Running head: MACROECONOMIC IMPACT ON BUSINESS OPERATIONS
Understanding macroeconomics may help managers make better decisions within their organizations. This knowledge will help them to understand pricing, analyze their costs, and realize demand (University of Phoenix, 2006). "Organizations that care about how the strength of the economy might affect their ability to raise prices or how it might determine the price of goods and services they must buy will pay close attention to fiscal and monetary policy" (University of Phoenix, 2006, p.1). The following paper will discuss the tools used by the Federal Reserve to control the money supply. Because organizations should not only look at the economy as a whole but also take into consideration industry specific knowledge, it will then take a look at the automotive industry specifically and show what actions can be taken to maintain profitability as well as discuss best practices and how to apply them. Tools used by the Federal Reserve
The Federal Reserve uses both fiscal and monetary policy in order to influence the economy. Both are aimed to achieve full employment, and encourage economic growth (McConnell and Brue, 2005). Fiscal policy also aims to control inflation while monetary policy looks to achieve price level stability. Declines in aggregate demand can lead to a recession and high unemployment, the government can through fiscal policy use changes in government spending and tax collections to influence the economy (McConnell and Brue, 2005). Increases in government spending increase aggregate demand and equilibrium GDP as do decreases in taxes. In theory using fiscal policy could cure any recession. However there are problems with this model. First, timing can be off, it may take awhile for the change in the economy to be realized, then once realized it takes time to put this policies into place. Politics can also affect fiscal policy, a candidate may choose a tax cut in order to...
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