...A New House-Economy Checkpoint Chante Yokley XECO/212 December 11, 2011 John McGee A New House-Economy The FED impacts national fiscal policies through interest rates, which impacts the demand in the housing market (Mankiw, N. G., 2007, p. 657). The Department of Treasury introduced a refinancing program that allows consumers to refinance mortgages to take advantage of lower interest rates. The Fiscal Policy impacts prime lending rates, which are the determining factor in consumer borrowing. The higher lending rates mean a higher price paid for a new home. As rates increase, demand decreases causing a decline in the housing market and an overall lag in the economy. A contractionary fiscal policy would provide a short-term decrease in the money supply but would provide lower inflation in the long-run, reducing lending rates and increasing the aggregate demand in the housing market (Mankiw, N. G., 2007, p. 778, pp. 5). The strength of the economy would create an increase in marginal benefits, exceeding marginal costs by strengthening home owner’s equity. The government offers programs and tax incentives (deductions) that subsidize home ownership, making it affordable to be a homeowner. One in particular is the Mortgage Interest Deduction (MID), a popular tax break for middle to higher class citizens; research shows that the beneficiaries from the MID are in these societal classes (Stansel, Dean & Randazzo, Anthony, 2011, executive summary, p. 6). There...
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...Demand and Supply Models Fiscal policy conveys the government’s selection concerning the use of government expenditures and taxation to regulate the aggregate level of economic activity. In contrast, fiscal policy includes changes in the level of government expenditures or taxes, and their financial position. The main points of fiscal policy generally focus on deficits and debt, beside taxation, and the level of spending. Monetary policy consists of the central bank’s control of the availability of credit in the economy to accomplish the intentions of economic policy. Control can be applied through monetary system by operating on aggregates; money and credit supply, interest rates, and exchange rate. However, the fiscal policy may impinge on monetary policy. Expansionary fiscal policy increases government spending or decreasing taxes (Colander, 2010), but the increase of government spending can cause an excessive deficit or debt. However, the excessive deficit, in turn will lead the government to borrow to finance the deficit. In addition, lowering taxes decreases the government income, increase disposable income, and economic growth. Contractionary fiscal policy decreases government expenditures or increases taxes (Colander, 2010), but contractionary is the purpose of decreasing aggregate demand, and controlling inflation. In addition, contractionary fiscal policy may result in some unemployment (Colander, 2010). Therefore, the fiscal policies currently recommended by government...
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...in which financial instrument are exchanged and in which the equilibrium level of the interest rate is determined. * Policy Effects in the Goods and Money Markets * Expansionary Fiscal Policy – An increase in government spending or a reduction in net taxes aimed at increasing aggregate output (income) (Y). * Expansionary Monetary Policy – An increase in the money supply aimed at increasing aggregate output (income) (Y). * Crowding-out Effect – The tendency for increase is government spending to cause reductions in private investment spending. * Interest Sensitivity or Insensibility of Planned Investment – The responsiveness of planned investment spending to changes in the interest rate, interest sensibility means that planned investment spending changes a great deal in response to changes in the interest rate; interest insensibility means little or no change in planned investment as a result of changes in the interest rate. * Contractionary Policy Effects * Contractionary Fiscal Policy – A decrease in government spending or an increase in taxes aimed at decreasing aggregate output (income) (Y). * Contractionary Monetary Policy – A decrease in the money supply aimed at decreasing aggregate output (income) (Y). * Policy Mix – The combination of monetary and fiscal policies in use at a given time. * The Aggregate Demand (AD) Curve * Aggregate Demand (AD) Curve – A curve that shows...
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...analyze total income a household or firm spends on particular items, giving insight into the state of the economy. By measuring GDP, the government can examine where money goes; is it being deposited, is the money being spent on taxes, or is it being invested into stocks and bonds. The flow of money from households into the financial system make it possible for firms to borrow, which is crucial to any economy. GDP measures the business cycle as well as it can, but cannot be the only determining factor; inflation and unemployment play vital roles as well. The term Fiscal Policy refers to changes in federal taxes and purchases that are intended to achieve macroeconomic objectives. Fiscal Policy is the government’s way of offsetting times of instability in the business cycle. Congress and the president conduct changes in the way money is being spent and how taxes will be handled. The government is employing fiscal policy when they make decisions on the goods or services they purchase or the taxes they collect. The impact of any change in the government’s budget is felt by various groups. These changes meant to be beneficial, can also result in negative...
