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ECON 230: Milestone 3

in Welcome to the Forum

Hi All,

Here is the forum to post your blog-post 2. Milestone 3 comprises of reading from Weeks 5 and 6 (Chapters 34-37)

Include these key requirements in your submission:

How does the policy of the Federal Reserve bank as well as the Central bank of its key market affect the company’s economic growth?
Effect of fiscal policies of the home country and one key market on the company.
Paper length should be at least 5 pages (including cover and reference pages).
Use a minimum of 3 professional references (do not use Wikipedia, blogs, vlogs or any pedias)
Paper should be written in APA including Times New Roman, 12 font, double space, paragraphs indented, subheadings used.
Note that references provided must have corresponding in-text citations within the paper

88 comments

88 Comments

crissau

Dec 07, 2021

Milestone 3 Coca-Cola

Cristina Sauve

Regent University

Federal Reserve Policies

Congress founded the Federal Reserve system in 1913 in order to provide a more stable financial system for the United States (The Federal Reserve, n.d. para. 1). The Federal Reserve is the central bank for the United States. The three primary functions of the Federal Reserve are; monetary policies, banking supervision, and financial services. "A network of 12 Federal Reserve Banks and 24 branches make up the Federal Reserve System under the general oversight of the Board of Governors" (The Federal Reserve, n.d., para. 9). The Federal Reserve Board, located in Washington D.C., also known as the Board of Governors, leads the system (The Federal Reserve, n.d., para. 3). The board is comprised of seven governors appointed by the president and confirmed by congress (The Federal Reserve, n.d., para. 5). "Among the responsibilities of the Board of Governors are to guide monetary policy action, to analyze domestic and international economic and financial conditions" (The Federal Reserve, n.d., para. 6).

Monetary Policy

"The Federal Open Market Committee, or FOMC, is the Fed's monetary policymaking body. It is responsible for formulation of a policy designed to promote stable prices and economic growth" (The Federal Reserve, n.d., para. 18). Like most businesses, The Coca-Cola Company is affected by the FOMC. The Federal Reserve is also responsible for inflation rates. The United States has experienced the highest inflation rates in 2021 since the 1990s. Despite the rise in inflation, Coca-Cola reported a net revenue of $10 billion in the third quarter, resulting in a sixteen percent increase from the same quarter last year (Beltran, 2021, para. 3). Though The Coca-Cola Company is paying higher prices for the materials needed to produce their products, they are able to pass the rise in prices to the consumers keeping losses down. "One of the Federal Reserve's most powerful tools is not its influence over the money supply but its influence over expectations, namely its ability to boost market confidence" (Cowen et al., 2013, p. 761). If the Fed predictions are good, the market will most likely see an increase in stock.

Fiscal Policy

According to Forbes authors, "Fiscal policy is the legislative actions a government makes to regulate its economy to attain growth and alleviate poverty, usually through spending and taxation" (O'Connell et al., 2021, para 2.) The fiscal policy helps keep the economy running. Among other things, it can have an impact on inflation and economic growth (O'Connell et al., 2021, para. 3).

Fiscal policy is always used but can be seen more during times of recession, such as the COVID-19 recession. The government implemented stimulus packages directly to the people to prevent impoverished households ((O'Connell et al., 2021, para. 3). To meet fiscal policy goals, the government collects taxes and spends them (O'Connell et al., 2021, para. 4). Consequently, Coca-Cola is affected by rising taxes and has to pay higher taxes. In 2020, the U.S. government collected $3.42 trillion in taxes and spent $6.55 trillion, accounting for thirty-one percent of the GDP (O'Connell et al., 2021, para. 6).

In Mexico, one of The Coca Cola Company's key markets, "the Federal Government, through the Ministry of Finance (SHCP), actively works on defining and implementing fiscal policies focused on achieving a balance between government spending and revenue programs" (Mexico Project Hub, 2021, para. 1). As a result of this fiscal policy, the taxpayer base has expanded. In an effort to be more health-conscious, the Mexican government implements a specific tax on sugar-sweetened beverages affecting The Coca-Cola Company's revenue in Mexico. Despite the sugar-sweetened beverage tax, Coca-Cola still remains one of the top non-alcoholic beverages in Mexico; and Mexico leads the world in Coca-Cola consumption.

References

Cowen, T., & Tabarrock, A. (2013). Modern Principles of Economics. Worth Publishers. ISBN 10: 1-4292-7839-0 

Beltra, G. (2021, October 27). Despite Higher Prices, McDonald's, Kraft Heinz, and Coca-Cola post solid earnings. The New York Times. https://www.nytimes.com/2021/10/27/business/mcdonalds-kraft-heinz-coca-cola-earnings.html

Fiscal Policy. (2021, May 7). Mexico Projects Hub. Retrieved December 5, 2021, from https://www.proyectosmexico.gob.mx/en/why_mexican_infrastructure/solid-and-open-economy/fiscal-policy/

O'Connell, B., & Schmidt, J. (2021, May 28). What is Fiscal Policy?. Forbes Advisor. https://www.forbes.com/advisor/investing/what-is-fiscal-policy/

The Federal Reserve. (n.d.) The Structure and Functions of the Federal Reserve System. Federal Reserve Education. https://www.federalreserveeducation.org/about-the-fed/structure-and-functions

jaylkin

Dec 06, 2021

Milestone 3

Jayla King

Professor Bajah

ECON 230 ‘02

Bank Policies

Impact of Federal Reserve Bank

The Federal Reserve system is the sole bank that provides money in the United States (Cowen et al, 2017, p.696). Because it is the only supplier, it is granted the power to print and create money by adding reserves into bank accounts. The customers of the Federal Reserve are both the government and other banks. So while individuals may do business through USAA or Wells Fargo, the money they receive ultimately comes from the Federal Reserve. There are three ways the Federal Reserve can control the money supply:

