... U.S. Economic Situation When it comes to explaining The Fiscal and Monetary Policy and Economic Fluctuations, there are many variables to take into account. Looking at how the United States has been on this long recovery since the recession starting in 2007 all the way up to this point, the economic situation has gone from bad to ok. In discussing the economic situation as opposed to 5 years ago, one could truly argue that even though the situation was not the best to say the least, the United States is looking better and better when it comes to the economy. In October 2009 the unemployment rate in America was 10 percent, or that was the peak of it. It had not been that bad in America since late 1982, early 1983. In July 2009 the number of job openings declined to a series low of 2.1 million, unemployment reached a recent low of 129 million in February 2010. By 2012 it had increased to over 132 million and seemed to be rising, little did anyone know that things would soon take a turn for the better. Economists were predicting outrageous numbers for the next few years before things would even begin to get better, and they too were wrong in that prediction. Business cycles differ from economic fluctuations. As much as some market observers would prefer, economic fluctuation is a fact of life. Economic fluctuations are generated by shifts in specific economic data that affect limited facets of the economic picture. (http://www.ehow.com/info_10032315_main-economic-variables-affect-business-cycle...
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...on inflation and unemployment and a steady rate of economic growth along with a current account stability. Fiscal policy involves the use of government spending and tax receipts to influence the level and pattern of economic activity, whilst monetary policy uses interest rates to achieve the same. Fiscal and monetary policy can be used to influence short term Aggregate Demand with the aim of promoting a steady rate of economic growth, low unemployment and low inflation. In a recession there will be a loosening of monetary policy when interest rates are cut and a budget deficit run with the aim of boosting Aggregate Demand throughout the economy. This is what is happening at the moment in the UK as the economy slowly comes of out recession. Interest rates are down to 0.5% and income tax rates are slowly being cut to act as an incentive to workers to work harder and boost productivity. However, as we see in the UK economy these policies are having a very slow impact on growth. Consumer confidence and business confidence is very low and when this happens cuts in interest rates and taxes will not encourage household and consumers to spend more. They may be tempted to use the extra money to save more and pay off debt rather than spend and this could hinder economic recovery. Inflation in the UK economy was very low between 1992 and 2008 and this allowed interest rates to fall to a low level which helped boost economic growth and living standards in the economy. Now with...
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...Liber8 TM Brought to You by the Research Library of the Federal Reserve Bank of St. Louis Economic Information Newsletter Monetary and Fiscal Policy in Times of Crisis March 2011 Classroom Edition An informative and accessible economic essay with a classroom application. Includes the full version of the Liber8 Newsletter, plus questions for students and an answer key for classroom use. Prepared by the Economic Education Group of the Federal Reserve Bank of St. Louis © 2011, Federal Reserve Bank of St. Louis. www.stlouisfed.org/education Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes, so long as this copyright notice is included on all copies. Liber8 ® Brought to You by the Research Library of the Federal Reserve Bank of St. Louis Economic Information Newsletter Fiscal and Monetary Policy in Times of Crisis March 2011 “We [policymakers] have been bold or deliberate as circumstances demanded, but our objective remains constant: to restore a more stable economic and financial environment in which opportunity can again flourish.” —Federal Reserve Chairman Ben S. Bernanke, August 25, 2009 The recent financial crisis and recession prompted unconventional and aggressive actions by monetary and fiscal policymakers. Monetary policymakers turned to quantitative easing. Fiscal policymakers increased government spending and reduced taxes. To better understand these widely debated actions, it...
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...the Economic Environment - Edexcel https://www.edexcel.com/.../Unit%2038%20Business%20and%20the%20... P4 explain how both fiscal and monetary policy decisions have affected a selected business. [IE]. M2 analyse the effects of fiscal and monetary policies for a. [DOC]Unit_39, Anon - VOCBUS https://vocbus.files.wordpress.com/2010/06/natunit39assignmentanon.doc Describe the effect on a selected business of variations in economic activity ... Outline how both fiscal and monetary policy decisions have affected a selected. [PDF]Unit 38: Business and the Economic Environment fc.nbvlc.org.uk/.../Unit%2038%20Business%20and%20the%20Economi... P4 explain how both fiscal and monetary policy decisions have affected a selected business. [IE]. M2 analyse the effects of fiscal and monetary policies for a. [DOC]GNVQ Part One ICT - BTEC Business btecbusiness.weebly.com/uploads/6/8/7/.../business_unit_38_btec_d.doc Analyse the implications of government policies for a selected business. D1 ... Explain how both fiscal and monetary policy decisions have affected a selected ... Explain how fiscal and monetary policy decisions have ... https://www.stuvia.com/.../explain-how-fiscal-and-monetary-policy-decis... 26 May 2014 - Explain how fiscal and monetary policy decisions have affected a selected business. Stuvia · United Kingdom · Ealing, Hammersmith and West ... How Fiscal Policy and Monetary Policy Affect the Economy ... education-portal.com/.../how-fiscal-policy-and-monetary-policy-affect-t...
