Homework 5

[Aisling Winston]

Homework 5 is due at 12pm on March 1, 2013.

1. (6 points) How does monetary policy impact individuals?  How does it impact the economy as a whole?  In your opinion, given your understanding of the tools available to the Federal Reserve, how can the Federal Reserve use monetary policy to address business cycles?
2. (6 points) How does fiscal policy impact individuals?  How does it impact the economy as a whole?  In your opinion, given your understanding of the tools available to the government, how can the government use fiscal policy to address business cycles?
3. (8 points) Should the government and the Federal Reserve attempt to mediate business cycles?  Why or why not?  What are some of the benefits of government intervention in the economy?  What are some of the drawbacks?
   

[Mike Donatacci]

1.      1.) Monetary policy impacts individuals in a few ways.  If the interest rate is lowered, people can borrow money to buy more things.  That increases the demand so the companies have to hire more workers to produce the goods.  The new workers have more money since they have a new job, so they can spend more money, too.  This increases the demand further.

It impacts the economy in a similar way.  People and companies can borrow more and spend more.  Business can expand, hire more people, make a higher profit.  More people and businesses making more money generates more tax dollars for the government which affects government spending. 

When people have lost their jobs, they can’t spend money and that negatively affects businesses.  If their products or services aren’t purchased, they have to lay off people which makes more people having no money to spend.   If the Federal Reserve lowers the interest rate, people with jobs can borrow and spend more money (unless they are afraid considering what the economy has been like) which could increase jobs. 

http://www.federalreserve.gov/faqs/money_12856.htm

 

2.     2.) If government increases its purchases, that would increase jobs.  More workers have more money, so their spending would help business hire more people.  More workers who have jobs mean a better quality of life for their families.  If the government lowers taxes, the individual would have more money to spend and would maybe want to spend more because they wouldn’t have to pay as much tax on the interest they get.

Mo More government purchases would stimulate business and in turn help the individuals.  Lower taxes would do the same thing.  Higher taxes would reduce spending and increase layoffs.  People would have a lower standard of living and wouldn’t be spending or borrowing money.  The business would lay off workers and the banks would lose money on interest if people weren’t borrowing.

the government can increase spending and borrowing by purchasing more goods or lowering taxes.

http://www.econlib.org/library/Enc/FiscalPolicy.html

 

3.      3.) In my opinion, It could be good or bad for the government or Federal Reserve stepping in.  On one hand, they could increase spending to increase jobs, but then the taxes would have to be raised in order to pay for the extra spending or the government just goes further into debt.  If the taxes are raised to cover the purchases, people will stop spending.  The newly hired workers will be laid off after the government stops purchasing.  It is a delicate balance .  Too much of any one thing would make things worse overall because there are drawbacks to everything.

[Christina H.]

1.       The monetary policy impact individuals by the rise on interest rates. The monetary system determines the size and rate of the money supply. Individuals will have high interest rates on loans, mortgages and credit cards.

  How it affects the economy as a whole is that it controls it from being too high or too low, and to have a sense of stability. If it grows too fast, the rate on inflation increase, and if it grows too slow, the economic growth slows down.

 The Federal Reserve uses monetary policy to address business cycles to impact spending. Lower interest rate means low interest rate expense for businesses and higher disposable income for consumers which equals to higher business profits. Higher interest rates equal low sells and profits. It can also affect stock rates that can affect consumer spending, which can also affect exchange rates, the higher it is increases the value of a dollar, which lowers imports costs and increase export costs in businesses.

 

2.      The fiscal policy affects individuals by raising taxes on people, and spends on things like education, and transfer payments to people in the form of pensions and benefits.

 How it impacts the economy as a whole by affecting the aggregate demand to achieve price stability, economic growth, and employment, distribution of income, level of economy activity, and the pattern of resource allocation within the government sector and relative to the private sector. From Keynesian economics it suggests that increasing government spending and decreasing taxes is the best way to stimulate aggregate demand and decreasing spending and increasing taxes as the economy booms.  

