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Question in Economic Policy

You have been asked by the Presidents Economic Advisors to sit on a committe considering fiscal policy to address the economy's current problem of slow growth. What fiscal policy will you recommend to the Presidents Advisors?

Continuing with and expanding the strategic analysis of your company --- you did such a great job on Fiscal Policy recommendations that you have been asked by the Fed Chairman to sit on a committe considering Monetary Policy to address the economy's current problem of slow growth. What Monetary Policy will you recommend to the Fed and how will your policy recommendations above affect your own company?

Are there any potential conflicts of interest in making your recommendations (that is, your own company's benefit vs. the overall good of the economy)?

Do these recommendations affect any of your decisions regarding the price of your product or the quantity of the product you are choosing to produce? What other business decisions are impacted as well, and how? Explain

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You have been asked by the Presidents Economic Advisors to sit on a committe considering fiscal policy to address the economy's current problem of slow growth. What fiscal policy will you recommend to the Presidents Advisors?

Continuing with and expanding the strategic analysis of your company --- you did such a great job on Fiscal Policy recommendations that you have been asked by the Fed Chairman to sit on a committe considering Monetary Policy to address the economy's current problem of slow growth. What Monetary Policy will you recommend to the Fed and how will your policy recommendations above affect your own company?

Are there any potential conflicts of interest in making your recommendations (that is, your own company's benefit vs. the overall good of the economy)?

Do these recommendations affect any of your decisions regarding the price of your product or the quantity of the product you are choosing to produce? What other business decisions are impacted as well, and how? Explain
Committee considering fiscal policy:
I will recommend a combination of two measures that is to reduce taxes and to increase the government spending. This would mean increasing the deficit of the government. This would be effective because of the following reasons.
You may consider the following: A tax cut, for example, leaves more disposable income in the hands of households. If the tax cut is viewed as impermanent, though, it may have a much slighter effect on household spending than a enduring tax cut would. In contrast, some temporary tax changes can have larger effects on spending than lasting changes. For example, an investment tax credit that temporarily lowers the cost of investment projects can lead firms to schedule their spending to take advantage of the tax credit. In this case there are no potential conflicts with my business. My business is that of computer software and banking. If there is more disposable income with people the demand for software will directly go up and this will push up the prices. If there is expansion of business activity there will also be greater demand for loans . Both current and future fiscal actions must be considered in assessing the impact of fiscal policy on the economy.

You are requested to think in the following terms: The most immediate impact of fiscal policy is to change the aggregate demand for merchandise and services. A fiscal expansion, for example, raises aggregate demand through one of two channels. First, if the government increases purchases but keeps taxes the same, it increases demand directly. Second, if the government cuts taxes or increases transfer payments, people's disposable income rises, and they will spend more on consumption. Increased consumption will increase the demand for software and its prices will ...

Solution Summary

Interactions with monetary policy are scrutinized.

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