Macro-Economics Macro Economics There Are Numerous Issues Term Paper

Pages: 24 (6697 words)  ·  Bibliography Sources: 30  ·  Level: College Sophomore  ·  Topic: Economics


Macro Economics

There are numerous issues that governments must refer to when developing the strategy that the budget must be based on. Such issues are represented by fiscal and monetary policies. Fiscal policy is represented by the strategy developed by the government regarding the expenditure and revenue collection that are intended to be used as instruments of economic influence by the state. The most important objectives of the fiscal policy is to determine a situation of economic stability that can be reached by the control of interest rates and spending of the government. These objectives can be reached by fiscal policy instruments like government expenditures and taxation.

The government can influence the country's economic situation by modifying the level and composition of taxation and expenditures. There are numerous effects determined by this strategy (Rittenberg & Tregarthen, 2012). The most important effects on the economic situation can be represented by modification of the demand, resource allocation, the distribution of income, economic activity, government budget, and others.

Monetary policy is represented by the strategy developed by monetary activities in order to control the supply of money in the country. The objective of the monetary policy is to determine a stable and developing economic situation. This objective is reached by influencing interest rates. The monetary policy is used in order to determine stable prices, and reduced unemployment. Monetary policies can be expansionary or contractionary.

Expansionary policies are developed in situations characterized by recession when countries try to reduce unemployment. In such cases, governments must reduce interest rates in order to make it easier to get credits, which is intended to help companies expand their business, and to help individuals purchase more products and services. Contractionary policies are developed in situations where governments are trying to reduce inflation.

2. Some of the most important specialists in the field are John Maynard Keynes and Friedrich Hayek. Keynes and the specialists that support his theories consider that the government should focus on the fiscal policy in its attempt to influence economic stability (Weil, 2008). In the Keynesian opinion, fiscal policies can be used in order to counteract the effects of economic recessions and depressions. In addition to this, the Keynesian theory recommends that the level of economic activity is determined by aggregate demand. In his opinion, inadequate aggregate demand is likely to determine high levels of unemployment. It seems that the Keynesian theory was favored by capitalist governments. The importance of the Keynesian theory is also revealed by the economic crisis.

However, the theory developed by Hayek is opposed to the theory developed by Keynes. The theory developed by Hayek states that GDP growth is significantly influenced by the efficient allocation of capital. In addition to this, the theory also refers to the fact that interest rates can be influenced by monetary authorities. In Hayek's opinion should be established based on the relationship between consumption of goods and capital stocks. This allows making strategies that must focus on the consumption of goods.

It is obvious that the theories developed by Keynes and Hayek present different views on the strategies that government must develop. However, it is not recommended to think that these theories are incorrect. They must be analyzed in different contexts. These theories can be appropriate in the case of certain countries with certain levels of economic developments, but they can be inappropriate in the cases of other countries. It is important to determine how these theories can be applied in the case of each country.

3. The Federal Reserve focuses on the operations of the Federal Open Market Committee in order to influence the money supply and interest rates. These operations are represented by purchases and sales of U.S. Treasury and federal agency securities that are used in implementing the monetary policy. The objective of these operations is represented by reaching certain quantities of reserves or certain levels of prices. The Federal funds rate is the interest rate established by the Federal Reserve in situations where depositary institutions lend balances to other institutions (Federal Reserve, 2012). This instrument is used by the Federal Reserve in order to improve the stability of prices and the sustainability of economic growth.

There are also other instruments used by the Federal Reserve in its attempt to influence the money supply. Such an instrument is represented by reserve requirements. These reserve requirements are the amount of funds that must be held by depositary institutions in comparison with deposit liabilities. Federal Reserve Banks establish the reserve ratios determined by the Federal Reserve. The most important objective of strategies based on reserve requirements is represented by increasing the control of the Federal Reserve on the country's money supply.

The discount rate is another instrument used by the Federal Reserve that is intended to establish the interest rate of loans received by commercial banks from different Federal Reserve Banks. This strategy allows the Federal Reserve to influence interest rates that these banks used in their products and services provided to their customers.

4. a) This is neither fiscal or monetary policy. It refers to the health situation of certain categories of the population, but it does not involve modifications in the level or taxes and money supply. If this strategy leads to increased resource allocation towards reducing childhood obesity, it can be considered fiscal policy.

b) This is a fiscal policy instrument because it refers to budget expenditures, and resource allocation. The modification of the budget of different authorities represents a fiscal strategy.

c) This is neither fiscal or monetary policy. The requirements have important effects on the country's automobiles market but they are not determined by modifications of taxes and money supply.

d) This is fiscal policy. This is because agriculture subsidies provided by the federal government represent budget expenditures. This is a resource allocation issue that is determined by fiscal policy.

e) This is also a fiscal policy instrument. The objective of this plan is to increase employment, which is characteristic to monetary policies. However, the strategy used in order to reach this objective is fiscal.

f) This measure refers to national security and public health. Therefore, this is neither fiscal or monetary strategy. The fact that is determines modification in budget allocation does not mean that its objective is fiscal.

g) This is a fiscal policy measure because it refers to taxes. The tax deductions discussed by this strategy refer to the collection of taxes, which makes this a fiscal policy.

h) This is a monetary policy. This is because it refers to the interest rate which is included in the monetary strategy of the Federal Reserve.

i) This is another monetary policy issue because it refers to interest rates and their modification, which is characteristic to the monetary policy.

j) This is a monetary strategy. In addition to this, it refers to operations of the Federal Open Market Committee that are important instruments of the Federal Reserve.

k) This can be considered a fiscal policy because it refers to taxes. This is characteristic to fiscal policies.

Reference list:

1. Rittenberg, L. & Tregarthen, T. (2012). Principles of Macroeconomics. Retrieved May 18, 2012 from

2. Federal Open Market Committee (2012). Federal Reserve. Retrieved May 23, 2012 from

3. Weil, D. (2008). Fiscal Policy. The Concise Encyclopedia of Economics. Retrieved May 23, 2012 from

McDonald's and Macroeconomics

Company Presentation

McDonald's Corporation is one of the most famous brands and the world's largest chain of fast food restaurants. The company was established in 1940 and has been expanded to 119 countries. There are certain interesting facts about McDonald's that make this company a good example that can be analyzed in this macroeconomics class. This is because McDonald's restaurants can be developed and managed by franchisees, affiliates, or by the corporation. This means that there are numerous financial strategies used by the company in accordance with the type of ownership of each restaurant.

The most important items in the company's menu include hamburgers, cheeseburgers, chicken, French fries, soft drinks, shakes, and desserts. The company's success can also be attributed to the fact that its managers understand customers' needs and preferences and are interested in adapting the company's products to these preferences. Therefore, the company also provides salads, wraps, smoothies, and others.

It is important to understand the different sources of revenues that McDonald's benefits from. The company's revenues are determined by rent, royalties, fees that the company's franchisees must pay, sales, and others (Annual Report, 2011). It seems that the company is not significantly influenced by the crisis. This is because its revenues have increased by 27%, reaching $22.8 billion. Its operating income increased by 9%, reaching $3.9 billion.

Big Ideas and McDonald's

Some of the most important issues in macroeconomics that companies must take into consideration refer to business cycles and how they are influenced by the economy of the country and by the fiscal and monetary policies developed by the government. In accordance with this idea, each economic sector and company have expansion, recession, and peak… [END OF PREVIEW]

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Macro-Economics Macro Economics There Are Numerous Issues.  (2012, May 28).  Retrieved January 15, 2019, from

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