Effects of Macro-Economic Factors to Telecommunication Industry

Effects of Macro-Economic Factors to Telecommunication Industry

Macroeconomics is a branch of economics that is useful in the study of how a national (and global) economic environment can be created using economic activities at all levels (Mankiw, 2014). The economic activities are joined together to make an overall environment on the two levels. The activities from levels such as businesses, households, government agencies, and other groups when joined form the basis of the macroeconomics study. Macroeconomics is subjected to issues referred to as “fluctuations” by economists. This happens at times when factors such as unemployment, inflation, trade deficits, interest rates, and exchange rates shift with times (low and high). Phenomenon created by macroeconomics tends to be interesting in areas of interests, because sometimes bad things may happen on a national or global level with no influence from individuals or micro economic-level organizations. The telecommunication industry in the U.S. offers a number of opportunities for low-cost innovations of high value and of significant importance to the current technology.

 The telecommunication industry in the United States embraces users as service innovators, contrary to pursuing innovation for profit purposes and satisfying unmet customer needs.  According to Costa et al. (2013), this trend observes an extensive range from industrial products to consumer goods. As the U.S. economy is well developed, needs in telecommunication industries serve as a driver for innovation. The expected benefits accrued to innovation tend to pressurize the need to invest high in innovation, especially in the recent evolution of smartphones in the American economy. Macroeconomic study helps consumers to find employment, know the cost of goods and services in the telecommunication market and how much amount they are to borrow. Mobile service providers use macroeconomics analysis to assist in expanding their activities in production and to identify their customers’ needs.  Major concepts of macroeconomics are based on analysis of national output measured using the gross domestic product, inflation, and unemployment (den Hoed, 2016). Telecommunication industry dominates the economy market as it has more than 200 million users in the U.S., thus, greatly influence the national output. National output measured using the Gross Domestic Product (GDP) is labeled as the picture of the economy at a particular point in time. Real GDP is used when referring to GDP and includes inflation contrary to the nominal GDP, which reflects on price changes only. When the US economy inflation is high, the nominal GDP figure increases sequentially making it not useful in indicative of higher output levels. However, GDP has a major shortfall of limiting its information, based on a specified period, thus, a GDP figure past the time is an estimate. A series of figures collected on the specified time are compared assisting investors and economists to begin interpreting business cycles that are composed of alternating periods between economic expansions (booms) and economic rescissions (slumps). Reasons for these periods can be influences from government policies, consumer behaviors, natural disasters, or changes in the international market. The figures obtained can assist in determining the economic strength of foreign countries.

 Unemployment rates indicate the number of people available for labor (labor force) is in no position to find jobs. In recent findings, macroeconomists have come to an agreement that an economy witnessing a GDP growth rate from time to time, unemployment is usually low. With rising real GDP levels, the output is normally higher; thus, there is employment, as more laborers are needed to keep on the pace of increased production levels. Inflation is the third main factor, which determines the rate at which prices rise. There are two ways of measuring inflation namely Consumer Price Index (CPI) and the GDP deflator. Using the CPI, the telecommunication services that charge consumers directly for their services such as the internet, cable television, and telephone services are included in the calculation scope, leaving out those that do not such as commercial radio and television broadcast. The ratio of a real GDP and the nominal GDP is given using the GDP deflator. In cases where a higher nominal GDP than the real one is realized, an assumption is made that both goods and service prices have been rising.

Annual Percentage Changes in Telecommunication Indexes

Component	12 months ending December 2004	12 months ending December 2005	12 months ending December 2006
Telephone services	0.3	0.4	-2.3
Cellular telephone services	-8.3	.-11.6	-12.3
Computer information processing services	3.0	-7.2	-0.3
Cable television	-4.8	-7.3	-10.7
Postage	0.0	3.0	0.0

            From the index table, both technological and competitive effects affect the index movements, as there is a presence of substitutes in the telecommunication modes. Notably, cable television prices fell significantly each year, despite the presence of a monopolistic structure. CPI methods do not solve new consumer problems as demonstrated above.

Demand and disposable income are the other principles of macroeconomics. Demand determines the output as it comes from consumers’ savings and investments, business, and residential, as well as, government spending on goods and services of state employees and from exports and imports. However, the production of goods and services is not determined by demand as not all consumer demands reflect their bargaining power. In such a case, a disposable income is measured to determine the amount of money left for investment after taxation or for spending. Demand and supply work sequentially thus during high unemployment, salary levels suffer and prosper when low. The equilibrium point is reached when demand determines the production levels (supply) because getting to this point requires money. The central bank of a country (Federal Reserve in the U.S.) usually puts money in circulation in the country’s economy. Individual demand is summed to assist in determining the money needed. This is done using the nominal GDP, which calculates the total level of transactions with the objective of creating a suitable level of money supply. Governments can do a monetary policy through the central bank, which is an open market for such operations. Increase in cash in the economy can see the central bank buy government bonds for monetary expansions.

References

Mankiw, N. G. (2014). Principles of macroeconomics. Cengage Learning.

Costa, E. M. D., Palma, P., Rauhut, D., Humer, A., Constantin, D., & Velasco Echeverria, X. (2013). What indicators to use when measuring Services of General Interest?. Europa XXI, 23, 7-28.

den Hoed, A. (2016). 201-07 Principles of Macroeconomics. Cell, 937(470), 9737.