Under the recessionary gap, an easy monetary policy should be exercised. In this situation, the Federal Reserve can increase the money supply by lowering the required reserve requirements, buying government securities in the open market operations, and by lowering the discount rate. To increase the money supply, the Federal Reserve has to lower interest rates through the money market. This would cause an encouragement to businesses to do more investment spending, which would shift the aggregate demand curve outwards. In other words, the Fed can increase the money supply by lowering interest rates and stimulating investment spending.
Types of Fiscal Policy There are two types of fiscal policy. The first, and most widely-used, is expansionary. It stimulates economic growth. It's most critical at the contraction phase of the business cycle. That's when voters are clamoring for relief from a recession.
It is the rate at which depository institutions borrow and lend from one another in the federal funds market. The FOMC’s open market operations lower the rate by increasing the reserves supplied to the economy, or alternatively, raise the rate by reducing the supply of balances. Due to a term structure of interest rates, the changes in the short-term interest rates are transmitted to the long-term interest rates since the financial markets expect the changes to persist for an extended period of time or assume that they convey information about the future monetary policy. Also, the inflation inertia ensures that the change in the federal funds rate effectively influences the real interest rate which is equivalent of the cost of borrowing. 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.
5.4. Main Drivers of the Valuation Model Tesco’s historical financial data, market growth demonstrated through GDP growth, has been the main drivers for analysis in assignment 2 of this paper, applying to Tesco’s different markets and specific growth. Tesco has its way of calculating financial figures giving more details with the assumptions of continuing updates on projected market trends, geographical growth plans, etc. Depreciation and amortization figure has been considered as fixed % of 2015 revenue (62,284/38,135=1.63%) for easy of calculations as Tesco will have much better forecast. For interest expense, I used 35% which was the rate for 2015 on total borrowing and applied it on 2015 borrowings.
Deficit spending, if used properly, helps the government to stimulate and helps the economy rebound from a recession. With the government assistance, unemployment is kept to its lowest possible rate and slowly encourage the consumers to buy goods and services by regulating interest rates. The upside of the short and long terms goals are more advantageous to the disadvantages of deficit spending. References Amadeo, K. (2016, December 22). Deficit Spending Is Out of Control.
Economic The economic conditions of a country play a critical role in the organization’s activities. It is reflected upon how a buyer and seller act in a market. With a boosting economy, the consumer has the power to purchase goods and services, and there is lesser unemployment in the country. During recession, stakeholders could back out from the company. But, during inflation, with high spending power, the company would acquire more stakeholders.
To employers raise in minimum wage saves them a lot on recruiting employees and invest money on their training. Existing workers will be more experienced to increase the efficiency of the business than the new workers. As a result, customers will be more relax about the service. Whereas, to the country the tax will be increased by large amount of money which can help to give free of cost services to workers such as free education, free electricity, free medical, which will again motivate the worker to work hard. The most important thing the GDP of the country will increase and will help the government a lot to pay of the loans as soon as possible before more interest to be
Lower unemployment With higher output and positive economic growth firms tend to employ more workers creating more employment UK unemployment rises during a recession – falls during periods of economic growth. Lower government borrowing. Economic growth creates higher tax revenues and there is less need to spend money on benefits such as unemployment benefit. Therefore economic growth helps to reduce government borrowing. Economic growth also plays a role in reducing debt to GDP ratios.
1.Definition of the macroeconomic variable a) Economic Growth A rise in the capacity of an economy to produce goods and services, compared from one period of time to another. Economic growth can be considered in nominal terms, which contain inflation, or in real terms, which are adjusted for inflation. The increase of an economy is thought of not only as an increase in productive capacity but also as a development in the quality of life to the people of that economy.Increase in the capital stock, advances in technology, and improvement in the quality and level of literacy are considered to be the principalcauses of economic growth. Two main factors of Economic growth are an increase in aggregate demand and aggregate supply. b) Inflation
INTRODUCTION Economic growth is defined as the increased capacity of an economy to be able to produce goods and services in comparison from one period of time to another. This is figured by the genuine Gross Domestic Product (GDP) and development, and is measured by utilizing genuine terms such as “Balanced Inflation”. These terms help to remove any distorted views on the perceived outcome of inflation on the cost of merchandises produced. Likewise, Economic growth is related to the high expectations in a person’s standard of living. If the standards are high, it wouldn’t be beneficial for the economy as the working class individuals will face a lot of trouble.