Open market operations—the buying and selling of U.S. government bonds on the open market
Discount rate lending and the term auction facility—Federal Reserve lending to banks and other financial institutions
Paying interest on reserves held by banks at the Fed (Cowen et al, 2017, p.701)

The Federal Reserve’s ability to create money, regulate the money supply, and potentially lend trillions of dollars, is known as Monetary Policy (How does the Federal Reserve affect inflation and employment, 2020, p.1). The Federal Reserve’s Monetary Policy has significant powers to influence aggregate demand in the world’s largest economy (Cowen et al, 2017, p.709). The federal funds rate is a tool used with the Monetary policy. This rate determines what banks pay for overnight borrowing in the federal funds market (How does the Federal Reserve affect inflation and employment, 2020). The Federal Fund directly impacts other interest rates which influence borrowing costs for households and businesses as well as broader financial conditions. When it becomes cheaper to borrow money, disposable income rises; people are more willing to spend money which is good for Mcdonald’s. Because McDonald’s will be generating more revenue, they will be able to purchase equipment/resources to increase efficiency. Additionally, McDonald’s may hire more workers to aid the high demand for goods and services. This could raise the wage and menu prices higher which would lead to inflation (How does the Federal Reserve affect inflation and employment, 2020, p.3).

Impact of Central bank

The central bank of China is called, “Peoples bank of China” or commonly referred to as BOC (Bank Of China Introduction, n.d, p.10). China controls its money supply by:

Controlling Forex Rates
Sterilization
Printing Currency
The Reserve Ratio
The Discount Rate (Bank of China Introduction, n.d, p.7)

China’s economy operates on an export-dependent system which is unique in comparison to other countries. Amendments initiated by the government have increased China’s market and stimulated the economy (Gross Domestic Product for China, p.13). Discount rates impact the economy similarly to interest rates in the United States. BOC can alter the discount rate by increasing or decreasing the cost of borrowing. This heavily influences the accessibility of money in the open market which in turn impacts the profitability of McDonald’s in China. If individuals are not able to borrow as much money from the banks, they will have less money to spend and will avoid eating out. If fewer people eat out, McDonald’s may cut down on staff and menu pricing. Lower prices could fit the budgets of frugal individuals and encourage them to eat at McDonald’s.

Fiscal Policies

Home country

Fiscal policy can be defined as, “federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations” (Cowen et al, 2020, p.767). There are three different types of Fiscal policy, neutral policy, expansionary policy, and contractionary policy (Boundless Economics, n.d, p.2). The expansionary policy is best used during a recession. This policy is used to increase the level of economic activity. In this instance, the government spends more money than it collects in taxes (Boundless Economics, n.d). This is beneficial for businesses like McDonald’s because the government is encouraging its citizens to stimulate the economy by spending. The fewer people spend on taxes, the more they will spend elsewhere. Contractionary policy is chosen to pay down government debt and to cap inflation. The government will spend less money than it collects in tax revenue. When taxes rise individuals might not want to spend money frivolously on fast food restaurants. However, because McDonald’s prices are so low, those who want fast food may choose McDonald’s because they are one of the cheapest options.

Key Market

Market analysts suspect that the People’s Bank of China will reduce banks’ reserve requirement ratio (RRR) to make up for liquidity shortfalls towards the year-end (Zhou et al, 2021, p.2). Additionally, minimal researchers believe a policy rate cut could be implemented which would widen the Sino-U.S. monetary stance gap, risking a surge in capital outflows. These situations illustrate volatility and uncertainty; they are not beneficial to businesses in China. This could negatively impact McDonald’s profitability because Chinese citizens could be focused on saving money. However, if stimulus checks are released, individuals will have a limited amount of disposable income that could be spent eating out, generating the possibility of increased sales (Zhou et al, 2021, p.1).

References

Bank of China Introduction. (n.d.). Retrieved December 6, 2021, from https://www.boc.cn/en/aboutboc/ab1/200809/t20080901_1601737.html.

Boundless economics. Lumen. (n.d.). Retrieved December 6, 2021, from https://courses.lumenlearning.com/boundless-economics/chapter/introduction-to-fiscal-policy/.

Cowen, T., & Tabarrok, A. (2017). Modern principles of economics (4th ed.). Worth Publishers.

Gross domestic product for China. FRED. (2021, July 1). Retrieved December 6, 2021, from https://fred.stlouisfed.org/series/MKTGDPCNA646NWDB.

How does the Federal Reserve affect inflation and employment? Board of Governors of the Federal Reserve System. (2020, August 27). Retrieved December 6, 2021, from https://www.federalreserve.gov/faqs/money_12856.htm.

Zhou, W., & Galbraith, A. (2021, September 2). China is likely to quicken fiscal spending, but policy rate cuts are not on the cards. Reuters. Retrieved December 6, 2021, from https://www.reuters.com/business/china-likely-quicken-fiscal-spending-policy-rate-cuts-not-cards-2021-09-02/.

katrhob

Dec 06, 2021

katrhob

Dec 06, 2021

etopeka

Dec 06, 2021

Milestone 3: BMW

Bayerische Motoren Werke AG, BMW, operates in many locations all around the world and must concern themselves with factors in each market, even their home country market that will impact spending habits for new vehicles. Business fluctuations, fiscal policy, the federal budget, taxes, Federal Reserve bank, and central bank all affect BMW’s economic growth. BMW markets in Germany and the United States, the home country and key market respectively, have different economic dynamics that causes profits to increase or decrease.

Federal Reserve Bank

Cowen & Tabarrok (2020), mentioned, “the money we use in the United States is provided by just one bank, the Federal Reserve” (p. 733), it has the power to provide money to banks, controls interest rates, control the bank account of the U.S. Treasury (Cowen & Tabarrok, 2020, p. 733). Interestingly, the Federal Reserve has the biggest control on the monetary base (MB), however, it influences M1 and M2 aggregate demand (Cowen & Tabarrok, 2020, p. 736) by a process called fractional reserve banking. As banks receive deposits it holds an amount of that money in reserve and makes money on the remaining funding, a reserve ratio (RR) is used to provide the fraction to withhold. Banks also use a money multiplier (MM) to “expand” (Cowen & Tavarrok, 2020, p. 737) dollars in reserves.

