Economic Question, Essay Example

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Essay

The auto industry is notoriously cyclical: That is, during periods of higher economic growth, consumers usually purchase more new automobiles. During periods of lower economic growth, like those experienced from 2008-2010, new automobile sales were markedly lower.  Does this cyclical correlation between economic growth and new automobile sales hold up for other product categories such as used vehicles and repairs? 

Without doing extensive research, one would posit that the correlation is probably inverted for used cars.  This is due to the difference in consumer behavior for the products and services.  That is, in an economic downturn, consumers might have greater incentives to purchase (cheaper) used cars and undertake car repairs in order to keep their current car on the road; this might be a cheaper alternative than purchasing a new car.  Thus, one would expect that there may still be a cyclical relationship for these products and services, but it is likely one of inverted correlation with purchases for used cars and repair services (strong growth- lower demand; weak growth; stronger) demand compared to the new car market.

If a consumer purchases a new car that is measured in the real personal consumption expenditures (PCE) category of GDP. If a business purchases a new care that is measured in the real nonresidential fixed investment category of GDP.

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