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...Fiscal policies are utilized to influence the economy via the government revenue and taxes; two types are discussed in Chapter 31, expansionary and contractionary. Expansionary fiscal policies are utilized during a recession to lower taxes, increase the aggregate demand, government spending, and real GDP. The overall goal is to determine the direction of the country; expansionary fiscal policies create budget deficit when it is balanced at the outset. The expansionary policy will close a recession gap, increase spending and create an aggregate demand curve because the people have money for spending on products and services; thereby, increasing the economic condition of the country. For example, when the unemployment rate is high, the government, specifically the Federal Reserve & the U.S. Treasury will boost the economy by increasing the amount of money supplied to the U.S. and reduce the discount rate, and reserve. On the other hand, the contractionary fiscal policies control demand-pull inflation and restrict government spending by increasing taxes. The overall goal of a contractionary fiscal policy is to lower aggregate demand and inflation; creating a budget surplus. In other words, it does the opposite of an expansionary fiscal policy to sustain the economic condition by decreasing the aggregate demand curve for products and services. Unfortunately, it slows the growth of the economy because the people have less income for spending (McConnell, Brue, & Flynn, 2015)...
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...Economic Forecasting Economic Forecasting Gathering historical economic data as well as economic forecast data can be a very important and useful tool for a business, business research, and planning. There are several resources available in which a company can access this type of information for their advantage. For instance, through archiving data, collecting and running records, recollecting, economic data and forecast service providers or analytics, and other secondary resources. One useful source is the U.S. Small Business Administration. Their website lists multiple economic data resources tailored to different variables such as inflation, consumer reports, price index, accounts data, and the U.S. Census Bureau just to name a few. Furthermore, you can even access economic issues discussed at the White House and the plans intended to improve economic conditions. On the U.S. Small Business Administration’s website, there are very useful quantitative and qualitative forecasting factors. The whole website has a slew of quantitative factors with a lot of helpful statistics. Some important statistics to look at would be the trade and income figures. Trade statistics indicate how much money and product are being imported and exported within different time frames. It also gives an estimate into international transactions that are open at the moment. Income statistics give individuals access to know about different salary levels based on categories...
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...Principles of Macroeconomics, 9e - TB1 (Case/Fair/Oster) Chapter 12 Aggregate Demand in the Goods and Money Markets 12.1 Planned Investment and the Interest Rate 1 Multiple Choice 1) The market in which the equilibrium level of aggregate output is determined is the A) labor market. B) bond market. C) money market. D) goods market. Answer: D Diff: 1 Topic: Planned Investment and the Interest Rate Skill: Conceptual 2) The market in which the equilibrium level of the interest rate is determined is the A) money market. B) goods market. C) labor market. D) services market. Answer: A Diff: 1 Topic: Planned Investment and the Interest Rate Skill: Conceptual 3) The two links between the goods market and the money market are A) income and the inflation rate. B) the interest rate and the unemployment rate. C) income and the interest rate. D) the inflation rate and the unemployment rate. Answer: C Diff: 2 Topic: Planned Investment and the Interest Rate Skill: Conceptual AACSB: Reflective Thinking 4) Which of the following is determined in the goods market? A) the equilibrium interest rate B) money demand C) income D) money supply Answer: C Diff: 1 ...
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...Summarize the articles with your own words. The growth of the UAE economy this year is expected to recover relatively to the previous year. The reason for this decline is the implementation of a fiscal policy made by the United Arab Emirates. According to a stamen from the fund. "The economic recovery looks set to continue. With limited potential for further increases in oil production in the near term, overall GDP growth is expected to moderate to 2.3 percent," The UAE oil robust prices, and the well flow trade had a great impact in helping the country recover from the 2009-2010 debt crisis. Which bare dissipations in its property sector and led to a $25 billion debt. However, a warning of IMF stated that uncertain global renewed worsening of the global situation could lead government-linked companies to bankrupt. Extensive development had been made in the debt reform of state-linked entities; however, many entities still continued reliance on foreign funding. Thus, UAE authorities' plans to gradually consolidate fiscal policy. (Reuters, 2012) Which stage in the business cycle do you think the economy is in? Currently the economy is in the Recovery Stage the business cycle is the point at which the economy starts working its way up to better financial footing. The year 2012 will be remembered in the UAE’s history, among others, for economic recovery from the biggest financial crisis in its history starting from 2008. To summarize Dubai went through the classic Phase...