The Federal Reserve controls the supply of money in the economy by open market operations and paying interest on reserves held by banks within the Federal Reserve (Cowen & Tabarrok, 2020, p. 738). Government bonds allow the Fed to change the supply of money, the more bonds purchased equal a positive impact to the economy such as, more loans, deposits, and wages. The supply of money tremendously impacts BMW as those loans in society are used to by their cars, especially when the banks provide low interest rates.

The chart below shows an example of the U.S. reserve assets with lower number of reserves in 2017, 2018, and 2019. The correlation in the economy would be more loans by banks and lower rates; as noted by Cowen & Tabrrok (2020) “when banks are confident an eager to lend, they will want to keep their reserves relatively low” (p. 738).

Central Bank of Germany

“Germany is Europe’s most powerful economy” (O’Neill, 2021, par. 1), with total assets in 2019 over 11 trillion U.S. dollars in 2019, Germany has the financial power to compete in the marketplace. Germany Federal system operates a balanced budget unlike the United States, Germany has a constitutional debt break that prohibits their government from a having deficit of .35% or more than GDP (Cowen & Tabarrok, 2020, p. 795). Germany’s banking sector has a “three-piller system, private banks, public banks, and credit cooperatives” (Statista Industry Report - Germany, 2021, p. 7) and provide low interest rates on loans, this contributed to their industry revenue of over 33 billion euros in 2019 (Statista, 2021). BMW benefited from Germany’s 2019 industry revenue by selling 104,321 million in passenger cars in Germany (Statista, 2021).

Fiscal Policy In Home Country

Germany’s fiscal policy has a strong monetary policy that impacts the banking sector. They have control mechanisms to help in a bad economy just as the U.S. and other strong economic countries. Germany has a large group of banks that can provide loans and banking accounts. Germany has allowed their strong fiscal policy to help with crisis like COVID-19, allowing the economy to maintain bounce back with a GDP of over 3 billion euros in 2020 (Statista, 2021). Germany’s financial services has also seen a 4.6% growth in 2020 (Statista, 2021) due to their fiscal policy.

Fiscal Policy Of Key Market

Fiscal policy is defined by Cowen & Tabarrok, (2020) as “federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations” (p. 805). In the case of 2021 when President Biden pass the $1 trillion “Infrastructure Investment and Jobs Act” (Whitehouse.gov, 2021, par. 1), which provides Federal-aid highways, highway safety programs and transit programs, will certainly have a “multiplier effect” (Cowen & Tabarrok, 2020, p. 805) on the economy. As roads, bridges, and many other structural concerns are addressed with funding from this bill – citizens will benefit as jobs are created and company profit from huge contracts. In turn, spending will increase and help families to buy houses, cars and other needed items. Consequently, BMW will benefit from the increase in spending as and job creation, more vehicles will be purchased.

Conclusion

BMW must be incredibly sensitive to the banking industry in the United States and Germany. As they operate in each of the economies, understanding how the Federal Reserve and German banking sector controls loan rates, saving rates, and responses to crisis will help BMW plan for market fluctuations. BMW can use these tools to forecast correct buying data, adjust vehicle prices, and provide incentives at the right time when the economy shows signs their bottom line will be impacted.

References

Cowen, T., Tabarrok, A. (2020). Modern Principles of Economics, 5th Edition. [VitalSource Bookshelf 9.4.3]. Retrieved from vbk://9781319329464

Statista (2021). BMW Report 20209. Retrieved by Statista:

https://www-statista-com.ezproxy.regent.edu/study/60860/bmw-report/

Statista (2021). BMW – Statistics & Facts. Retrieved by Statista:

https://www-statista-com.ezproxy.regent.edu/topics/5551/bmw/#dossierKeyfigures

Statista (2021). Economic Outlook Germany. Retreived by Statista:

https://www-statista-com.ezproxy.regent.edu/study/25005/economic-outlook-germany/

Statista (2021). Banking in Germany 2021. Retrieved by Statista: https://www-statista-com.ezproxy.regent.edu/study/46602/banking-in-germany/

Statista (2021). Germany – Statistics & Facts. (Nov 22, 2021). In Statista. Retrieved December 5, 2021, from https://www-statista- com.ezproxy.regent.edu/topics/1903/germany/

Statista (2021). (September 28, 2021). U.S. official reserve assets from 2000 to 2020 (in billion U.S. dollars) [Graph]. In Statista. Retrieved December 05, 2021, from https://www-statista-com.ezproxy.regent.edu/statistics/188835/official-reserve-assets-of-the-united-states-since-1990/

https://www.congress.gov/bill/117th-congress/house-bill/3684/text

https://www.whitehouse.gov/bipartisan-infrastructure-law/#powerinfrastructure

meghjon

Dec 05, 2021

Milestone 3: Costco

Meghan Jones

Professor Bajah

ECON 230

4 December 2021

Introduction

Costco being a company that offers something different than many retails grocery stores, sets them apart from many different companies in their market. Offering a membership shopping experience only sets them apart from others, with their prices being low and discounted for bulk products just may be putting them into debt more than they realize. The debt ratio of Costco is a monumental determiner of choosing new approaches to climb the battle out of debt. Taking the Federal Reserve Bank and fiscal policy to see where the company stands and what the best process could be for observing the success of the company.

