Indonesia is located in Southeastern Asia with a
population of 260,580,739 in July 2017. On August 17, 1945, the country claimed
their independence from the Netherlands. There are a variety of ethnic groups
as well as languages and religions. Jakarta is the capital of the country.
There are three time zones in Indonesia; Washington D.C. is 12 hours behind.
Indonesia is considered the large economy in Southeast Asia by commodities
exports and their currency is in rupiah (RP) (The World Factbook, 2017). A part of knowing about a country is
being aware of the economy they are currently in. The macroeconomic analysis of
the environment has many factors managers should consider in order to determine
their competitive strategies in the market.
GDP is one of the important factors of macroeconomic environments. Gross
domestic product (GDP) is the measure of the total economic activity in dollar
values of goods and services over a time period. In respectively from 2015 to
2017, the GDP is $2.937 trillion, $3.084 trillion, and $3.243 trillion.
Compared to the United States, the GDP from 2014 to 2016, respectively, is
$17.810 trillion, $18.270 trillion, and $18.560 trillion. According to the
expenditure model, Indonesia’s forecasted GDP is $3.408 trillion by using 5.08%
as the growth rate. This means the GDP is an estimation of what the country’s
total economic activity be in a two-year average. For the U.S., the forecasted
GDP is $18.947 trillion using 2.09% as its growth rate. If the GDP is high,
this means the country is increasing their production in the economy and people
have a higher income. In this case, United States is doing well in the economy
because of their production. Since Indonesia has a lower GDP, they can increase
their GDP by increasing their production, increasing their demand.
GDP is the economic output considering inflation effects. Nominal GDP is the
economic output without considering inflation. According to Statistics Times (2017), United States
is ranked #1 as the largest economy in nominal GDP and ranked #2 in GDP (PPP). Indonesia
is ranked #15 in nominal GDP and ranked #7 in GDP (PPP). GDP (PPP) is measuring
GDP per capita, in other words, finding the total output by taking a country’s
GDP dividing by the population. GDP per capita is important to know since this
measurement shows the relative performance of countries when making comparisons
between them. Real GDP is better since values in this area are more reliable
than nominal GDP. Real GDP measures business cycles, the overall economic
activities, profits, etc. Managers and businesses can use these measurements as
a tool to compare and analyze growth over a certain period of time.
Domestic Product Components
the gross domestic product, other features are included in this area to
estimate the impact of fiscal policy. The GDP components are the following:
consumption spending (C), investment spending (I), government spending (G),
export spending (X), import spending (M), household income (Y), household
saving (S), personal taxes (Tp), and business taxes (Tb) (Farnham, 2014, p. 293).
According to the expenditure model, the first six components will be the focus.
Indonesia’s shows 57.5% in C, 8.9% in G, 32.8% in I, 19.2% in X, -18.4% in M,
and 1% in Y. USA’s shows 68.6% in C, 17.7% G, 16.4% in I, 12.0% in X, -14.7% in
M, and 1% in Y. The percentages are then multiplied by the current year’s GDP
Purchasing Power Parity ((PPP)) money value. In this case, Indonesia’s 2017 GDP
(PPP) is $3.243 trillion and USA’s 2016 GDP (PPP) is $18.560 trillion. The
largest component for USA and Indonesia is consumption spending. This means the
country knows their customers very well and businesses can use this component
as a strategy to increase their GDP.
expenditure (E) is the sum of consumption spending (C), investment spending
(I), government spending (G), and export spending (X) subtracted from import
spending (M) (Farnham, 2014, p. 293). This also is the same as the income
earned from the output, household income (Y). Therefore, E = Y. If income is at
a different level, the expected spending can either surpass the value or
deficient to obtain the produced outputs.
rates are an essential part of the expenditure model. These rates can indicate
how the business is doing in the market. In many situations, there is a
standard that has to be measured to in order to know the company is in good
standing. Amadeo (2018) presents, “Healthy rate of growth is 2 percent to 3
percent” (para. 8). Indonesia’s growth rate from 2016 to 2017 is approximately
5% compared to USA’s growth rate from 2015 to 2016 about 2%. The United States
has a healthier growth rate than Indonesia. To decrease Indonesia’s growth
rate, some events can be having a higher unemployment, lowering of productions,
and decreasing of business sales.
propensity to consume (MPC) is the additional consumption of spending when
adding to real income, is less than 1. The formula calculating the multiplier
is 1/1-MPC. To estimate marginal propensities, multipliers must take place. Farnham
(2014) states “Multipliers displays the multiplied change in real income and
output resulting from a change in autonomous expenditure” (p. 351). Multipliers
are used to see the relationship between the total national income and
investment. Indonesia’s MPC is 24.9%, which means consumers will spend 24.9%
increase in income. United States’ MPC is 51%, with consumers spending 51% in
increase income. Marginal propensity to invest (MPInv) is how much one more
income unit can be used for investments. Marginal propensity to import (MPIm)
is the import change inducing by the change of income. The multiplier for
Indonesia is 1.65 and for the USA is 2.11. This means for every dollar of
generating new income in the country they are in, respectively, they receive
1.65 RP and 2.11 US dollars.
professor at the University of Arkansas System, Wayne P. Miller, focused on
community and economic development. He presented how communities can use
economic multipliers for planning. Since Arkansas’ population decreased over
the last couple of years, he suggested how multipliers can assist in the
effects of the community. He introduced the types and effects of multipliers.
Miller (2017) expresses, “The higher the multiplier, the greater the effect on
the local economy” (para. 31). In this case, USA multiplier is 2.11; therefore,
the economy is better than Indonesia’s economy.
the data for Indonesia and comparing it to the United States can help others
understand the economy each country is currently in. Since Indonesia’s economy
is not as strong as the United States, they should try Miller’s approaches to
see how they can improve the market. Managers and businesses must pay attention
to these financial data and expenditure models in order to improve and progress
in the future. Understanding and being knowledgeable about the macroeconomic
environment can bring positive results and better competitive advantages in the
market. Even though there are many other alternatives to assist the firms in bettering
their future, having knowledge of the environment the company is in is vital.