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    Monetary and Fiscal Policy for Wal-Mart

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    Effects of Fiscal Policy

    Think about how fiscal policy can effect your firm. Please address the following questions:

    1. Suppose the government imposes tax cuts for 95% of all households. How does this affect your firm?

    2. Trade policy is also an important tool for the government in regulating exports and imports. Give an argument for or against trade in terms of what would benefit your firm. Explain your reasons. Be sure to support your answer. See resources below.

    3. Using the material from the case assignment, would the implementation of a tariff be considered expansionary or contractionary fiscal policy? Explain.

    Resources to use on the concept of Trade:

    This assignment discusses an application of the production possibilities frontier model. It is useful to review Chapter 2 from the background material section. You can also do your own research on the free trade debate or review the resources below:

    Blinder, A.S. "Free Trade." Library of Economics and Liberty. Retrieved September 1, 2011 from: http://www.econlib.org/library/Enc/FreeTrade.html

    Friedman, M. (1997) "The Case for Free Trade." Hoover Digest. Retrieved September 1, 2011 from: click here

    Kliesen, K. (2004). "Trading Barbs: A Primer on the Globalization Debate." Retrieved September 1, 2011 from: http://www.stlouisfed.org/publications/re/articles/?id=19

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    Solution Preview

    Effect of Tax for households on Wal-Mart

    When government imposes tax cut on 95% of households, there would be reduction in taxes paid by households. This would increase the real income of households whose tax rate has been lowered and decrease the real income of government. Tax cuts may in fact work out in a positive way for government depending on response of households. They could choose to invest the income saved as a result of tax cut which could stimulate economy. In conformity with economic theory, households adjust their spending pattern when the tax change is legislated to have permanent effect on tax liabilities. If we are to look at permanent income, assuming that after-tax income prior to a tax change is roughly equal to permanent income a tax cut regarded as permanent will likely to have little effect on the measured saving rate because spending will increase proportionately with after-tax income.

    Hence assuming that tax savings are permanent, households would have more real income at their disposal than without tax cut. Since savings would not change, it would trigger increased spending among households. If people are not inclined to spend towards their own education and health then it could benefit retailers. As a result ...

    Solution Summary

    Monetary and Fiscal Policy for Wal-Mart are examined. The effects of fiscal policy, tax cuts, regulation of exports and imports are determined.