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Monetary Policy, Enron, and Business Ethics

Discussion 1
-What is monetary policy? How does the Fed increase money supply?
-What is the effect of an increase in money supply?
-Explain how government deficits lead to increases in the money supply.
-How does monetary policy affect a company's financial status? Answer this question from both a profitability and balance sheet perspective.

Discussion 2
- What took place in the Enron Scandal, and why!
- In what way was ethics a major factor in the overall scandal itself? Was there any ethical behavior what so ever, and if so was it a deciding factor on whether or not the scandal took place?
- What is the Sabanes Oxley Act and how did the Sabanes Oxley Act come about in terms of the Enron scandal.
- What economic issues for example market failure, strategic management, knowledge economics, and organizational structure. Do you think apply to the Enron Scandal.

Solution Preview

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Note: The write-up below serves as your guide only. You can incorporate what you have and improve on it.
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-What is monetary policy? How does the Fed increase money supply?

Monetary policy is the inherent power of the Federal government to regulate the economy by implementing course of action that will either increase or decrease money supply.

The Fed has three main instruments that it uses to conduct monetary policy: open market operations, changes in reserve requirements, and changes in the discount rate (Houghton Mifflin, 2013).

Investopedia (2014) noted that if the money supply grows too fast, the rate of inflation will increase; if the growth of the money supply is slowed too much, then economic growth may also slow.

Here's how the Federal government increases the money supply in the economy (Cloutier, 2011):
A decrease in the reserve ratio will allow the bank to lend more, thereby increasing the supply of money.
A reduction in bank interest rates encourages borrowing and discourages bank deposits thereby increasing the money supply.
If the Fed buys back issued securities (such as Treasury bills) from large banks and securities dealers, it increases the money supply in the hands of the public.

-What is the effect of an increase in money supply?

With an increase in money supply, these effects were observed (Wisegeek, 2014):
It reduces the value of the U.S. dollar making foreign goods more expensive and domestic goods cheaper;
Increase in money supply also increases the money banks can lend to consumers;
It reduces the interest rates consumers pay for loans;
It increases consumer spending because money is easier to borrow.

-Explain how government deficits lead to increases in the money supply.

During periods of deficit, the government will need money and resources to defray it daily operations usually sourced out from the private sector. If the resources of the private sector is limited, it usually allow the central to print more money. Printing more money increases inflow of money to the economy.

-How does monetary policy affect a company's financial status? Answer this question from both a profitability and ...

Solution Summary

This is a discussion of monetary policy, the fall of Enron, and the Sabanes Oxley Act, in 1254 words with references.

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