 The Federal Reserve uses the fiscal policy from business cycles produce more jobs and better income. Lower taxes means more income to consumers, and more cash to invest in jobs and equipment, and the stimulus-spending programs that can help drive business demands by creating short-term job. If income increases or consumption taxes means less disposable income a can slow down businesses.

   

3.     I think the company should mediate in business cycles because it helps gains the economy some control and stability. They should help businesses to maintain jobs and provide more income.

  The benefits of government intervention would be creating new barriers for new businesses, which give existing companies advantages over potential ones, and also to existing businesses help reduces competition, and promoting unethical business practices.

. The drawbacks would be that businesses would neglect their shareholders and fail to provide optimum products and services.  

 

http://www.investopedia.com/terms/m/monetarypolicy.asp#axzz2MGEDYgga

http://en.wikipedia.org/wiki/Fiscal_policy#Economic_effects_of_fiscal_policy

 http://www.ehow.co.uk/info_7967081_monetary-fiscal-policy-affect-businesses.html

http://www.ehow.com/info_8409949_government-intervention-regulation-business-ethics.html

 

[Kendall Lynnette]

Kendall Williams

Aisling Winston

ECN 400

March 1, 2013

 

Homework Five

            1. Monetary policy impacts individuals through several different ways. If the central bank prints more money, inflation occurs, causing the value of money in circulation to decrease and the prices of goods everywhere to increase. When this happens, individuals are at a much higher risk of experiencing unemployment because the business cycles are going through a contraction. Also, if the central bank lowers interest rates, it's much easier for individuals to receive loans and credit cards, allowing them to ultimately spend more money. If the central bank raises interest rates, individuals are less likely to apply for loans and credit cards because they have to spend more money to receive them.

            Monetary policy also impacts the economy as a whole in several different ways. Changes in monetary policy control inflation. When the value of money decreases, the prices of goods are much higher, and people are less likely to spend their money. If people are not spending money, businesses do not make money, causing the entire economy to suffer. Changes in monetary policy also affect interest rates. If the central bank lowers the prime interest rate, other banks are able to give out more loans, making it easier for people to have money and spend it at local businesses. When businesses make money, the economy does well. Also, changes in monetary policy affect business cycles and employment. By using policy tools, the central bank can slow the cycles of expansion and contraction in businesses, resulting in a steady pace of growth instead of unstable, quick changes that lead to recessions.

            I believe the Federal Reserve should keep using monetary policy to address business cycles in the same way it does now. It should keep using interest rates to prevent inflation and maintain steady spending in the economy. By doing so, hopefully the United States will see more steady growth and fewer recessions.

            2. Fiscal policy affects individuals in many ways. For example, if the government decides to cut tax rates, families have more disposable income, they spend more of that money, and the economy sees growth. However, the cuts in the government's budget may have come from the fund for public education, resulting in lower quality public schools. If the government raises tax rates, family budgets become a lot tighter, and some individuals may even be less likely to work as hard because if they make more money, they have to pay more taxes.

            Fiscal policy also affects the economy as a whole in many ways. The most apparent way is the raising or lowering of tax rates, resulting in government budget changes. For example, if the government lowers tax rates for low-income families, they have more money, which will allow the government to reduce funding for social programs such as food stamps and welfare. Also, fiscal policy affects employment rates, consumer spending, and investing. For example, the government can offer tax credits to businesses as an incentive for hiring more workers, and it can offer tax credits in different markets as incentives for investors to invest more money. Finally, it can elect to send tax rebates to tax payers, resulting in more consumers spending money.

            The government can use fiscal policy to recharge the economy during a recession. If it cuts tax rates, people will spend more of their money, businesses will make more money, and the economy will grow. This will hopefully lead to a much steadier growth with slower expansions and contractions in the business cycles.

