of vehicles, but precisely a relatively small increase in auto service revenue and a decrease oil, coolant and tire sales (counter-cyclic). In this expanding economy period, low interest rates leave encourage Big Drive Auto to borrow more(prenominal) money to buy more big ticket items such as vehicles which be high in demand and are selling fast due to the fast growing economy.

As the economy slows down due to tightening of monetary constitution and interest rates rise, Big Auto will metamorphose its emphasis to its now more lucrative service business (counter-cyclic) as less(prenominal) vehicles are sold and more revenue is coming from the auto service and parts side of the business as is seen from the data in the 2000/2001 period when the industry GDP drops from $466.8bn to $420.2bn. In this period we can also see a drop in vehicle sales from 145,000 to 133,000 units but an increase in the service revenue side from $6,300,000 to $6,490,000 The true give in curve is an upward sloping curve which starts at less than 1% for short endpoint 3 month matureness period, rises and peaks at an interest rate of about 4% at the 20-year mark and is relatively flat to the 30 year mark. This current curve favors borrowing more in the short term where interest rates are several points lower than in the long... If you want to get a full essay, order it on our website: Ordercustompaper.com

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