...Current Macroeconomic Situation, Fiscal and Monetary Policies Current Macroeconomic Situation, Fiscal and Monetary Policies Introduction As the leading world economy, the United States and has been in a recession since 2008 and the leading outcome of this recession has been no other than unemployment. The newsflash among media and television about this recession has resulted in unemployment, and how to remedy this “current macroeconomic situation”. No one seems to have an immediate solution on how the economy will get better. The news and media do a lot of finger pointing and giving various unpleasant names to the situation such as calling it “the decade of depression”. Our inflation rate is about 2.3%, which is currently lower than the past rate that was 3.4%. As of July 2012, unemployment rate has been around 9.3%, compared to the prior average years back of about 5.6%. Research We all know that if there is unemployment, consumers do not spend as much money and businesses suffer, from that but honestly speaking, not many of us know what these unemployment figures mean or represent for sure. We can assume or estimating what it means without understanding since we were not aware of what it was before or one is not personally affected by the unemployment saga. So it gets to be a bit mind-boggling when some industries throw these percentages out there and expect us all to know what they mean and as a way to get...
Words: 845 - Pages: 4
...Running head: Monetary Policy and Its’ Effect on Macroeconomic Factors Monetary Policy and Its’ Effect on Macroeconomic Factors Edward Thaxton University of Phoenix MMPBL/501 Forces Influencing Business in the 21st Century Dr. Sangeeta Bishop March 8, 2010 Abstract This paper will illustrate the affects of The Fed, the creation of money and the monetary policy. The monetary policy has a direct impact upon aggregate demand, gross domestic product, unemployment, inflation, and interest rates. Monetary Policy and Its’ Effect on Macroeconomic Factors In earlier times traders used gold for transactions, and realized that it was inconvenient so they began to make deposits with goldsmiths. The goldsmiths provided the depositor a receipt for the value of their deposit of gold and people began to use the receipts as payments. The goldsmiths backed their receipts fully with the gold that they held in their vaults. These receipts were used as the first kind of paper money. Today, gold is no longer used as bank reserves. This was the beginning of the fractional reserve system of banking, in which reserves in bank vaults are a fraction of the total money supply. The creation of checkable deposit money by banks, limited...
Words: 1437 - Pages: 6
...The European Monetary Union (EMU) was established as a formal objective in 1992 from the Treaty of Maastricht. In 1995 initial details of a union currency “the Euro” was announced and in 1998 the European Central Bank (ECB) was created and in 1999 the Euro underwent a 3 year transition introducing the Euro notes and coins. The purpose of this text is to analyse in detail EMU’s macroeconomic framework and performance and how this has evolved in the past 10 years. Firstly, I will look into the fiscal policy set out by the EMU however the bulk of the text will look into the monetary policy framework. Finally I will conclude by briefly trying to pin point the links between the macroeconomic framework to the current Eurozone crisis. In general on average the Eurozone’s first decade is viewed as a success and the ECB met its targets by delivering low and stable inflation with an output gap consistently close to 0. However, if we inspect country by country, we witness a large variation. The macroeconomic framework of the EMU, takes 2 main forms Fiscal policy and Monetary Policy. National governments are responsible for their individual fiscal policy while the ECB undertook the responsibility of Monetary Policy. Under the umbrella of Fiscal policy, the Stability and Growth pact provides a clear economic boundary to all Eurozone members. The Stability and Growth Pact specifies 2 boundaries. Firstly, national budget deficits must be kept below 3% and secondly the ratio of the government...
Words: 1485 - Pages: 6
...MACROECONOMICS: A General Overview Finance is based on economics. Therefore, to properly understand financial markets and their behavior one must first understand economics. Economics at its core is concerned with the production, distribution, trade and consumption of goods and services. To put this in human terms we can say that economics is the science that arises out of the interplay between limited resources and unlimited human wants and needs. There are two basic ways to view economics. There is the broad and distant view, which attempts to view things in aggregate for a society at large. We call this view “Macroeconomics”. Macroeconomics is concerned with the status of the economy as a whole. Thus, it looks at overall employment of a general population or overall income of a nation as opposed to a more focused view of a population segment or specific industry. This view is helpful because it is only by this kind of analysis that we can see the general trends which a society or nation is following. Macroeconomic theory and analysis is employed most often by Governments and institutions, which have a responsibility to make policies and decisions which affect the economy as a whole. Some terms you may have heard of which concern themselves with the macroeconomic view of the economy are Gross National Product, Inflation, Consumer Price Index and Fiscal Policy. The meaning of each of these is listed below. Gross National Product – This is the most common measure...