            3. I believe the government and the Federal Reserve should work together to ensure business cycles see steady growth over a longer period of time but in a limited way. Businesses should be allowed to be free enterprises, but the government should set regulations on those businesses in order to prevent the abuse that is often seen in pure capitalism. Also, they should intervene in some cases in order to prevent inflation, unemployment, and major depressions. By doing so, businesses will be able to see healthy growth over a longer period of time with the insurance that when the economy does decline, the government will do what it can to recharge the cycle.

            There are a few benefits that come from government intervention in the economy. First, the government can prevent inflation, maintaining the prices of the goods across the nation. Also, the government can cut tax rates to recharge an economy during a recession, and it can prevent large businesses from going bankrupt by offering bailouts. Finally, it can maintain steady growth and minimize fluctuations in the business cycle.

            There are also many drawbacks that come from government intervention in the economy. For example, to bail out large companies, the government often has to borrow money to pay for the bailout plans. This results in higher interests rates and reduced spending in the economy, ending in the bankruptcy of many smaller companies. It also increases government spending, and when the government spends more, tax rates are much higher, leaving individuals with less money to spend and at higher risk for unemployment.

 

Works Cited

Acevedo, Laura. "The Effects of Monetary Policy." Demand Media, Inc., 1999-2013. Web. 02/28/2013.

Hall, Shane. "The Effect of Fiscal Policy on Individual Family Budgets." Demand Media, Inc., 1999-2013. Web. 02/28/2013.

Hartman, Dennis. "Economic Effects of Fiscal Policy." Demand Media, Inc., 1999-2013. Web. 02/28/2013.

Winston, Aisling. "Lecture Notes." 2013. 02/28/2013.

[kryan]

1. Monetary policy determines how individuals are able to purchase goods to survive. It impacts the economy in that it deteremines how it interacts with its people. The Federal reserve can use money to help balance out budgets and lend to people who are in debt.

 

2. The fiscal policy impacts individuals by rasing taxes to spend on the economy. It uses these funds  to produce more jobs.

 

3. The government and federal reserve should not attempt to mediate business cycles because it is taking away the independance of the individual businessman to make a living and dictate their own policies. The only benefit I can see from government intervention in the economy is that you are dealing directly with the government instead of through third parties. The drawback is that you are dealing directly with the government and they will have more say on what is done with your business.

[Julian]

1. monetary policy effects people by changing the interest rates. As a whole it effects the economy by the changing the cost of money or how much our money is worth which effects how we spend our money. When interest rates are decreased more money will be spent in an economy.

 

2. fiscal policy effects people because its government spending, when they adjust government spending you are adjusting taxes. this effects the whole economy because the more taxes that are given out the more the government has to spend on government programs.

 

3. I don’t think the government should get involved in business cycles. Just for the simple fact that if they start trying to save every business we are going to go through so much money. Every business is going to go through a high peek and a low peek and the ones that make it through are the ones that deserve to stay in business 

[darienM]

1.) the monetary policy is the control of money. This impacts individuals because the central bank is controlling the money supply. They decide how much money is able to flow in the market place, which can have different effects on the business cycle. This impacts the economy as a whole because businesses and market places rely on each other to survive. The supply of money impacts the supply of good and services that can be provided to the public.

2.) the fiscal system impacts individuals taxes and the amount of public goods provided. the fiscal system reduces private income and private consumption. The taxes on goods and services determine how much we have and use.

3.) I think the government should have some impact on business cycles and help maintain a health and stable market place.  Some benefits of government interference in business cycles are bailouts for company's that are suffering. Some drawbacks would be rise in taxes and trade.

[DWILLIAMS]

1.Montetary policy can impact individuals by alowing them to buy more things if intrest rates are lowered. The economy will then have to grow in order to get all this money that people will be spending as intest rates drop.If the Federal Resever lowers the intrest rates, this will also make more people spend more money.

2.The fiscal policy raises he taxes for people.This in turn allows more money to be spend on things that the government will fund.

3. I think that the government should try to even things out. In some ways this could be bad ,however if the government can make a move to help the peoople i think that the move should be made.