Premium Essay

The Fiscal and Monetary Policy and Economic Fluctuation

In: Business and Management

Submitted By tharockman1978
Words 1056
Pages 5
Johnny J. Stewart Jr.
Strayer University
ECO 100 Professor George Uhimchuk
May 29th, 2014

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.html)
In July 2009 the Federal Financing Bank interests rate was 4.628, the Treasury Inflation Protected Securities interest rate was 2.320, and The Total Interest Bearing Debt was 3.418....

Similar Documents

Premium Essay

Business Cycle

...In general the economy tends to experience different trends. These trends can be grouped as the business/trade cycle and may contain a boom, recession, depression and recovery. A business/trade cycle is the periodic but irregular up-and-down movements in economic activity, measured by fluctuations in real Gross Domestic Product (GDP) and other macroeconomic variables. Samuelson and Nordhaus (1998), defined it as ‘a swing in total national input, income and employment, usually lasting for a period of 2 to 10 years, marked by widespread expansion or contraction in most sectors of the economy’. These fluctuations in economic activity usually have implications on employment, consumption, business confidence, investment and output. The Keynesian Approach, this theory shows how the collaboration of multiplier and accelerator can lead to regular cycles in aggregate demand. The Keynesians believe that economic activity is generally unstable and is subject to inconsistent shocks, usually causing the economic fluctuations and are attributed to the changes in autonomous expenditures especially investment. The Keynesian approach is pretty simple; higher investment will lead to a larger rise in income and output in the short run. This means that consumers will spend some of their income on consumption goods. This will give rise to further increase in expenditure. Ceteris paribus an initial rise in autonomous investment produces a more than proportionate rise in income. The......

Words: 1663 - Pages: 7

Free Essay

Describe the Terminology of Macroeconomics Including Gdp, Gnp, National Income Business Cycles, Monetary Policy, Fiscal Policy, Inflation and Unemployment

...business cycles, monetary policy, fiscal policy, inflation and unemployment Macroeconomics is a broad sub-field of economics that establishes the behavior, outlook and structure, collective and established decision making system of an economy at large and usually involves national economies, regional and global economies with little or no involvement of the individual markets. Gross National Product is a determining tool in macroeconomics that measures a nation’s economy and status through international investments and residents working over-seas. GNP excludes any product values produced by foreign investors within the country. GNP is a great indicator in macroeconomics when assessing economic progress in comparison with Gross Domestic Income. (Clark & Montjoy, 2001) Macroeconomics uses GDP to determine the value of all market products and services produced within a given boundary usually a nation in a period of one year. At every stage of production, the value of all goods is added and the economic growth established based on the previously assessed standards. Macroeconomists explain that unemployment tends to reduce with a rising GDP rate since the output is increased and thus need for more skilled and unskilled labor force. Inflation gives an explanation on the rate at which product prices increase over time. Macroeconomists study this phenomenon through The Consumer Price Index that gives a timely price for particular products. (Blanchard, 2006) Monetary policy......

Words: 1224 - Pages: 5

Premium Essay

Expansionary Policy

...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......

Words: 1261 - Pages: 6

Premium Essay

Growth Policies of Bangladesh

...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......

Words: 1323 - Pages: 6

Premium Essay

Macro Assignment

...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......

Words: 1686 - Pages: 7

Premium Essay

Exchange Rates

...An open economy is a market economy that is free from trade barriers and restrictions. There is no control over movements of labor and capital. Furthermore exports and imports form a large portion of the Gross domestic product. In an open economy some output is sold domestically while some is exported to be sold abroad. Expenditure on an open economy’s output Y is usually composed of four components: consumption of domestic goods and services, investment in domestic goods and services, government purchases of domestic goods and services, exports of domestic goods and services. An open economy macroeconomics is about fluctuations in aggregate economic activity, employment and inflation and about monetary and fiscal policies. Emphasis is on how a country’s relations to the rest of the world influence the fluctuations and forms the scope for economic policies. The national income accounts in an open economy is as follows Y= C+I+G+NX ; where C= consumption I= investment G= government purchases NX= net exports (exports-imports) CAPITAL FLOWS AND TRADE BALANCE Begin with the identity Y = C + I + G + NX. Subtract C and G from both sides to obtain Y − C − G = I + NX. Y − C − G is national saving S, which equals the sum of private saving, Y − T − C, and public saving, T − G, where T stands for taxes. Therefore, S = I + NX. Subtracting I from both sides of the equation, we can write......