Federal Reserve Bank Effects

The Federal Reserve Bank is “the central system of banking of the United States. It is owned both publicly and privately, and is comprised of a number of different branches, which work together to control the supply of money in the American economy and to set fiscal policy.” (McMahon, M., 2021, February 1 para.1) While Costco is a company with residual income by having the customers paying for a yearly membership, they still are in a great amount of debt trying to stay afloat with the rises in cost and attempting to make money while still providing what the customers need at a mark-up to attempt to master the inflation rates. “Based on Costco Wholesale’s balance sheet as of June 4, 2020, long-term debt is at $7.60 billion and current debt is at $1.50 billion, amounting to $9.10 billion in total debt” Insights, B. (2020, August 14 para. 1). This shows us that their $51.73 billion in total assets, therefore making the debt-ratio 0.18. And with the Federal Reserve Bank having control over the money supply a high amount of debt like this would make the company less attractive to investors and loan distributers. Costco higher up officials have been in conversation about the high rising inflation costs, saying that the exact opposite of what the Federal Reserves are saying is what we are looking at in the future. The Federal reserve labels the inflation rates as something temporary and quick to end, but based on the opinions of the Costco CEO, the inflation will continue to rise because of the economic disasters that have happened over the last two years. According to Sozzi (2021 June 1st para. 3) “Galanti, (Costco CEO) "We've had a lot of questions about inflation over the past few months. There have been and are a variety of inflationary pressures that we and others are seeing. Inflationary factors abound. These include higher labor costs, higher freight costs, higher transportation demand, along with the container shortage and port delays, increased demand in various product categories, various shortages of everything from chips to oils and chemical supplies by facilities hit by the Gulf freeze and storms and, in some cases, higher commodity prices."

Effects of Fiscal Policy

“Fiscal policy refers to the budgetary policy of the government, which involves the government controlling its level of spending and tax rates within the economy. The government uses these two tools to influence the economy. It is the sister strategy to monetary policy.” (Fiscal policy. Corporate Finance Institute. (2021, February 10 para. 1) Both of these policies work towards correcting the deficits in the economy. For Costco, with their debts being as high as it is, it seems more like a downfall to the economy than a success. While they do have something different to offer, their assets costs more than the income they are making. They are not even breaking even in their sales to make up for the costs of being in business. With their growing debt year after year and their need for assistance to stay in business, the fiscal policy of making good decisions for the economy as a whole is vital. According to Team, T. (2021, September 24 para. 1). “We expect COST to likely beat the revenue and earnings expectations, driven by growth in comparable sales. In fact, the company’s sales grew 18% in the first three quarters of fiscal 2021 - despite tough comparisons from the prior year when consumers had fewer options to spend their money. This was largely due to a jump in inflation and a short-term surge in retail spending” With the inflation rate being so high, Costco had to raise their prices as well, this means that their sales grew. They had a inflation mark-up opportunity having their sales go up in percentage, while they are also labeled as the company with the lowest retail mark-up in the industry which is compelling for their customers because the costs are affordable and low enough to persuade consumers to shop in their warehouses. The fiscal policy of trying to keep up with the economic issues of the world allowed Costco to raise the prices while also raising its sales over the fiscal year.

Summary

The Federal Reserve Bank and Fiscal Policy is affected greatly by the economic issues of the world and our country. With things like COVID, the presidential election, the shipping delays, etc, it makes the products that are supplies scarce because of the supply being lower and the demand being higher. In the instance of things being supplied in lower amounts while waiting on shipping, inflation is possible because they can raise the prices of the products because of them being in such high demand. For example, our grocery stores shelves are often empty because of the shipping delays, this makes what is sitting on the shelves to be higher in demand before they run out so the prices can be higher, and people will still buy them. Inflation is the key to the growth in sales over the past two years for Costco.

References:

Fiscal policy. Corporate Finance Institute. (2021, February 10). Retrieved December 5, 2021, from https://corporatefinanceinstitute.com/resources/knowledge/economics/what-is-fiscal-policy/.

Insights, B. (2020, August 14). A look into Costco Wholesale's debt. Benzinga. Retrieved December 5, 2021, from https://www.benzinga.com/news/20/08/17084659/a-look-into-costco-wholesales-debt.

McMahon, M., Mary McMahon Ever since she began contributing to the site several years ago, & Mary McMahon Ever since she began contributing to the site several years ago. (2021, February 1). What is the Federal Reserve? Smart Capital Mind. Retrieved December 5, 2021, from https://www.smartcapitalmind.com/what-is-the-federal-reserve.htm.

Team, T. (2021, September 24). What to expect from Costco's stock post fiscal Q4 results? Forbes. Retrieved December 5, 2021, from https://www.forbes.com/sites/greatspeculations/2021/09/23/what-to-expect-from-costcos-stock-post-fiscal-q4-results/?sh=18d56d671192.

Yahoo! (n.d.). Costco disagrees with the Federal Reserve on the future of inflation. Yahoo! Finance. Retrieved December 5, 2021, from https://finance.yahoo.com/news/costco-disagrees-with-the-federal-reserve-on-the-future-of-inflation-103738080.html.

mattsherry

Dec 06, 2021

Replying to

Meghan, your comments on the corporation Costco and the impact monetary and fiscal policy has on them made for quite a great read. You made many interesting points and backed them up with ample amounts of research. Your explanation of Costcos' needed price markup caused by inflation reflected exactly the problem corporations have faced. Most of Costco's products are labeled as essential products and have a low elasticity of demand. As other competitors such as Walmart and Harris Teeter are forced to raise their prices, Costco is forced to raise theirs as well in order to maintain a stable profit as operating and inventory costs rise. Consumers are forced to spend more money on these essentials, and Costco can offer financial help to their employees. Nathaniel Meyersohn of CNN Business researched that Costco, as of October 2020, raised their minimum wage from 16 to 17 dollars an hour (CNN Business 2021). This number is significantly higher than its similar competitors, such as Walmart. You specifically quoted a statement made by Costcos' CEO, which entailed that he believes inflation will continue to rise because of disasters within the last two years. TD Economics indicates that food prices since February 2021 have increased by 3%, and food production has dropped by 8%. Specifically, meat production has fallen by 13% (TD Economics 2021). Costco is heavily affected by this newfound problem and has caused inflation that has driven up the price of many of its items. The Federal Reserve is continually working to manage inflation, but it becomes very challenging when events such as Covid-19 occur.