Words: 531 - Pages: 3
...with Fiscal and Monetary Policies: An Analytical Framework 1. Introduction There is growing consensus that public debt management should be integrated into a broader macroeconomic framework of analysis, but to date, there is little literature that places it into a coherent analytical framework. Following Anderson (1999), Wheeler (2004) and Jensen (mimeo) this paper proposes a sovereign asset and liability management (ALM) framework for integrating debt management to the overall macroeconomic framework of analysis. Existing literature on optimal fiscal and monetary policies is well established. However, they have largely been developed in isolation (see for example, Chari and Kehoe, 1999, Blanchard and Fisher 1989) or where their interactions are examined, such as Sargent and Wallace (1981, 1993) the focus has been on the consequences of uncoordinated policies. The literature on debt management, on the other hand, has mostly developed in support of fiscal or monetary policies:2 for example, Barro (1995) identified the role of debt management in tax smoothing, and Calvo and Guidotti (1990) identified the role of debt management as a commitment device in ensuring a time consistent monetary policy. The objective of this paper is to fill the gap in the literature and to establish public debt management as a separate policy with a different objective from those of fiscal and monetary policies, and to integrate public debt management into a broader macroeconomic framework of analysis...
Words: 282 - Pages: 2
...Essay Plans Macroeconomic Policy Introduction Macroeconomic policies refer to policies directed at stabilising the aggregate level of economic activity or output. The fundamental rationale for government macroeconomic intervention is to stabilise fluctuations in the business cycle. Through the conduct of such ‘counter cyclical’ or ‘stabilisation’ policies the government seeks to achieve three major objectives. • Economic growth that is sustainable in delivering rising real incomes whilst minimising inflationary pressures and the current account deficit as a percentage of GDP; • Internal Balance, which is characterised by full employment and price stability; • External Balance, which involves financing import expenditure with export income, stability of the exchange rate, and minimising the levels of net foreign liabilities and net foreign debt as a percentage of GDP. Other objectives include ensuing that the benefits of economic growth are enjoyed by all groups of the population through an equitable distribution of income, as well as ensuring that economic growth and development is ecologically sustainable such that it meets the needs of present generations without compromising the ability of future generations to meet their own needs. Macroeconomic policies operate on the demand side of the economy since changes in the settings or stances of fiscal and monetary policies will impact on the growth of aggregate demand. • If AD exceeds AS at the full employment...
Words: 1523 - Pages: 7
...1. Critically examine the effectiveness of various approaches that may be used to reduce macroeconomic instability. According to Mc Vaish (Macroeconomics theory, p123) Macroeconomics can be defined as the analysis of the economy wide aggregates such as the analysis of the total output and employment, total consumption, total investment, total saving and national product. Macroeconomic theory employs technique of general equilibrium in order to study the determination of the general price level, money supply, total employment and output levels and fluctuations in these aggregates magnitudes. A macroeconomic stable environment can be defined as one in which inflation is low and 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...
Words: 2805 - Pages: 12
...Macroeconomic Terms ECO/372 Version 8 University of Phoenix Material Macroeconomic Terms Define the following terms in your words. Term Definition Definition Source Gross Domestic Product (GDP) Is the total market value of all final goods and services produced in an economy in a oneyear period. Colander, D. (2012). Economics (9th ed.). East Windsor, NJ: McGraw Hill Real GDP Is the total amount of goods and services produced, adjusted for price-level changes. It is the measure of output that would exist if the price level had remained constant. Colander, D. (2012). Economics (9th ed.). East Windsor, NJ: McGraw Hill Nominal GDP The amount of goods and services produced measured at current prices. Colander, D. (2012). Economics (9th ed.). East Windsor, NJ: McGraw Hill Unemployment rate The U.S. unemployment rate is determined by dividing the number of people who are unemployed by the number of people in the labor force—those people in an economy who are willing and able to work—and multiplying by 100. Colander, D. (2012). Economics (9th ed.). East Windsor, NJ: McGraw Hill Inflation rate The percentage increase in the price of goods and services, usually annually http://www.investorwords.com/2456/ inflation_rate.html Fiscal Policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy...