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...Study Center Sydney Faculty of Business Assessment item- 3 Class: ECO130– Business Economics Lecturer- Dr. Harpreet Kaur Student Name- Sidharth Shanker Student Number -11511309 Due Date - 30/09/2014 Answer-1 Frictional unemployment occurs when people seek new jobs or when they decide to switch their existing jobs (Deepashree & Agarwal, 2006, p.7.4). In other words frictional unemployment is the time required for people to search for a new job. Frictional unemployment is usually short-term and does not affect the public policies or social welfare. In contrast, structural unemployment is occurred as a result of people’s inability to match their skills with existing job opportunities. The reasons for structural unemployment could be the changes in structure of the nation’s economy, which is a result of changing tastes and demand conditions or from changed production processes. Finally, cyclical unemployment occurs mostly during recessions when there is a lack of job opportunities (Arnold, 2013, p.140). Full employment occurs when the economy operates at an unemployment rate which is equal to the sum of seasonal, frictional and structural unemployment rate. In other words full unemployment could also be defined as the unemployment rate in an economy without the cyclical unemployment. This is because cyclical unemployment varies with the business cycles (Hall & Lieberman, 2012, p.556). Furthermore, even when the economy is at full employment there...
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...Monetary Policy Difference between fiscal and monetary policies. Comparison of BAM and FED. Regulations implemented by these two Central Banks. Impacts of monetary policies. Risks taken during crisis. Macroeconomics INDEX 1) Difference between Monetary and Fiscal Policy 2) The Crisis 3) The United States (Federal Reserve) 4) Morocco 5) Pro’s and Con’s of Fed’s Policy 6) Impact of Central Bank of Morocco on Morocco’s economy 7) Risk of FED’s Policy 8) Best Policy for Long-Term Growth Difference between Monetary and Fiscal Policy Fiscal policy and monetary policy are the two main policies with which an economy can be controlled. They both are used to the main goal which is to keep an economy at its best, and keep the currency at its true value, by controlling the basic difference between these two policies is that fiscal policy is applied by the national government whereas the monetary policy is implemented by the Central Bank. These two policies, however, work together in controlling the economy effectively, they stimulate and restrain an economy when needed. Fiscal policy involves government spending and taxes, whereas monetary policy deals with setting interest rates and supplying money. Fiscal policy concentrates on the strategy with which it will implement taxes in the country and the way it should spend that money collected...
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...The concept of fiscal policy is the level of government spending and taxation set by the president and congress. Fiscal policy contains short term and long term effects; short run effects include fiscal policy on aggregate demand for goods and services. Long term effects are better saving and investments over the period of time. The government goes about changing the prices to obtain a stable prices, low unemployment and high growth. In the united states the legislative and executive branch is in charge of putting the policy in place. Fiscal policy can be used to stimulate a sluggish economy or slow down an economy that is growing too rapidly. Prior to the Great Depression the nation maintained economic stability by sustaining a balanced budget, soon they found out that more had to be done. President Roosevelt was the first to apply fiscal policy into the government’s economic system. When this policy was first implemented it didn’t seem to have great success and scholars report this was in part of the current economic condition as this was during the middle of the Great Depression. The late 1930’s proved to be the point when the fiscal policy was out into place most effectively. As WWII started employment rose, and the New Deal was implemented. This allowed government relief and new government organizations. The New Deal is actually what fueled the progress of fiscal policy. This was the first the government had intervened to help the citizen’s with their financial burdens...