References

Meyersohn, N. (2021, October 27). Costco raised its minimum wage to $17 an hour. CNN. Retrieved December 6, 2021, from https://www.cnn.com/2021/10/27/business/costco-minimum-wage/index.html.

U.S. inflation during and after COVID-19. TD Economics - Canada. (n.d.). Retrieved December 6, 2021, from https://economics.td.com/us-inflation-covid19.

katrhob

Dec 20, 2021

Replying to

Hi Meghan-

Great research on Costco and the federal reserve bank and the effects of fiscal policy. I also read an article back in June, 2021, Costco CFO Richard Galanti stated that they've had a lot of questions about inflation over the past few months. There have been and are a variety of inflationary pressures that we and others are seeing. Inflationary factors abound. These include higher labor costs, higher freight costs, higher transportation demand, along with the container shortage and port delays, increased demand in various product categories, various shortages of everything from chips to oils and chemical supplies by facilities hit by the Gulf freeze and storms and, in some cases, higher commodity prices. Galanti pointed to particular inflationary pressure in beef, paper goods and aluminum foil. The core personal consumption expenditure (PCE) price index increased faster than expected, up 3.1% in April, according to the U.S. Commerce Department. Federal Reserve officials view the index as among the best indicators of pricing pressure in the economy. The Fed believes 2% inflation is a healthy level. Meanwhile, the April Consumer Price Index (CPI) rose at the fastest pace since September 2008, clocking in with a 4.2% increase versus a year ago.

Great work again-

Blessings,

K. Hobbs

mattsherry

Dec 05, 2021

Milestone 3 (Procter & Gamble)

Matt Sherry

Regent University

ECON 230

Dr. Jeff Bajah

December 2, 2021

Abstract

The Policy categorized with the Federal Reserve bank is called the Monetary Policy; I will be writing upon its effects within the United States market. Specifically, I will analyze the impact of this Policy within the corporation Procter & Gamble. I will also list and describe the effects of the fiscal policies within the home country of the United States and a key market of India.

Monetary Policy

The specific term "monetary policy" refers to the Federal Reserve or the Central bank's actions to manage the currency and credit within the United States Economy. The fluctuation of monetary value and credit accordingly changes the interest rates or the cost of credit. These values define the performance of the United States economy, but these values carry much importance for businesses across the United States. There are many goals the Central bank has while conducting a monetary policy. Credit and currency management is performed to stabilize prices and interest rates, thus encouraging gradual and long-term economic growth and maximum employment (FRE.org 2021). FederalReserveEducation.org also indicates monetary policy tools and the instruments the Federal Reserve uses to conduct operations. The Federal Reserve uses open market operations, the discount rate, and reserve requirements. Open market operations are the buying and selling of government securities and are the most frequently used monetary policy tool. The discount rate is the interest rate charged to depository institutions (credit unions, commercial banks, and saving and loan associations) on short-term loans. Banco De Mexico wrote an article on the effects of Monetary Policy on the economy. They stated that "through monetary Policy, the central bank can influence the price-determination process and thus attain its inflation target. (Banco De Mexico 2021). The Central bank works hard to maintain its desired level of Inflation for the economy's health.

Policy effect on Procter & Gamble

The United States market for P&G has been heavily affected by Inflation this past year, 2021. An article written by Aimee Picchi of CBS News documents the struggles of many different markets to keep their prices down, "The Consumer Price Index (CPI), another measure of inflation, rose 2.6% for the 12 months that ended in March 2021, the biggest annual increase since August 2018 (CBS News 2021)." She also documented that industries such as gasoline have increased more than 22% since March 2019. The Covid-19 Pandemic has dramatically affected the inflation levels to a point where the Federal Reserve's Monetary Policy cannot maintain gradual and healthy levels of Inflation. Federal Chairman Jerome Powell stated that "we (Central bank) want inflation to average 2% over time; And when we get that, that's when we'll raise interest rates." The Monetary Policy has allowed the Federal Reserve to allow companies like Procter & Gamble who provide essential products to citizens within their economy. The Motley Fool indicates that Procter & Gamble is currently experiencing worse-than-expected cost inflation across its operations. Procter & Gamble underestimated by $500 million the impact of Inflation on the business over the fiscal year (MotleyFool 2021). Procter & Gamble isn't going under by any means, and they are a global and massive organization with lots of money to fall back on. With that being said, it is a telling tale of the power of Inflation and its effects on global corporations.

Fiscal Policy

Fiscal Policy is a determining factor in the amount of money Procter & Gamble can retain and how much they must give back to the government in the manner of taxes. Macrotrends indicates that the annual taxes paid by P&G for the year 2021 were $3.263 billion, a 19.48% increase from 2020 (Macrotrends 2021). This increase of tax can indicate many things for the company, some of which being, the revenue for P&G in the 2021 fiscal year rose or the government regulated a higher percentage requirement of tax payment. The Congressional Research Service indicates that fiscal Policy is "generally measured by gross domestic product or GDP- in the short term by changing its levels of spending and tax revenue (CRS 2020). The United States Federal Reserve bank has been constantly at work to mandate a healthy economy where companies and consumers benefit; sometimes, circumstances outside of their control, such as Covid-19, make it near impossible. India is a key market of the Procter & Gamble corporation, with a market cap of 6.53 billion dollars as of December 2021 (RaboReasearch 2021). The Economy of India has also been affected by the Covid-19 pandemic; as a nation with already high levels of Inflation, Covid-19 just added fuel to the fire. P&G has an abundant presence within the economy of India and underwent a similar tax on their revenue.

