BUS305: Competitive Analysis And Business Cycles
TUI
Module 4 Case Assignment
BUS305 Competitive Analysis and Business Cycles
Prof. Yeo
March 31, 2014
Abstract: Please address the following questions in a 4-5 page essay using the resources from the background materials page as well as research on your own.
1. Suppose that the real GDP is below potential GDP. Answer the two questions below.
a. What fiscal policy tools could be used to stimulate the economy? One fiscal policy tool that could be used to stimulate the economy is government taxation. By determining how much money the government and individuals have to spend, taxes raised or lowered, will influence the economy greatly. The government can cut taxes, which in turn will save consumers more money, with the hopes that those consumers will then take that extra money saved in taxes, and spend it on goods and services that will help increase the economy. …show more content…
If it wants to slow down economic activity, the Fed will raise interest rates. This means people will have to pay more to borrow money, which will lead to less borrowing and spending. The flip side of this is that the Fed can also lower interest rates to stimulate the economy. The lower the interest rate, the more money people will borrow and the more money people will spend. “Economists generally agree that the single most important thing the Fed can do for the economy is to maintain slow and steady inflation” (nytimes.com). Another way that the Fed is trying to control and reduce inflation is by giving credit to the banks for money spent on bond purchases. The Fed holds the money in accounts that is spent on bond purchases and they “recently started to pay interest on those accounts, giving banks an incentive to leave the money with the Fed. As the economy starts to grow, Fed officials say they can keep a lid on inflation by paying the banks higher interest rates to leave the money untouched”
Module 4 Case Assignment
BUS305 Competitive Analysis and Business Cycles
Prof. Yeo
March 31, 2014
Abstract: Please address the following questions in a 4-5 page essay using the resources from the background materials page as well as research on your own.
1. Suppose that the real GDP is below potential GDP. Answer the two questions below.
a. What fiscal policy tools could be used to stimulate the economy? One fiscal policy tool that could be used to stimulate the economy is government taxation. By determining how much money the government and individuals have to spend, taxes raised or lowered, will influence the economy greatly. The government can cut taxes, which in turn will save consumers more money, with the hopes that those consumers will then take that extra money saved in taxes, and spend it on goods and services that will help increase the economy. …show more content…
If it wants to slow down economic activity, the Fed will raise interest rates. This means people will have to pay more to borrow money, which will lead to less borrowing and spending. The flip side of this is that the Fed can also lower interest rates to stimulate the economy. The lower the interest rate, the more money people will borrow and the more money people will spend. “Economists generally agree that the single most important thing the Fed can do for the economy is to maintain slow and steady inflation” (nytimes.com). Another way that the Fed is trying to control and reduce inflation is by giving credit to the banks for money spent on bond purchases. The Fed holds the money in accounts that is spent on bond purchases and they “recently started to pay interest on those accounts, giving banks an incentive to leave the money with the Fed. As the economy starts to grow, Fed officials say they can keep a lid on inflation by paying the banks higher interest rates to leave the money untouched”