Words: 657 - Pages: 3
...Chapter 12 - Macroeconomic and Industry Analysis CHAPTER TWELVE MACROECONOMIC AND INDUSTRY ANALYSIS CHAPTER OVERVIEW This is the one of three chapters that covers fundamental security valuation. This chapter introduces a topdown approach to fundamental security analysis. It covers the first two components: macroeconomic and industry analysis. The textbook begins with a global analysis, particularly with respect to how the performance of domestic firms is influenced by international economic performance. The chapter’s main focus however is on aspects of the U. S. economy that affect security returns, including fiscal and monetary policy. In addition, a brief presentation of the determinants of interest rates is covered. The chapter concludes with a discussion of industry analysis that includes classifications of industries, information sources, the industrial life cycle and a Porter framework that can be used to analyze industry competition. LEARNING OBJECTIVES Upon reading this chapter, you should have a basic understanding of some of the macroeconomic factors that affect security prices. That is, how fiscal and monetary policy affect interest rates and security prices. And some industry groups are more affected by macroeconomic factors than others and the characteristics of an industry that affect its competitiveness. CHAPTER OUTLINE The top-down approach to fundamental analysis begins with analyzing the economy. Expected economic performance will influence...
Words: 4152 - Pages: 17
...The Impact of Monetary Policy on Economic Growth and Inflation in Sri Lanka C.Amarasekara 1 Abstract Based on a vector autoregressive (VAR) framework and utilising both recursive and structural specifications, this study analyses the effects of interest rate, money growth and the movements in nominal exchange rate on real GDP growth and inflation in Sri Lanka for the period from 1978 to 2005. The results of the recursive VARs are broadly in line with the established empirical findings, especially when the interest rate is considered the monetary policy variable. Following a positive innovation in interest rate, GDP growth and inflation decrease while the exchange rate appreciates. When money growth and exchange rate are used as policy indicators, the impact on GDP growth contrasts with established findings. However, as expected, an exchange rate appreciation has an immediate impact on the reduction of inflation. Interest rate innovations are persistent, supporting the view that the monetary authority adjusts interest rates gradually, while innovations in money growth and exchange rate appreciation are not persistent. Several puzzling results emerge from the study: for most sub-samples, inflation does not decline following a contractionary policy shock; innovations to money growth raises the interest rate; when inflation does respond, it reacts to monetary innovations faster than GDP growth does; and exchange rate appreciations almost always lead to an increase in GDP growth. The...
Words: 18533 - Pages: 75
...is a better Monetary System: Bargaining or Money? So far, every monetary system ever implemented has been problematic. For instance, money, in its various forms, has been liable to manipulation. Metal money made from precious metals may be degraded by the issuer or filed, shaved, or chipped by individuals. Paper currency makes it more difficult for individuals to alter money but is more easily manipulated by the issuer, whether central authorities of individual banks. Bargaining and money are the two principal systems that markets utilize in buying or selling of both services and goods. Notwithstanding its weaknesses, money remains a better monetary system compared to bargaining. The imposition of limiting monetary policy in a disjointed wage bargaining context where workers have considerable bargaining rights can have perverse effects. Notwithstanding the tendency of liberal economists to point labor-market rigidities arising from government regulation and active trade unions as the source of unemployment, evidence exist that the nature of macroeconomic policy can also play a role. Macroeconomic policies are essential, especially in ensuring that wage-bargaining systems are able to deliver wage moderation that is favorable to low unemployment levels (OECD, 2011, p. 328). Centralized bargaining systems only work best under an accommodating monetary policy while bargaining systems organized at the industry level works efficiently under a non-accommodating policy. Therefore,...