References

Aimee, A. (2021, April 20). Procter & Gamble says it'll raise prices in September. is inflation set to surge? CBS News. Retrieved December 5, 2021, from https://www.cbsnews.com/news/proctor-gamble-raise-prices-september-inflation/.

Congress, the judiciary, and civil and ... - sgp.fas.org. (n.d.). Retrieved December 5, 2021, from http://sgp.fas.org/crs/misc/IF11557.pdf.

The effects of monetary policy on the economy. (n.d.). Retrieved December 5, 2021, from https://www.banxico.org.mx/monetary-policy/d/%7BB06EB673-E621-867C-8CF7-B39F39C94F81%7D.pdf.

Hugo Erken RaboResearch Netherlands. (n.d.). India's worrying Inflation Dynamics. RaboResearch - Economic Research. Retrieved December 5, 2021, from https://economics.rabobank.com/publications/2020/september/indias-worrying-inflation-dynamics/.

Monetary policy basics. (n.d.). Retrieved December 5, 2021, from https://www.federalreserveeducation.org/about-the-fed/structure-and-functions/monetary-policy/.

Procter & Gamble Income Taxes 2006-2021: PG. Macrotrends. (n.d.). Retrieved December 5, 2021, from https://www.macrotrends.net/stocks/charts/PG/procter-gamble/total-provision-income-taxes#:~:text=Procter%20%26%20Gamble%20annual%20income%20taxes%20for%202020,2018%20were%20%243.465B%2C%20a%2013.12%25%20increase%20from%202017.

Procter & Gamble India (PGHH.NS) - market capitalization. CompaniesMarketCap.com - companies ranked by market capitalization. (n.d.). Retrieved December 5, 2021, from https://companiesmarketcap.com/procter-gamble-india/marketcap/.

Tatevosian, P. (2021, October 26). Inflation will cost Procter & Gamble by $500 million more than it expected. The Motley Fool. Retrieved December 5, 2021, from https://www.fool.com/investing/2021/10/26/inflation-will-cost-procter-gamble-by-500-million/#:~:text=Consumer%20staples%20giant%20Procter%20%26%20Gamble%20%28PG%201.78%25%29,on%20its%20business%20over%20its%20current%20fiscal%20year.

Christian Bering

Dec 05, 2021

Milestone 3

Fiscal Policy

The US fiscal policy is strategy employed by the government that adjusts its spending and revenue to influence a larger economy. Naturally, the business cycle is going to fluctuate up and down over time. Having analyst look over the data of these fluctuations help us realize our real and potential GDP, as well as recessionary gaps when the economy is not realizing its full potential. The government can use fiscal stimulus to increase economic activity by increasing government spending, decreasing tax revenue, or a combination of the two. Increasing government spending tends to encourage economic activity either directly through purchasing additional goods and services from the private sector or indirectly by transferring funds to individuals who may then spend that money (Stupak, 2019, para. 2). Oppositely, when the government decreases tax revenue this can incentivize individuals’ disposable income, which in turn will lead to an increase in the consumption of more goods and services. Over the past two years, the US has seen fiscal policy at work due to COVID-19 slowing down the economy. For example, the government tried to spur economic activity with the different stimulus check that were available to the people who qualified.

Monetary policy

The second policy that the US relies on to shape the economy is the monetary policy. The overall goal of the fiscal policy is to influence the aggregate demand of the US, and the monetary policy is used to oversee and control the amount of money available in the economy. The Central Bank does not have the power to tell banks what to charge for interest rates, but instead they can manipulate the amount of money in circulation. The interest rates that banks charge are decided by the current money supply. In 2021, the Central Banks has tried to accelerate the amount of money in circulation to keep the US economy moving while trying to recover from the shutdowns. However, according to Cowen and Tabarrok, the central bank itself contributes to booms that eventually lead to painful busts (2019, p. 770, para. 5). Therefore, the central bank is constantly finding the line between being overinvolved in the economic activity and being too hands off.

How the Federal and Central Banks affect Toyota

In the final quarter of the 2021 fiscal year, the average interest rate for purchasing a vehicle is roughly 4 percent, with used cars being around 7.5 percent and new cars being 2.5 percent. The largest key market for Toyota is North America, accounting for 33 percent of Toyota’s total vehicle sales (Parashar. Along with the rest of the automobile industry, Toyota’s interest rates are low compared to the past three years prior to covid. However, inflation rates in the US are surging at a rate that’s at its highest in decades (Golle, 2021). The surge in inflation this year reflects volatile demand, fragile transportation networks and shortages of both supplies and labor, pressures inflicted by the disruption of the pandemic that are prevalent throughout the not only the US economy, but the world economy as well. What does the future the year hold for Toyota’s Profitability? The first quarter of the 2022 fiscal year could be rough considering the new Covid variant omicron, is gaining traction and could force nations to place restrictions on labor forces.

References

Cowen, T., & Tabarrok, A. (2020). Modern Principles of Economics (5th Edition). Macmillan Higher Education. https://mbsdirect.vitalsource.com/books/9781319329464.

Stupak, Jeffery M. (2019). “Fiscal Policy: Economy Effects”. Congressional Research Service. https://crsreports.congress.gov/product/pdf/R/R45723/1.

Parashar, Jitendra. (2016). “What Are The Key Markets For Toyota Motor Corporation?”. Market Realist. https://marketrealist.com/2016/05/key-markets-toyota-motor-corporation/.

Golle, Vince. (2021) “U.S. Winds of Inflation Are Blowing Winter Gale: Eco Week Ahead”. Bloomberg. https://www.bloomberg.com/news/articles/2021-12-04/u-s-winds-of-inflation-are-blowing-winter-gale-eco-week-ahead.

