The less expansion, the less inflation. However, if the economy is slowing down, interest rates will decrease. This allows banks and businesses to borrow more cheaply, which results in them being able to higher more workers and produce more goods. The monitoring of inflation is very important in the US. Inflation has many negative affects.
Credit crunch and recession are great examples of external factors influencing the business. If the people are suffering from recession, they will not have money to spend money and this is how it affects the businesses. The current instability in Iraq is a good example of what may happen to businesses. In business it’s very important to understand, monitor and adapt to the political environment, because it crucially affects every business. Some of the very important factors are: Government stability effects businesses in a great range by competing with businesses to lower their costs, transparency is another important factor where anything the business does is revealed to the government and the government know exactly what they are up to.
Assignment 2: JPMorgan Chase We trust banks to hold our money and to help make use get more in investment and other ways. One of the most trusted banks is J.P. Morgan Chase and they are easily one of the most well known banks that exist. J.P. Morgan Chase on May 10, 2012 disclosed that they had lost more than $2 billion by trading financial derivatives. So how do administrative agencies like the Securities and Exchange Commission (SEC) or the Commodities Futures Trading Commission (CFTC) take action in order to be effective in preventing high-risk gambles in securities / banking, a foundation of the economy. Let’s understand the elements of a valid contract, and discuss how consumers and banks each have a duty of good faith and fair dealing in the banking relationship.
If the money supple is low the Federal Reserve can lower the discount rate or interest rate and this will increase the money supply. This will allow the banks to lower the interest rates also allowing more consumers and businesses to borrow money. If the money supply is high then the Federal Reserve can raise the discount rates and this will lower the money supply. This will cause interest rates to go higher in banks causing fewer loans to be made to consumers and businesses. The Federal Reserve sets the discount rate with the approval of the Board of Governors.
Although paper monies, such as certificates, stocks, currency, or bonds, are normally kept in financial institutions because of safety or convenience, the popularity to maintain possession of valuables is on the rise. The lack of hassle and ease of liquidity are two reasons for the rise. Standard of Deferred Payment - Money can be used to purchase goods and services, and pay at a later date or with a series of payments. For example, some furniture or electronic stores offer “buy now, pay later” specials as an incentive for purchasing. Federal Reserve and Monetary Policy The Federal Reserve is considered independent because, although it is accountable to Congress, its decisions do not have to be ratified by Congress or the President.
Q1) Which of the following statements is CORRECT, holding other things constant? (a) Firms whose assets are relatively liquid tend to have relatively low bankruptcy costs, hence they tend to use relatively little debt. (b) An increase in the personal tax rate is likely to increase the debt ratio of the average corporation. (c) If changes in the bankruptcy code make bankruptcy less costly to corporations, then this would likely reduce the debt ratio of the average corporation. (d) An increase in the company's degree of operating leverage is likely to encourage a company to use more debt in its capital structure.
The FED monetary policy affects directly the cost and availability of money and credit; it also affects the demand and availability of labor. For example if a company is having a hard time keeping up due to the economic recession, and is getting harder for the company or individual to get credit due to changes on the policy of the FED, this will force the company to either lay off workers and if that does not help the company keep up, it might need to shut down. When a local company shuts down, not only is affecting labor but also production of a good or a service, giving space to external companies to come in or forcing the entry of a similar product form anther country. If the second one happens then we will be feeding someone else’s economy and not our own. But the FED can also help in a positive way, for example by keeping inflation at low, consumers and businesses don’t have to worry about high inflation.
Therefore, understanding exactly how monetary policies will affect the economy is extremely important. Monetary policies generally will raise or lower interest rates, which will ultimately affect individuals and business demand for goods and services. Unfortunately, many individuals do not understand the entire concept surrounding the Federal Reserve real interest rate. For example, any magnitude of decreasing the real rates will lower the cost of borrowing; this will increase investment spending, and influence individuals to buy durable goods. These items may consist of automotive, recreational vehicle, homes, and higher educational opportunities.
If we want to help the people who are suffering in this crisis and recession, then we should make financial policies with them directly in mind. Just throwing money at the banks will not get the job done.” In reference to “Bailout Nation”, Wolfson proves that bailing out large insolvent banks hurt the taxpaying people. He brings to light where the people’s money really goes, and how it’s
Surpluses can reduce taxes which saves taxpayers moneys. This gives taxpayers more savings and also puts more money into the economy in other areas. This will in turn stimulate the economy by causing banks to lend more money and lower interest rates. When there is a deficit taxpayers can feel more hardship due to increase taxes and less money being brought into households. This will cause less money to flow through the economy eventually causing lenders to reduce the amount of loans being given.