Scenario 1 In 150 to 200 words, explain your reasoning for the way you are planning on using Reserve Requirements. Be sure to address the following:1. How Reserve Requirements affect the economy2. How your action will affect economic growth3. Why it is important to increase economic growth4.
The company should explore ways to reduce its need for working capital financing. They should see if there are ways of improving their supply chain efficiency and forecasting so that they can reduce their inventory levels. They should look to negotiate with suppliers to reduce the rate they are paying for inventory. Pacific Grove should also see if they can extend the length of their accounts payable. Even if they have to pay a slight price premium, if the rate (APR) is less than what the banks are charging them in interest, it could help to both save money and reduce their capital needs.
Furthermore, it also mentioned in the theory of Arthur Laffer that any hike in taxes would lead to an increase in revenue in the short term but it would be offset by decreased tax returns in the long term. It also worth mentioning that tax evasion could become a problem with high income tax rates. Examples of tax evasion schemes involve people investing in businesses that make a loss, taking advantage of the tax breaks involved. Overall, income tax rates that create an incentive to work are likely to increase productivity and help an economy grow. Income tax changes affect aggregate demand in various ways.
This method of fiscal policy will stimulate economic activity and directly cause economic growth. (AD/AS diagram, with AD shifting outwards and a caption “the effect of cutting interest rates”) Secondly, the use of monetary policy can be utilized to aid fiscal policy in demand management of the economy A cut in the rate of interest raises peoples disposable income, due to lower mortgage and loan repayments, allowing them to spend more. This will raise consumption, and therefore aggregate demand. The effect of an increase in AD is an increase in real GDP – the total output of an economy – raising living standards through higher choice of goods and services to fulfill needs and wants. However, since the power of
Furthermore, a cut in taxes depends on It depends on other components of AD. For example, if confidence is low, cutting taxes may not increase consumer spending because people prefer to save. Moreover, if the economy is close to full capacity an increase in AD will only cause inflation. Expansionary fiscal policy will only reduce unemployment if there is an output gap. Supply side policies include any action by the government intended to increase the amount that firms are willing to supply at any given price level in which they seek to shift the aggregate supply curve to the right.
But its payout ratio was unsustainable. Hence, the optimal way is to reduce its shares outstanding with a stock repurchase. by repurchasing shares, the company could adjust its unbalanced capital structure, and even raise debt to finance its purchase. It also will send a signal to the market that the share may currently be undervalued, and thus boost the share price. If the share is fairly priced, market could also interpret the repurchase behavior as a positive signal that the board has confidence in the company’s future performance.
An economy of scale is the reduction in long-run average and marginal costs arising from an increase in size of an operating unit. It can be external or internal; external will increase the productivity of the industry and will result in a reduction of costs and internal is related to the shift in average production costs for a business as it boosts its overall product output and the average cost per unit falls until maximum efficiency is attained. Albatross could save money if they bought items in bulk but since they make items as orders are received, the items would sit in the warehouse and take up space that would be used quicker. It is very expensive to store raw materials because
This is because when taxes are increased a smaller amount of income is retained giving people the incentive to declare lower incomes to the HMRC so that they fall into a lower tax bracket. Moreover people may take incomes as a share option. This is because capital gains tax is at a flat rate of 18% therefore much lower that income tax allowing people to retain more of their incomes and enjoy better living standards. This will result in a reduction in the government’s tax revenue as people are paying less tax, which will lead to further increases in the deficits. Secondly high taxes create disincentives to work and this can be analysed through income and substitution effects.
Bank of England has admitted that the low interest rates will improve the money supply to help restore the economy. The lower interest rates will help the borrower. The effects of a lower interest rate on the economy are very positive for the customer. When interest rates are low, people are more likely to take loans out of the bank in order to pay for things like houses and cars. When the market for those things gets strong, price decreases and more people can purchases these things.
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.