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...You Decide Exercises. The U.S. economy has fallen into a recession. It is a severe and deep recession, and one that some economic analysts say may persist for at least another year. The unemployment rate has risen to levels not seen in over 20 years. The current unemployment rate is at 8% and is expected to rise further. The inflation rate is -2.4 percent, meaning that overall, prices are falling. After I read all the recommendation I can conclude: * I agree with lower interest rate as Raymond Burke said because lowering interest rates should encourage consumption and investment. * I do not agree with rise taxes as Kathy Lee said because that means that less money go to the economy, and as consequence there will be an increase in prices and/or cut jobs. * I do not agree with reducing government spending as Kathy Lee said because this would exacerbate the situation with more contraction in the gross domestic product. * I do not agree to leave interest rate intact as Patricia Lopez said because it would not be a stimulus to consumption or investment to the economics. * I do not agree with selling bounds and raising the bank reserve as Patricia Lopez said because this action can lead to restrain lending and reducing the rate of economic growth. * I agree with buying bounds as Allison Tanney said because is putting money into circulation by paying investors who has these bonds, so the money supply increase. * I do not agree with increasing interest...
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...Expansionary Fiscal and Monetary Policies Macroeconomics: ECO 203 Professor Charles Aki September 1, 2013 The US economy has seen some detrimental changes over the past decade. These changes resulted in unsubstantial unemployment rates, fluctuating interest rates, unstable GDP, and an increase in taxes. The federal government has an obligation to citizens to respond to the changes in the economy that affect each household. Expansionary Fiscal and Monetary Policies are economic policies used by the government to level out the extreme swings in our economy. The development state of US economy has forced the Federal Government to implement changes using their authority in Expansionary Fiscal and Monetary Policies in order to stabilize the economy. President Bush and President Obama Administrations created and implemented a stimulus package in direct response to the 2008 economic crisis. Government expansion is necessary for economic growth. The government should provide a stable environment for economic growth and maintain the stability of currency, enforce and defend property rights and provide the assurance that private citizens and market place transactions are accountable. This is how resources are cycled into our economy. (Amacher;Pate, 2012) Without government spending, the government would not be able to carry out its duties to the US citizens. Government borrowing and spending stimulates the economy and is risky because it cannot be implemented at any time because...
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...Economic Modelling 30 (2013) 643–662 Contents lists available at SciVerse ScienceDirect Economic Modelling journal homepage: www.elsevier.com/locate/ecmod The effects of fiscal spending shocks on the performance of simple monetary policy rules Ali K. Malik ⁎ Karachi School for Business and Leadership (KSBL), Bahadurabad, National Stadium Road, Karachi 74800, Pakistan a r t i c l e i n f o Article history: Accepted 26 August 2012 JEL classification: E50 E52 E58 Keywords: Fiscal policy Monetary policy Inflation targeting Impulse response analysis Macroeconomic variables 1. Introduction a b s t r a c t We examine the effects of fiscal shocks on the performance of alternative monetary policy rules in a small dynamic general equilibrium framework. We explicitly consider the interaction between fiscal and monetary policy rules which may be present in the real world. We use a simple specification for the fiscal policy rule and various specifications for the (simple) monetary policy rule. Our analysis suggests that some form of flex- ible inflation targeting regime would perform well in response to fiscal shocks compared to other forms of policy regimes. © 2012 Elsevier B.V. All rights reserved. monetary policy has developed largely in isolation. The terminology ‘fiscal theory of the price level’ does however correspond to some ear- Monetary policy rules have come under extensive examination in the literature on monetary...
