If money and credit expand too quickly the companies cannot keep up with increased spending. This could in turn cause inflation. The next step may be a recession. The Federal Reserve conducts monetary policy to try and balance out the extremities of both situations. Recently the Federal Reserve has been under a lot of pressure due to our current economic distress.
If the deficit is created for those reasons (usually is), then it's a very negative thing. In your analysis, what role do fiscal and monetary policies have to lead to higher or lower budget deficits? What are the main economic and social justifications for a higher level of government spending and borrowing? Two main arguments stand out Government borrowing can benefit economic growth: A budget deficit can have positive macroeconomic effects in the long run if it is used to finance extra capital spending that leads to an increase in the stock of national assets. For example, spending on the transport infrastructure improves the supply-side capacity of the economy.
The bottom line for GDP is that it is a tool used to see how whether a particular economy is doing poorly or well. There are two types of GDP; Real GDP and Nominal GDP. Both still measure the value of goods and services, but the difference is that in Real GDP, the effects of price changes are excluded (Rittenberg, et al, 2009). Basically, Real GDP is adjusted to account for inflation. There are some limitations in using Real GDP.
To increase their financial performance the company should increase their financial leverage and rely on more debt to finance their assets. The average return on equity for Costco between 1999 and 2008 was .92 compared to the industry average of 1.19. Costco’s below average return on equity is mainly because of its profit margin. Since Costco’s profit margin is significantly below the average, it is affecting the company’s return on equity. In order for Costco to improve on their financial performance, the company needs to handle their cost associated with their operations.
A ratio analysis of Wesfarmers shows that it might still have too much debt and could potentially be in a stronger financial position with less debt; however trends show that Wesfarmers are heading in this direction of decreasing debt. Word Count: 1975 The Global Financial Crisis had a profound impact all over the world. Its influence on debt and equity markets had a direct impact on the capital structures of firms. In order to analyse the effect of the GFC on Wesfarmers and whether the company’s capital structure is optimal in the aftermath of the GFC it will be necessary to define how capital structure is measured and the impact that the GFC had on debt and equity market conditions and the industry that Wesfarmers operates in. Eq.
It increases the money supply by flooding institutions with capital to promote lending and liquidity. In light of the 2008 financial crisis, high unemployment and slow growth forced the Federal Reserve to stimulate its policy through quantitative easing. The program initially called for $700 billion but had little impact. The program then expanded to $1.25
Hyundai and Kia can use this low-price strategy to increase the foreign sales and earn the profit. However, Hyundai and Kia are easily affected by the changes in the value of the Korean currency, the won, against the U.S. dollar. In late 2005, $1=₩1050. In 2006, the won rose in value by about 7 percent against the U.S. dollar. It continued to appreciate throughout the first nine months of 2007, hitting a 10-year high against the dollar in October 2007.
Further, the tax which funds Social Security is a regressive tax. Whatever your stand on taxes, a tax which hits the poor harder than the rich can hardly seem fair. Part of a bigger problem Finally, Social Security is used to mask the much larger budget problem. Were it not for Social Security, the budget deficit would be reported more honestly, and would look appallingly large. The US Government is borrowing a ton of money every year, and that’s going to need to be paid back at some point, either through higher taxes, inflation or other currency devaluation, or by the government
It has also been pointed out by Richard Dreyfuss, writer for the Manhattan Institute, that “...pension obligations now threaten to outstrip the government’s ability to pay, since the investment risk and any resulting deficits are the responsibility of the taxpayer”(2). Dreyfuss’ point helps to highlight the fact that the entire economy will be impacted by the impending pension crisis. Taxpayers will be forced to make up the difference that remains once the government decides it cannot afford to
There are two types of Fiscal policy put in place to alter the level of aggregate demand; Expansionary fiscal policy and Contractionary fiscal policy. When an economy is in a recession, expansionary fiscal policy is in order. Typically this type of fiscal policy results in increased government spending and/ or lower taxes. A recession results in a recessionary gap meaning that aggregate demand is at a level lower than it would be in a full employment situation. In order to close this gap, a government will typically increase their spending which will directly increase the aggregate demand curve (since government spending creates demand for goods and services).