Aggregate Demand For Starbucks

1814 Words 7 Pages
Aggregate demand represents the inverse correlation between the total amount of real output demanded within the economy at various price levels in a particular period of time (Investopedia). Essentially, if the price of a product fluctuates, the rate of total spending will change along with the quantity of real output demanded (Brue, McConnell, & Flynn, 2014). The determinants, which affect the aggregate demand include consumer spending, investment spending, government spending, and net export spending (Brue, McConnell, & Flynn, 2014). These determinants, also known as ‘aggregate demand shifters’, cause the aggregate demand curve to shift as a change in one or more of these variables occur (Brue, McConnell, & Flynn, 2014). For example, a rightward …show more content…
For example, the China and Asia Pacific business segment revenues increased by 23% or $213 million and it contributed 7% to Starbucks total net revenues of $16.4 billion in fiscal year 2014 (Starbucks Corporation, 2014). With this being said, it is crucial for Starbucks to consistently review and be mindful of the currency exchange rates as it continues to conduct business and expand overseas. In analyzing historical exchange rates, it appears the Chinese Yuan (CNY) has steadily appreciated against the U.S. Dollar (USD) over the years (USFOREX Foreign Exchange Services, 2015). Currently, the exchange rate for 1.00 USD is 6.22 CNY (USFOREX Foreign Exchange Services, 2015). While an increase in the value of the CNY could potentially result in a rise in the cost of goods sold, it could also increase Starbucks profitability. Refer to Appendix A for further detail. Another variable, which affects the increase or decrease in aggregate demand, is consumer spending (Brue, McConnell, & Flynn, 2014). As the prices of products remain stable, consumers will be likely to spend more money. This is in-turn will result in an increase in aggregate demand. However, if the prices of products begin to rise, consumers will usually hold out for lower prices and spend less. Thus, aggregate demand …show more content…
Dollar to drop. The two primary types of inflation to occur within the economy are demand-pull inflation and cost-push inflation (Brue, McConnell, & Flynn, 2014). Demand-pull occurs when the aggragate demand rises faster than aggregate supply (Investopedia, 2015). Factors, which may cause demand-pull inflation may include an increase in government spending, supply of money, or price level of products in other countries (Investopedia, 2015). On the other hand, cost-push inflation occurs when aggregate supply decreases (Investopedia, 2015). Variables which may provoke cost-push inflation may consist of an increase in wages or costs of raw-materials (Investopedia,

Related Documents