Louis Johnston

Dec 05, 2021

Louis Johnston

Dec 05, 2021

Replying to

Louis J Johnston Regent University Econ 230 Dr. Jeff Bajah 05 December 2021

Introduction Economics in a nation is mainly managed and controlledby fiscal policies established by the Federal or Central banks.The policies are made to ensure that the supplyof money in the economy aligns with the output level. The money in circulation had to be equal to the number of goods and services offeredin the economy. This is a major process that is used to control inflation that lowers the value of the currency of an economy. The supply of goods and services should increasefor the circulation of money to be improved.These systems are monitored by the Federal and Central banks to enhance economic development and sustenance. Moderneconomic need to monitor the transactions by the use of the money that flows through banks and mobile money. Fiscal policies in an economy are used to stabilize prices hence making the value of currentto remain strong. Effect of Policy of Federal and Central Banks The Federal tax and spending affect the spending of the government and the quantityof money that reaches the people. The taxes are used to control the spending of the peopleby either increasing or lowering the rates. When spending is high, tax rates are increased while the expenditure is low, the rates are decreased. The spending of the government affects the quantity of money that circulates the economy. The high the government spending, the greaterthe level of quantity of money that circulates in the economy(Komlos, 2016). Economies are controlled through the supply of money and governmentspending on major projects. The people’s incentives to work and save are highly affected by the policies of the two banks. The banks create the rates of incentives to be given to workersand how they need to save for futureuse. When the economy is not doingwell, the peoplewill be pushedto save low to make the cash circulate. The circulation helps in funding projects that increase the production levels of the economy. Economies use this means to make sure that adequate cash

is available to finance production. Saving a lot of money makes an economy stagnate since production is hindered (Bernanke, 2020). Saving and incentives are thus used to ensure that the supply of goods and services is enhanced in the economy. Reserves are made compulsory by the banks to help in retaining moneyfor future use. The money is reservedto help banks and theircustomers to use it when uncertainties happen in the economy. For example, Covid-19 was uncertainty that was handled by the use of federal reserves that were done in the banks. The emergency funds that were used to finance the crisis came from the reserves that have been done. This helped to stabilize the economy when production was affected by the pandemic. This is a policy of the banks that aims at saving funds for use when unexpected happens (Komlos, 2016). They are reserved to help the economy not to collapse when disasters like Covid-19 occur. So, reserves are part of the policies that make the economystand when uncertainties affect production. Federal investment is done by the Federal Bank to increase the level of output in the economy. The investments are done to create build up a project that will able the economyto make more cash through production. They are part of the ways that are used to increase the GDP and per capita income. They enable the government to get more revenue throughtaxing of workersand surplus attained. Investment is an effective way to achievethe economic goalsthat the economy within a specified duration. It helps to producemore goods or services that increase the supply of money in the economy (Bech & Malkhozov, 2016). So, federal investments aim at increasing output that leads to the attraction of more revenue to thegovernment. The policies of the banks affect the private demand for goods and services among the consumers. They use tax rates that affectprices for commodities and services offeredin the economy. The prices are set based how the level of demand that is sensed among the consumers. When demand is high, the rates are increased to make consumption to be

equivalent to the level of supply. The governmentuses this system to prevent inflation that happens when supply is lower than demand. The control of demand and supply makes the value of a currency be maintained (Bernanke, 2020). So, the policy of the banks makes a demand of consumers to increase or decrease to control inflation. Effect of Fiscal Policies The change in aggregate demandfor goods and services is one of the effectsof fiscal policies.The policies seek to controlrates and pricesfor the exchangeof goods and services in the economy. Demand is based on the purchasing power of the consumers and the value of goods and services. Prices are eitherincreased or decreasedby the rates that are imposed by the federal authorities. When demand is high, greater rates are imposed to make consumer prices increase.This makes the demand and supply of goods and services to be equal (Slepov et al, 2017). The point of equilibrium between demand and supply is the key aspect desiredin an economy.So, fiscal policies affect pricing and aggregate demand for goods and services in the economy. Fiscal policies still affect the stability of prices of goods and services offered in an economy. The tax and interest rates set by the federal system help to maintain the prices of goods and services.For example, an increase in tax ratesmakes prices for consumable goodsand services rise. It is a way that is used by the authorities to make the prices to be a certain level. The level is the prices connected to the purchasing power of consumers. The prices are set at the levels that suit the economic situation of the nation. They defer based on how an economy has grown and the purchasing power of the people (Bech & Malkhozov, 2016).So, tax rates affect the pricing of goods and services hence attaining a certain level of stability. Fiscal policies affect the supply of money in an economy due to inflation prevention measures in use. The supply of money is based on the level of output that an economy is managing at a certainperiod. The money cannot be supplied at a rate that is higher or lower

than the levelof production of the nation.The supply of cash is determined by the use of the level of output that the people have been able to make within a certain duration. The fiscal policies are used to control the level of quantity of money that has to be supplied(Braun et al, 2018). So, fiscal policies determine the amount of money that will be circulated in the economy to ensure sustenance. The policies still affect the interest ratesthat are to be used by banks when givingout loans. The rates are based on the extentto which consumers can access loans from financialinstitutions. When demand for the loans is high, the rates are increased to control the amount of cash that will be accessed by the people. The government can still order banks to give loans at low rates to increase the supply of money in the economy. The rates are made to ensurethat borrowing money does not affect the prices of commodities (Slepovet al, 2017). So, interestrates are part of the policiesused to control the supplyof money in the economy. Conclusion Fiscal policies are used to control the supply of money in a nation to stability theeconomy. Taxes and government spending affect the amount of money that is supplied to circulatein an economy. People’s incentives at work and savings are also used to manipulate the growth of an economy. Federal reserves are done to secure the economy in case uncertainties like Covid-19 come. The reserves are used to ensure the supply of money when production is affected by emergencies. Demandfor goods and services is affected by prices that are imposed by the authorities. The supply of money in an economy is controlled toprevent inflation that affects the value of the currency.An economy had to ensure that there is a balance between demand and supply. So, economies are controlled by the supply of money, interest rates, federal reserves, taxes and government spending.