Words: 661 - Pages: 3

Premium Essay

Identification of the Mexican Monetary Policy and the Fiscal and Monetary Indicators

...To identify the fiscal and monetary policy tools used by Mexican Presidents since Miguel Aleman and Make clear the fiscal and monetary indicators that define each policy the economic models of that time must be examined; from Miguel Aleman to Felipe Calderon there has been just 3 Economic Models: a) 1940-1964: Import substitution model. (Modelo de sustitución de importaciones) b) 1964-1982: Stabilizing development model. (Modelo de desarrollo estabilizador) c) 1982- ………: Neoliberal model. (Modelo neoliberal) in order to understand this models and its implications it’s important to make sure a clear understanding about the policies. The Macroeconomic policy affects a country or region as a whole. It deals with the monetary, fiscal, trade and exchange regime, as well as economic growth, inflation and national rates of employment and unemployment. Changes in demand and aggregate supply can cause short-term fluctuations in output and employment. The monetary and fiscal policy can shift aggregate demand and, therefore, influence these fluctuations. a) 1940-1964: Import substitution model, presidents on it: Manuel Ávila Camacho, Miguel Alemán Valdez, and Adolfo Ruiz Cortines. In the import substitution model, the management of public finances, which sought to redistribute income and promote domestic production, contributed to the process of industrialization and modernization in Latin America. Fiscal functions got away from their initial orientation because......

Words: 1273 - Pages: 6

Premium Essay

The U.S. Economy Today

...The U.S. Economy Today Content Introduction…………………………………………………………………………Page 2 Data Trends………………………………………………………………………….Page 2 Fiscal & Monetary Policies….…..…………………………………….…………………………………Page 2 &3 Conclusion…………………………………………………………………………..Page 3 References…………………………………………………………………………..Page 3 Introduction We will take a look at today’s economy in the 2014. Discuss current trends such unemployment, inflation and the GDP. How do fluctuations in these trends affect the U.S. economy? What fiscal & monetary policies should be used to assist or improve our current economic situation? Lastly, what phase is our economy in today a depression, recession or expansion phase? Data Trends According to the Bureau of Labor Statistics (BLS) our current unemployment rate as of September 2014 is 5.9%, which is showing a slow steady decrease over this last year. The current GDP is 4.6%, which is showing a increase from the first quarter that was at -2.1%. The current inflation rate is at 1.7%, which has fluctuated from 1.6% in January, then had an increase in June up to 2.1%. All these factors play a role in the economical well being. For Example if the unemployment rate continues to decline and the economy reaches full employment. This will promote consumers to purchase more goods and services, because their disposable income will increase. The aggregate supply and demand will both increase, which in turn will increase the GDP. Unemployment or......

Words: 536 - Pages: 3

Premium Essay

Business

...Objectives To provide a basic understanding of economic reasoning, economic theory and economic policy, particularly for the study of the economy as a whole. Throughout the course, students will be introduced to: ● Define Gross National Product, Gross Domestic Product, Net National Product, National Income, Personal Income, and Disposable Income ● Explain the purpose of a price index, use a price index to calculate the rate of inflation, and distinguish between Demand-Pull inflation and Cost-Push Inflation ● Define unemployment in China, calculate unemployment and employment rates, and differentiate between frictional, cyclical, structural and seasonal unemployment ● Describe the phases of the business cycle and economic growth ● Explain the role of money and monetary policy ● Explain fiscal policy 2. Course Description/ Intended Learning Outcomes (Course ILOs) An introduction to the basic principles of economics with emphasis on the macroeconomic aspects of the entire economy. It deals with national income, national output, national employment, inflation, cyclical business fluctuations, economic growth, the role of money, theories of interest rates, stabilization policies, foreign exchange rates, monetary policy and fiscal policy. This course provides a common sense approach to the world of macroeconomic decisions and their impact on society. It is aimed at providing the necessary background in the economic issues of establishing, running and managing......

Words: 770 - Pages: 4

Free Essay

Sherholder

...Subject: ECO 550 Professor Name: DR. Yasmeen Student Name: Sayed Rohullah Week 3: Check your understanding 1. The forecasting staff for the Prizer Corporation has developed a model to predict sales of its air-cushioned ride snowmobiles. The model specifies that the S vary jointly with disposable personal income Y and the population between ages 15 and 40,Z, and inversely with the price of the snowmobiles P. Based on the past data, the best estimate of this relationship is S= K *YZ/P Where k has been estimated (with the pst data) to equal 100. If Y=$11,000, Z= $1,200, and P=$20,000 a. What value would you predict for S? Answer: The given function is S=K*YZ/P k=100 Y=$11,000 Z=$1,200 P=$20,000 S=100(11000*1200)/20000= $66,000 Problem 5 5. A firm experienced the demand shown in the following table. a. Fill in the table by preparing forecasts based on a five-year moving average, a three-year moving average, and exponential smoothing (with a w = 0.9 and a w = 0.3). The exponential smoothing forecasts may be begun by assuming Ŷt+1 = Yt. b. Using the forecasts from 2005 through 2009, compare the accuracy of each of the forecasting methods based on the RMSE criterion. c. Which forecast would you have used for 2010? Why? 5- year 3-Year Exponential Exponential Actual Moving Moving Smoothing Smoothing Year Demand Average Acverage (W= 0.9) 2000 800 xxxx xxxx xxxx Xxxx 2001 925 xxxx xxxx 687.5 762.5 2002 900 xxxx Xxxx 947.5 932.5 2003......