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...Money, Banking and Monetary Policy Lashawn Lyles Principles of Economics Devry University Professor William Cheng April 14, 2013 The United States is the leading economy of the world however we have been in a recession since 2008. Last year, unemployment was at a record high. Today the labor market is gradually improving. Payroll employment has increased by 175,000 jobs per month on average, and the unemployment rate declined 0.3 percentage point to 7.9 percent over the same period. Cumulatively, private-sector payrolls have now grown by about 6.1 million jobs since their low point in early 2010, and the unemployment rate has fallen a bit more than 2 percentage points since its cyclical peak in late 2009. In spite of these gains, however, the job market remains generally weak, with the unemployment rate well above its longer-run normal level. About 4.7 million of the unemployed have been without a job for six months or more, and millions more would like full-time employment but are only able to find part-time jobs. High unemployment has substantial costs, including not only the hardship faced by the unemployed and their families, but also the harm done to the vitality and productive potential of our economy as a whole. The loss of output and earnings associated with high unemployment also reduces government revenues and increases spending, thereby leading to larger deficits and higher levels of debt. The problem started...
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...predictable, the exchange rate is near its equilibrium level, the government budget is well managed, the budget deficit relative to GDP is at a reasonable level and the use of central bank credit to finance the budget deficit is kept at a minimal level. Macroeconomic stability sends important signals to the private sector about the direction of economic policies and the credibility of authorities’ commitment to manage the economy efficiently. Such stability, by facilitating long term planning and investment decisions, encourages savings and capital accumulation by the private sector. Macroeconomic instability takes place in two forms namely exogenous shocks and inappropriate policies. Exogenous shocks (such as reversal capital flows, terms of trade and natural disasters) require compensatory action and can rug the economy into disequilibrium. On the other hand inappropriate policies such as the monetary and fiscal policy have a direct impact on the macroeconomic stability of a country. According to (AmosWeb, 2012), governments pursue three major macroeconomics goals namely economic growth, low unemployment and low inflation rates. Economic growth can be defined as the yearly change in...
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...Fiscal and Monetary Policies essay Frank iula Mod3a 2-22-12 The Monetary and Fiscal Policies, although controlled by two different organizations, are the ways that our economy is kept under control. Both policies have their strengths and weaknesses, some situations favoring use of both policies, but most of the time, only one is necessary. Fiscal Policy can be explained in many ways, for example. Fiscal policy is the use of the government budget to affect an economy. When the government decides on the taxes that it collects, the transfer payments it gives out, or the goods and services that it purchases, it is engaging in fiscal policy. The primary economic impact of any change in the government budget is felt by particular groups make tax cut for families with children, for example, raises the disposable income of such families. Discussions of fiscal policy, however, usually focus on the effect of changes in the government budget on the overall economy on such macroeconomic variables as GNP and unemployment and inflation. Fiscal Policy also can be explained as the economic term which describes the behavior of governments in raising money to fund current spending and investment for collective social purposes and for transfer payments to citizens and residents of the territory for which the government is responsible. The money may be raised by taxation, by borrowing, by user charges on social assets or services,...
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...Fiscal and Monetary Policies Name University ECON CL # Professor Name Date Submitted Fiscal and Monetary Policies American great depression made policymakers come up with some drastic actions to counteract it. The policy makers are adopted and implemented various monetary and fiscal policies to reduce the effect of the depression. As a counteractive measure, economic decisions makers increased government spending and cut taxes while financial policy makers opted for quantitative easing that is a move by the central bank to introduce new money into the money supply (Blinder, Zandi, & Moody's Economy.com, 2010). There has been a raging debate on the issues surrounding the action taken by the federal government but to understand better the effects it is prudent first to know the reason behind the decision and the roles of both national and fiscal policies. In the past, around 1930s classical economist held that the economic downturn can only correct itself and doesn’t need intervention from government. American great depression made many economist and policy makers to give a second thought to classical economist by seeing a need for policy intervention (Blinder, Zandi, & Moody's Economy.com, 2010). Since then monetary and fiscal policies have remained the key intervention measures to correct economic downturns. When monetary and fiscal policies applied resulted in maximum employment growth and stable inflation. Both of these...
