By altering the cost, federal funds rate indirectly affects the spending and investment by households and businesses, which on their turn, impact output and inflation in the economy. The dynamic Three Equation Macro Model designed by Charles I. Jones allows us to trace the behavior of the Fed’s monetary policy and other economic variables over time when the economy is exposed to different kinds of shocks. The model incorporates IS curve along with the Phillips curve and the Taylor Rule, assuming the adaptive inflation
Firstly, because the government policies shape the market forces, they are able to shape the degree of inequality. The root of the inequality issue lies in the government policies, as they hold the power to determine where the money lies on the spectrum of the rich, middle class and the poor. Normally, when an economy is suffering, employment as well as wages adjust accordingly and sales as well as profits suffer as well. However, because of this inequality employment rates and wages actually suffer while the sales profit. Political forces, as much as economic ones are what leads to inequality.
For example, the exchange rates can affect the costs of the supply and price of imported goods and exporting goods in an economy. Also the rise in inflation rates of an economy can affect the way a company prices their products and services. The biggest threat that Nike would face economically is from an economic recession. A recession would have an effect on Nikes growth
. To ensure price stability is maintained the Reserve Bank adjust the OCR which influences prices in the economy. Price stability, which is when the purchasing power of money stays constant, is a desirable outcome of the government because inflation has several negative impacts on household and firms. Inflation erodes the values of households’ savings and causes those on a fixed income to lose purchasing power, the quantity of goods a set amount of money will buy. For firms, inflation causes cost or production to income since workers’ demand pay rises, as well as making it difficult to firms to plan for future.
This is primarily a tool at the disposal of the central bank of a country which uses different tools to manage the macro economic variables of a country to keep the economy stable or to stabilize it in situations of fluctuations. Monetary policy can be expansionary or contractionary depending on whether the money supply is being increased or decreased in the system so as to affect economic growth, inflation, exchange rates with other currencies and
Monetary policy is enacted by a central bank that controls money supply that is circulating in the economy. This money supply influences inflation and interest rates that determine consumption level, employment rate and cost of debt. Expansionary monetary policy involves in buying treasury notes and declining interest rates on loans of central banks. These actions help in making the money supply to increase and making interest rates lower. This policy also makes consumption to be more attractive corresponding to savings.
Main arguments involve the theory fails in providing sufficient account of its dynamic properties such as ‘internal relations’ between policy makers and the agents (entrepreneur). Their main concern is, Keynes could elaborate in his theory which ways the group of agents that participate in trade will be able to integrate with the policy makers of host country so as to ensure maintenances of his ideas of effective demand in the economy (Jespersen and Madsen 2012: 50). After criticism of Keynes’s theory there exists another group successors of Keynes identified as Keynesians and post-Keynesians. Each group has its own way of analysing trade and its impact on current account of the country. Keynesians who are also known as neoclassical synthesis develop their theory which considers some of ideas from the general theory.
Macroeconomic policy is a framework of a set of rules and regulations that the government implements to control the nation’s economy, unemployment rate, inflation, recessions, money supply, growth rate, interest rate, and many more. The two main monitoring macroeconomic policies are: • Fiscal policy • Monetary policy What is fiscal policy? The spending policy implemented by the government that would affect the macroeconomic factors of the nation is known as fiscal policy. These policies control the nation’s unemployment rate, inflation, people’s buying behaviour determining to control the economy. In order to implement the fiscal policy, the government might reduce the taxes, which would let people pay less money on taxes and invest it somewhere
The government changes the framework of regulation from time to time, which influences the financial balance of the organisation. The business of an organisation affected effectively due to the changing attributes of the government policies. Taxation policies are the economic policy manages by the government, which greatly affects the business cost of the organisation. Tesco is operating its business operation globally. The environmental and political factors of European and UK governments influences the performance level Tesco.
Macroprudential policy aims to manage financial stability through a much more targeted approach than monetary policy. Using monetary policy to fix a problem in the economy (e.g. asset prices are too high or too low) has many risks involved with it, for example causing high inflation or on the other hand causing deflation. Macroprudential policy takes a different approach and tries to correct imbalances in the economy more on a case-by-case basis instead of “shocking” the whole economy with monetary changes. So instead of trying to aid a housing bubble by raising interest rates and risking a rise in unemployment, a macroprudentialist will look to impose higher loan-to-value ratios on mortgage lendors, and will try to reign in just the housing part of the