The theory behind this was that if taxes were increased or left at their same rate, the amount of money brought into the government would be x. But if taxes are cut, GDP rises. The rise in GDP plus the lower taxes would be greater than x, causing an increase in tax revenues. This would push the supply curve to the right also increasing real Gross
As the Reserve increases interest rates, it effectively lowers the demand for money. Increasing the interest rates would be in the Reserves best interest when the nation is experiencing rising inflation. This type of monetary policy is called contractionary monetary policy (Hubbart, 869). On the other hand, to increase demand for money the Reserve can decrease the interest rate. Decreasing the interest rate effectively increases consumer and businesses consumption.
The diagram above shows that real GDP has increased from Y1 to Y2 which means that economic growth has increased. As a result, unemployment falls as we are getting closer to the inelastic part of the AS curve, which is much needed as “unemployment has shot up” in this economic crisis. However, inflation has risen from P1 to P2 which means that our exports become less competitive so our trade deficit gets worse. However, the rise in inflation is needed as inflation is falling below the 2% target. The changes in the government’s macroeconomic objectives depends on where we are on the AS curve as shown below.
This greater demand leads to increases in both output and prices. The degree to which higher demand increases output and prices depend, in turn, on the state of the business cycle. If the economy is in recession, with unused productive capacity and unemployed workers, then increases in demand will lead mostly to more output without changing the price level. If the economy is at full employment, by contrast, a fiscal expansion will have more effect on prices and less impact on total output. According to the MPR, the unemployment rate was projected to continue to decline toward its longer-run normal level over the projection period (Monetary Policy Report,
Those who are critical of Reagan’s policy speak of the explosion of the United States’ budget deficit during the 1980s. The deficit was $101b in 1981 and had risen to $236b by 1983. The national debt was significantly increased during this time period as well. Rising from $1,004b to $2,028b from 1981 to 5 1989, the massive debt ensured future generations would incur substantial repayment costs (Niskanen & Moore 1996). of Reagan’s tenure, the budget deficit was $141b.
When there is a greater disposable personal income this will allow consumption to increase due to the money saved from the lower tax rate. Through consumption increasing this will favour economic because the gross domestic product has increased. When government expenditures are increased it will have a multiplier effect on aggregate demand. Because of the multiplier effect, the government can increase spending by only a small amount to achieve a larger, necessary increase in aggregate demand. By doing so, the economy will be able to attain an equilibrium level of real
This shows Targets improvement over time to pay its current liabilities based on available cash, short term investments, and receivables. Some items that may have impacted the quick ratio were a major increase in cash & equivalents as well as a generous increase in receivables from 2007 to 2008. Target’s quick ratio was higher than Wal-Mart’s quick ratio. This is an important comparison as Target’s ratio was higher than Wal-Mart’s regardless of the fact that Wal-Mart is a larger company that has traditionally outperformed
When the demand for U.S. dollars increases, the value of the dollar will increase or appreciate (Stone 2008, pp. 685). As a result, U.S. products become more expensive for foriegners causing a reduction in exports and increasing imports. This not only effects the U.S. economy, but also affects the economies in other countries. Monetary policies influence and are influenced by international developments, including exchange rates, and based on these market conditions the U.S. government can make strategic changes to these policies to maintain the country’s economic stability (full employment, stable growth and price stability).
d) The equilibrium interest rate increases to bring desired investment into equilibrium with the reduced quantity of national saving. e) The equilibrium quantity of investment is reduced via the increase in the interest rate by an amount equal to the increase in government spending. Question 5 (15 marks) a) capital is added. No, MPK does not diminish because it does not decline as more is also acceptable. b) L = 100: L = 110: L = 120: 0. .
If the cash is higher than the net income, the company’s net income is of high quality. If the cash is lower than the net income, the company’s net income is not turning into cash and a red flag should go up. Having more cash than the net income can mean shareholders will receive an increase in dividends can reduce debt, buy back stocks, or purchase another company. According to, the cash flow statement Home Depot, Incorporated is similar to fiscal year 2007. In fiscal year 2008, Home Depot Incorporated generated $5.5 billion of cash flow from operations and used $2.0 billion to repay short-term debt and other obligations plus $1.8 billion for capital expenditures and $1.5 billion in dividends.