A macro economics perspective

The decision of whether to invest in the USA or South Korea will depend on several
macroeconomic factors. Auto Edge would like to choose a location that secures its long-term
financial performance. This paper is, therefore, comparative research of the Gross Domestic
Product (GDP), unemployment rate, interest rates, and inflation between South Korea and the
USA using current data and gives a recommendation for the country that AutoEdge should shift
its manufacturing operations into. The researched data focuses on the final quarter of 2021 and
Gross Domestic Product
The gross Domestic Product metric measures the total economic output. The global
economy has been recovering from the effects of the COVID-19 pandemic. The USA was one of
the countries that were negatively affected by the pandemic. The pandemic affected critical
sectors of the economy, and in response, the Department of Treasury was forced to implement a
$1 trillion American Rescue plan to stimulate economic growth. The United States Bureau of
Economics notes that the current GDP grew 10% in 2021 to the U.S. $22.99 in the last quarter of

2021. The real GDP is a measure of GDP that is adjusted for inflation. In the United States, the
      real GDP was U.S. $ 19.8 trillion (BEA, 2022).
      The South Korean GDP for the year 2021 was U.S. $ 1.89 trillion (OECD, 2022a). Just
      like in the United States, the South Korean economy was gradually recovering from the effects
      of the COVID-19 pandemic. South Korea depends heavily on net exports of electronic
      equipment as it is home to some of the world’s biggest brands, such as Samsung and L.G.
      electronics.
      Unemployment

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The unemployment rates are essential because employment status affects income and
purchasing power which are important metrics for AutoEdge to consider.Data from the Bureau
of Labour Statistics shows that the unemployment rate in the last quarter of 2021 was 3.4%
(Bureau of Labour Statistics, 2022). This was an improvement from the rate in the first quarter of
2021, when the unemployment rate was 4.5% (Bureau of Labour Statistics, 2022). In the United
States, the unemployment rate was 3.9% as of 2021. The unemployment data in the United States
considered the employable population of individuals above 16 years old who are not
institutionalized in mental, penal, or homes for the aged and who are not in active service in any
wing of the U.S. military (Bureau of Labour Statistics, 2022). The implication is that by the end
of the year 2021, the United States had a bigger percentage of its employable workforce
unemployment. The unemployment rate in South Korea during the same period was 3.7%
(OECD, 2022b). This data comprised all individuals over 15 years of age. For AutoEdge, this
means that the customers in South Korea would have a slightly better purchasing power and
disposable income, which means that they would be able to afford AutoEdge products.
Interest rates
Interest rates provide another essential consideration for AutoEdge to consider. Interest rates are
defined as the rates that central banks lend to other commercial banks. The interest rate for South
Korea by the end of 2021 was 0.25% per annum, according to the International Monetary Fund
(IMF, 2022).
Data from the United States Federal Reserve System shows that the inflation rate in the last
quarter of 2021 was 0.08% per annum (Federal Reserve, 2022). This means that firms in the
United States had a better chance to access credit than the firms in South Korea. Going by this
metric alone, AutoEdge would be better off setting up its manufacturing center in the U.S.

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Inflation
The inflation rates are the rates at which an economy’s currency devaluates, affecting the prices
of commodities. Data from the OECD shows that the inflation rate in the United States as of the
last quarter of 2021 was 7% (Bureau of Labor & Statistics, 2022b). There was a significant
increase in the prices of food, power and gas, medical care, new vehicles, and shelter. Inflation
metrics are essential to consider because inflation in households affects priorities. If prices of
commodities and services go up, households prioritize the purchase of the essential goods and
services first. The inflation rate in South Korea was 3.7 % (World Bank,2022).
Recommendation
Metric South Korea United States
Gross Domestic Product U.S. $1.892 trillion US$22.99 trillion
Unemployment Rate 3.4% 3.9%
Interest rates 0.25% 0.08%
Inflation 3.7% 7%

From the above table, the United States had a better Gross Domestic Product than the
Republic of Korea. The difference is quite significant because by judging the size of the
economy from the GDP only, an economist would argue that for the year 2021, the United States
economy is 12 times larger than the United States. South Korea had a better unemployment rate
than the United States, though the difference was very insignificant at only 0.5%. There is a need
to evaluate this metric further in order to make a more informed decision. For example, the
United States has a population of approximately 330 million in comparison with South Korea,

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which has a significantly lesser population of approximately 52 million. This means that in the
United States, there is a larger population of employable people than in South Korea, despite the
fact that the U.S. economy is larger. Considering that the difference in unemployment rates
between the two countries is 0.5 %, the United States performs well in that metric.
The third metric was the inflation rate which the United States again performed better
than South Korea. The difference in interest rates between the two countries is quite significant.
It means that if AutoEdge were to set up its manufacturing facility in South Korea, it would pay
68% more to access credit than it would if it set up the plant in the United States.
The final metric considered was inflation. The United States had significantly higher
inflation than South Korea. It means that households in South Korea had better value for their
currency than households in the United States. It is also essential to note that the United States
dollar is many times stronger than the South Korean Won. In the forex market, by the end of the
year 2021, the South Korean Won exchanged at 0.0008449 against the U.S. dollar. AutoEdge
should therefore consider setting up its manufacturing location in the United States.

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References

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