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...Wells 2009) a brief explanation of fiscal policy is when the government uses taxes, government transfers and government purchases of goods and services to shift aggregate demand curve to the right to help heal the economy. (Reem Heakal 2010) describes it in simpler terms as the means by which the government adjusts its levels of spending in order to monitor and influence a nation’s economy. It is the sister strategy to monetary policy with which a central bank influences a nation’s money supply. Reem Heakal 2010 explains that Keynesian economics in theory can influence the macro economy by influencing productivity levels by increasing or decreasing taxes and public spending. This fiscal policy is set in place to get the economy back on track by increasing consumer spending and lowering unemployment. There are tools in the fiscal policy. Ex.: Is an investment tax credit which is a tax break to consumers. (Finishing the Job 2010) talks about the economic crisis was aided with swift stimulus packages to 130 million Americans and continued to find creative ways to unfreeze the credit markets. To summarize fiscal policy is too used to: Stimulate the economy, return to full employment, stabilize prices and combat inflation. Expansionary and contractionary means what it sounds like. We want to expand the economy and aggregate demand (A shift to the right in the demand curve) with government spending thus balancing it with contractionary policy ( A shift to the left in the demand...
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...Introduction to Business Environment Business environment is composed of two words ‘Business’ and ‘Environment’. In economic sense ‘Business’ means human activities like production, purchase or extraction or sales of products or services that are performed to earn money. Meanwhile ‘Environment’ means the aspect of surroundings. Business environment is the set of conditions institutional, political, economical, legal or social that is uncontrollable and affects the functions of the organization. Business environment consists of two components: external environment and internal environment. Internal environment includes of 5 M’s like management, money, machinery, material and man. On the other hand, External environment consists of demo-graphical factors, socio-cultural factors, political factors, geo-physical factors, government and legal factors. Executive Summary The assignment is organized with four parts: Introduction, executive summary, assignment and conclusion. Introduction is the brief of this assignment. Executive summary is to explain the detail of the contents. In this assignment, business environment is what we have learned by doing this assignment. Now, we can discuss the environment of business what kinds of things and what are the importance. Assignment Task1 Understand the organizational purpose of business 1.1 Identify the purpose of different types of organization An organization is an arrangement of people, pursing common goals, achieving...
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...Choose the one alternative that best completes the statement or answers the question. Please answer questions by shading the appropriate box on the MCQ form (Multiple Choice answer sheet). 1) hich of the following is not a consequence of hyperinflation? W A) he price level grows in excess of hundreds of percentage points T per year. B) oneyʹs function as a medium of exchange is enhanced. M C) t causes an economy to suffer slow growth. I D) oney loses value so rapidly that firms and individuals stop M holding it. 2) hich of the following would you expect to lead to increases in W domestic interest rates and an appreciation of the domestic currency? A) xpansionary monetary policy e c B) ontractionary monetary policy C) xpansionary fiscal policy e D) oth B and C. B 3) eteris paribus, an unexpected increase in the current or actual rate of C inflation will cause A) he long run Phillips curve to shift leftward. t B) he short run Phillips curve to shift upward. t C) he unemployment rate to decrease (a movement along the short t run Phillips curve). D) xpectations of future inflation rates to be revised downward. e 4) he interest rate on a Treasury bill that you pay $980 for today that T matures in one year and pays $1,000 is A) percent. 2 B) percent. 4 C) percent. 3 D) percent. 1 5) he international trade effect states that T A) n increase in the domestic price level will raise net exports...
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...difference between activist and laissez-faire economists is their differing views about whether the economy is self-regulating. Laissez-faire economists (Classicals) believe the pricing mechanism will bring the economy to an equilibrium (potential output and full employment) while activist economists (Keynesians) do not share that belief. 2. Classicals felt that if the wage was lowered, the Depression would end. They saw unions as preventing the fall in wages, and they saw the government lacking the political will to break up unions. 3. Five factors that shift the AD curve are: changes in foreign income, changes in expectations, changes in exchange rates, changes in the distribution of income, and changes in government aggregate demand policy. 4. Say there is a rise in the price level. That would make the holders of money poorer (the wealth effect). It would also reduce the real money supply, increasing the interest rate (the interest rate effect). Assuming fixed exchange rates, it would also make goods less internationally competitive (the international effect). All three account for the quantity of aggregate demand decreasing—decreasing spending as the price level rises. These initial increases are then multiplied by the multiplier effect as the initial spending reverberates through the economy. 5. Two factors that shift the SAS curve are changes in productivity and changes in input prices. 6. If the economy is in short-run equilibrium below potential output, input...
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