Topics: Monetary policy, Federal Reserve System, Money supply Pages: 4 (1360 words) Published: April 6, 2014

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. Another tool that the government can be used to stimulate the economy is spending. Government money can be given to certain individuals or specific sectors of the economy, with the hopes again, that the money will then be spent by those individuals on goods and services that will help boost the economy. By manipulating the levels and allocations of taxes and government expenditures, the attempt is made to stabilize the economy. b. What monetary policy tools can the Federal Reserve use to stimulate the economy and increase economic growth? Please identify at least two specific tools. One tool the Federal Reserve uses to stimulate the economy is by controlling the discount rate. This is the rate that is charged to banks when they seek money from the Fed, to increase their reserves. When the Fed determines and makes changed to the discount rate, it directly affects the economy and what consumers pay for loans and receive back on their savings from the bank. The idea behind controlling this discount rate is that if it is kept low, banks will hold fewer excess reserves,...

References: Open Market Operations – OMO. (2014). Retrieved from: http://www.investopedia.com/terms/o/openmarketoperations.asp
Applebaum, Binyamin. (October 8, 2013). What the Fed Does, and Can Do. Retrieved from: http://economix.blogs.nytimes.com/2013/10/08/what-the-fed-does-and-can-do/?_php=true&_type=blogs&_r=0
Policy Lags. (2014). Retrieved from: http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=decision+lag
Rosen, David. (1994) Debt and Deficits. Retrieved from: http://ecedweb.unomaha.edu/ve/library/debt.pdf
Comparing U.S. Revenue and Debt with Other Economies. (2011). Retrieved from: http://www.forbes.com/sites/matthewcampione/2011/12/09/comparing-u-s-revenue-and-debt-with-other-economies/
Continue Reading

Please join StudyMode to read the full document

Become a StudyMode Member

Sign Up - It's Free