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...Discuss the difference between Keynesians and monetarists over the effectiveness of fiscal and monetary policy in the IS-LM framework. Introduction In economics there are two main schools of thought; these schools differ in their belief of what policies are best suited to attain full employment in the economy. Keynesians tend to favour demand side policies and are more prone to intervene in the market and therefore prefer to use fiscal policy whilst monetarists believe adjustments in money supply is more appropriate in stabilising the market ,therefore preferring monetary policy. In this essay I will discuss the views of Keynesians and monetarists regarding the effectiveness of monetary and fiscal policies in controlling aggregate demand through the IS-LM framework. I will first provide a brief description of the curves explaining their formation and what they represent and then I will go on to examine monetary and fiscal policy within the IS-LM framework. Finally, I will examine the views of monetarist and Keynesians regarding the effectiveness of both policies in raising the level of national l income and also consider the extreme cases. IS-LM framework The IS-LM model was initially developed by John Hicks in 1937 but was made popular in 1949 by Hansen in order ‘to provide a framework for analyzing the factors determining the level of aggregate demand’. The IS-LM model is a short run model of the determination of output. It shows the unique combination of income...
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...Bangladesh began implementing structural policy reforms to increase the market orientation of its economy in the late 1970s. The authorities adopted significant reforms in agriculture, industry, and trade, and also pursued reforms in the financial and infrastructure sectors. These reforms helped accelerate growth from an annual average of 3 percent in the 1970s to 4 percent in the 1980s and to 5 percent in the 1990s. Sound and sustained macroeconomic management ensured macroeconomic stability, contributing to Bangladesh’s ability to maintain one of the lowest growth volatilities in the world. Major Policy Reforms Contributed to Growth Acceleration: * Agricultural policy * Industrial policy * Trade policy * Infrastructure policy * Financial policy * Macroeconomic policies * Human Development policies Macroeconomic policies Following the initial debacle of the 1972–75 periods, Bangladesh was able to maintain a broad degree of stability of macroeconomic policies, as reflected in relatively low inflation and a stable real exchange rate. Fiscal, monetary and exchange rate management was broadly on track for most of the period until around the end of the 1990s. This long-term good macroeconomic management served Bangladesh well, contributing to incentives for private investment and exports. Inflation has now been reduced to 3–4 percent annually (Chart 7). The correction of the macroeconomic imbalances started in the late 1970s and continued...
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...in Canada responsible for conducting fiscal and monetary policy, name the Department of Finance and the Bank of Canada. What are the roles of each and what are each responsible for obtaining? What are the responsibilities of each institution and what tools do they have at their disposable to impact the economy? Can you say that their objections are in tandem with one another or due they sometimes conflict? Please explain. tools available to the Federal government in managing the economy -- Fiscal and Monetary Policy Legislative Overview In Canada, the monetary policy is conducted by the Bank of Canada in which the government owned organization function with considerable independence from the federal government but is accountable to the parliament. Monetary policy in Canada is set by non-elected officials at Bank of Canada. Other decisions regarding the level of government revenue and expense is part of fiscal policy which is made by the Government of Canada with the approval of the parliament of Canada, as result monetary and fiscal policies are governed independent of each other (Frigon, 2010). The role of monetary policy is to preserve the value of capital by keeping inflation low, stable and foreseeable. This allows Canada to make spending and investment decisions with confidence, encourages long-term investment in Canada and contributes to better job openings and greater productivity with a better standard of living. Monetary policy in Canada has three characteristics:...
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...The Federal Reserve Jermaine C. Taylor ECO320 Money & Banking March 2, 2014 Prof. Diana Bonina, Ph.D. Strayer University The Federal Reserve established on December 23, 1913 when President Woodrow Wilson signed the Federal Reserve Act into law. Although started in 1913, actual operations of the Reserve began in 1914. In order to provide the country with a safer financial system, Congress created The Federal Reserve System as the central bank of the United States. Today, the Federal Reserve’s responsibility falls into four general areas: conducting the nation’s monetary policy; supervising, regulating and other soundness of the country’s financial system; maintaining the stability of the financial system and providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions. The Federal Reserve can use the following tools to influence the money supply: Open Market Operations, The Required-Reserve Ratio and Discount Rate. The Federal Reserve uses Open Market Operations as its primary tool to influence the supply of bank reserves. This tool consists of Federal Reserve purchases and sales of financial instruments, usually securities issued by the U.S. Treasury, Federal agencies and government-sponsored enterprises. Using Open Market Operations, Federal Reserve can affect the money supply by buying or selling the U.S. government securities. When the Federal Reserve purchases a government security from the public...
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