Words: 1246 - Pages: 5
...Federal Reserve Paper Eco 212 August 22, 2010 Federal Reserve Paper The Federal Reserve System (Feds) in the Central Bank, essentially it is a bank’s bank. Its main function is to implement policies to control the nation’s money supply. Because of the economic recession, the Feds reacted with the expansionary monetary policy. Expansionary monetary policy is the Feds increases the money supply. The current year’s effects of expansionary monetary policy are documented by the Federal Reserve Board of Governors within the Monetary Policy report to Congress. Also, if the economy were in an inflationary gap then the Feds would react with contractionary monetary policy. Contractionary monetary policy is the Feds decreases the money supply (Arnold, 2005 pg 242). Money is defined as any good that is widely accepted for purposes of exchange (payment for goods or services) and in the repayment of debts. Money has three functions. Its functions are: 1) Medium of exchange. 2) Unit of account. 3) Store of value. Medium of Exchange is anything that generally acceptable in exchange for goods and services. Unit of Account is a common measure in which relative values are expressed. Store of Value is the ability of an item to hold value overtime a function of money. In addition, with out money, the nation will still be using the barter system. This is an exchange of goods and services for other goods and services. Money has value because of its general acceptability (Arnold, 2005 pg 307)...
Words: 875 - Pages: 4
...1.4 The macroeconomic impacts of oil price shocks 1.4.1 A short history of a controversial topic Since the 1973 OPEC (Organization of Petroleum Exporting Countries) oil embargo, the role of rapid, unanticipated increases in oil prices has been a topic of intense interest, among both economists and the lay public. Considering the magnitude of widespread national recessions during the 1970s, the controversy surrounding research on the macroeconomics of oil price shocks may seem surprising: why would anyone doubt the capacity of oil price shocks to cause the major movements in GDP (Gross Domestic Product) which have been observed in so many countries? Possibly most important in fueling the controversy is the small share of GDP that oil and its close substitutes have comprised in most economies: 1.5% to 3% prior to the 1973 episode. Experienced macroeconomists doubted that even a sizeable shock to such a small part of the economy could have the observed effects. Second, the 1973 episode itself was not a clean experiment because a number of other major factors were emerging at the same time. The world economy was just getting off the post-Bretton Woods fixed exchange rate regime. A number of countries, including the United States, was teetering on the brink of recession at the time of the 1973 shock; in the United States in particular, monetary policy tightened right around the time of the 1973 shock. Separating these effects and deciding the role ...
Words: 4409 - Pages: 18
...States vs. Canada Introduction Macroeconomics is the field of the economics that deals with how individuals change their economic behavior when there is change in the market-wide policies. One of the two applications that are widely studied in the macroeconomics is the Fiscal Policy, Monetary Policy and aspect of Monopoly. The fiscal policy is implemented by the government of the U.S. The monetary policy is reviewed during the schedule of 8 meetings per year, during which it is analyzed and discussed that how economic and financial developments taking place in the country and determines the appropriate stance of the monetary policy. However, monopoly disables new and young businesses to grow or take birth with such heavy financial requirements for entering in the markets. This paper deals with the current economic situation, especially at the macro level, faced by the United States of America, the world’s largest economy and then it is compared with the economy of Canada and several aspects are discussed in the later part of the paper. Discussion United States The past twenty years has seen a great shift in economics of this country. In the early 1990’s the U.S. economy was struggling and was a major topic of the previous presidential election. Fast forward twenty years and an economic boom and bust later, the presidential election again was based on a struggling economy. By taking a closer look at the policies and practices that took place in that span...
Words: 1169 - Pages: 5
...ECON545: Project 2—Macroeconomic Analysis Situation D Brian Banks 8/24/2014 Uncle Dan has a 100-acre corn farm. After 30 years of growing corn, he wishes to leave that commodity’s market and enter a more profitable market instead. He is thinking of subdividing his land and building homes and shops. He reckons he could make a good profit by selling the homes and renting the shops. Uncle Dan has several costs and risk factors to consider in making the switch. The best way to approach this scenario requires researching the economy in terms of GDP growth rate, interest rates, level of unemployment, the business cycle, fiscal policy, monetary policy, international trade, and demographics from a macroeconomics perspective. The macroeconomic factors to be considered from the view of the organization are: GDP growth rate, Business cycle, Fiscal policy and level of unemployment, monetary policy and interest rates, International trade, and Demographics. Business Cycles, Unemployment, Inflation, International - Comparative Advantage, Exchange Rates, Trade, Monetary Policy and Interest Rates, and Fiscal Policy and Unemployment are the variables that are critical in addressing the issue. The United States has one of the most diversified and most technologically advanced economies in the world. Finance, insurance, real estate, rental, leasing, health care, social assistance, professional, business and educational services...
Words: 1215 - Pages: 5