Words: 1544 - Pages: 7

Premium Essay

Cellular Network

...Business Economics II (Macroeconomics) Objective of Macroeconomic: Following are the basic objective of macroeconomics which deals on national basis 1. Output Growth Production 2. Employment stability 3. Price level stability 4. Foreign debts Definition of Fiscal Policy: Fiscal policy refers to government policy that attempts to influence direction of the economic through changes in government taxes and some government spending. e.g. High rate of inflation: High rate of inflation is occurred by too much aggregate demand in the economic. Government will use deflation fiscal policy. Government will try to influence aggregate demand by reducing its public spending. The Government will spend less on construction of roads, bridges and other public spending thus aggregate demand will fall. On the other hand, Government may increase in tax rate. An increase in tax rate will take away the extra disposable income out people’s pocket resulting in lower demand. e.g. Low rate of inflation: In an economic recession, aggregate demand, output and employment all tend to fall, now the Government wants to increase in the economy. It can attempt to do so by increasing aggregate demand. The Government will increase the public spending resulting in rise in aggregate demand. Government may reduce tax rates so that people have more disposable income to spend and instigate demand in the country. The three main stances of fiscal policy are: * Neutral......

Words: 1000 - Pages: 4

Premium Essay

Project Paper

... 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 account for more than 40 percent of GDP. Retail and wholesale trade creates another 12 percent of the wealth. The government related services fuel 13......

Words: 1215 - Pages: 5

Premium Essay

Macroeconomics

...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......

Words: 1523 - Pages: 7

Premium Essay

Fiscal Policy

...Fiscal Policy The aim of this report is to give some insight into recent, current and forthcoming changes and adjustments in the monetary and fiscal policies of the EU member countries and the accession countries, particularly from the viewpoint of challenges of the enlargement of the euro zone. This report summarizes a more detailed analysis from the regional inputs to monetary and fiscal policy work output/input, where project’s research partners from both the EU and other countries provided their country-specific views on most challenging issues of monetary and fiscal policies for individual countries and/or groups of countries in their process of Eastward enlargement of the euro zone. In relation to the Eastward Enlargement of the Euro zone, it is crucial to take into account the experiences of current EMU Member States, the fiscal stances in candidate countries, together with their development possibilities, as well as the Community influence on shaping national fiscal policies. Fiscal situation and middle-term perspectives in EMU Member Fiscal situation and its development over the recent years in current EMU Member States was closely related with the requirements of Economic and Monetary Union. Therefore, it is important to elaborate on the fiscal criteria in order to understand the factors which were influencing shaping of fiscal policy in these countries, as well as challenges which await states eager to join the EMU in the future. 2) An explication......

Words: 1719 - Pages: 7

Premium Essay

Economics 203

...through fiscal and monetary policies, implemented by our government. According to the Federal Reserve, “Fiscal policy is a broad term used to refer to the tax and spending policies of the federal government” (Federalreserve.gov n.d.). Decisions regarding fiscal policy are determined by Congress and the presidential administration. “Monetary policy is a term used to refer to the actions of central banks to achieve macroeconomic policy objectives such as price stability, full employment, and stable economic growth” (Federalreserve.gov. n.d.). Fiscal policy uses changes in government expenditures or taxes to influence inflation, economic activity and growth. Keynesian economists, who agree with the opinions of ____ Keynes, argue that government influence is the only way to reach economic stability. Their belief is that the government is the only ones who must act in the best interest of society. To do this, they must use their taxing and spending powers to offset changes in private demand. This belief is backed by the fact that households will save more during hard times and recessions because they cannot be sure of their employment and income situations in the future. Similar reasons can be given for why businesses invest less in these times. For these reasons, households and businesses are unreliable for solely pushing the economy out of a recession; a stronger force is needed, which is the federal government. As with most goals, a target must be set for......

Words: 596 - Pages: 3