References

Bech, M. L., & Malkhozov, A. (2016). How have centralbanks implemented negativepolicy rates? BIS Quarterly ReviewMarch.

Bernanke, B. S. (2020). The new tools of monetary policy. American Economic Review, 110(4), 943-83.

Braun, D., Wälti, S., Bullinger, A. B., & Ayrton, R. (2018).Fiscal policies in federalstates.

Routledge.

Komlos, J. (2016). Principlesof economics for a post-meltdown world. Springer International Publishing.

Slepov, V. A., Burlachkov, V. K., Danko,T. P., Kosov, M. E., Volkov, I. I., Ivolgina, N. V., & Sekerin, V. D. (2017). Model for integrating monetary and fiscal policies to stimulate economicgrowth and sustainable debt dynamics.

crissau

Dec 07, 2021

Replying to

Louis,

I can not help much with research as it seems like you have thoroughly researched the topic. I can, however, help a little with formatting an APA paper and grammar. Some formatting my get lost when pasting into the blog post, but here are a few things I noticed. When citing more than one author, be sure to cite like the following: (First author last name et al., year, p #). When starting a new paragraph, be sure to indent the first line. It is also a good idea to use subheadings when introducing a new section. Lastly, be sure to proof read before submitting your work. Grammarly is an awesome resource that helps with proofing a paper. Also, if you need help with learning APA style writing, owl.purdue.edu is great for that. You have a great paper and I understand this is not the final work you will submit so my tips may not be needed.

tiarsma

Dec 05, 2021

@maripl1

Hello Maria,

Thank you for explaining the effects of fiscal policy in the unites States concerning your chosen company McDonalds. With a little more effort to the transition of the different points in the paper as well as fixing grammatical errors the paper will be more refined. The paper throughout shows the vast amount of effort and research conducted in the paper. Great Job

maripl1

Dec 05, 2021

Replying to

Thank you so much for your feedback. I really appreciate it.

caroco2

Dec 05, 2021

Hi Josh

Your paper was very informative. The information that you discussed was on point, and everything flowed together. You did a great job explaining how Covid affected the fast-food chains like Mc Donald's. In fact, as a retail manager, my company is feeling the effect of Covid when it comes to hiring and maintaining staff. I think the feds did the right thing to keep the economy afloat, but I believe safety is the key for many people. Again, an excellent job on your paper. I learn a lot on the subject of Mc Donald's.

maripl1

Dec 05, 2021

Hi Josh, I enjoy reading your Milestone. You put much effort into doing all your research on the effects of the monetary policy on McDonald's in the U.S. and China. Unlike U.S. Federal Reserve, China does not have a single monetary policy and does not operate independently from the government. China's monetary policy PBOC uses several tools to "control interest rates and the amount of money in the Chinese economy" (Lee, 2018, para. 5).

The U.S. Federal Reserve, "other governments, and the People's Bank of China used the same policy tool" to deal with unexpected economic disasters (Maiello, 2020, para. 5). However, one thing sets aside China's centralized monetary policy from others; their central bank does not involve providing cash relief to its people and businesses. The PBOC acts more as a lender and allows companies and individuals to borrow money with the borrowing costs interest significantly reduce to ease the burden. During the pandemic of 2020, the U.S. Federal Reserve allotted 2 trillion dollars as a stimulus relief to those affected by the coronavirus, adults, families, small and big businesses. On the other hand, China reduced corporate borrowing costs for struggling people and companies, and PBOC did not provide cash relief to the Chinese citizens (Maiello, 2020).

During the coronavirus pandemic, PBOC embarked on new ways to digitalize their payment system using the "RMB payment system at restaurants across the country," including Mcdonalds'. According to PBOC, they have been working on the digital payment for several years before coronavirus and has "instructed" McDonald's and other U.S. companies to embark on this new venture of allowing "digital transactions" to be implemented by the opening of the 2024 Olympic Games (Menten, 2020, para. 1-3). If the RMB payment system takes precedence and imposes on McDonald's and other U.S. businesses within China, there is no doubt; it would have an undesirable outcome.

Reference

Amadeo, K. (2021, October 31). What Is the Federal Reserve? Retrieved from https://www.thebalance.com/the-federal-reserve-system-and-its-function-3306001

Lee, Y.N. (2018, August 5). China’s monetary policy is complex and shifting. Here’s what you need to know. CNBC. Retrieved from https://www.cnbc.com/2018/08/06/china-monetary-policy-how-pboc-controls-money-supply-interest-rate.html

Maiello, M. (2020, April 7). China’s Economic Response to COVID-19 Has Helped, for Now Retrieved from https://www.chicagobooth.edu/review/chinas-economic-response-covid-19-has-helped-now

Menten, J. (2021, October 20). China presses McDonald’s to expand e-currency system before Olympics. California News Times. Retrieved from https://californianewstimes.com/china-presses-mcdonalds-to-expand-e-currency-system-before-olympics/564302/

Josiah Caldwell

Dec 05, 2021

Josiah Caldwell

Econ 230

Professor Jeff Bajah

Milestone 3

December 3, 2021

When speaking about the effects that the Federal Reserve and the Central Bank and the affects they have on the economy it is important that we understand what purpose that they serve. “The Federal Reserve System, often referred to as the Federal Reserve or simply "the Fed," is the central bank of the United States. It was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system” (Federal Reserve).

The Fed was designed to help the United States become more flexible economically. “The Fed, as the nation’s monetary policy authority, influences the availability and cost of money and credit to promote a healthy economy” (Federal Reserve). if the Fed does their job correctly, it should help companies like Volkswagen greatly.

If everything in the economy is going smoothly, that typically mean that companies do not have much to worry about. the Fed does its best job to keep inflation from happening, furthermore they want to keep interest rates as low as possible.

“To stimulate the economy, the Fed lowers the target rate. If interest rates are low, the presumption is that consumers can borrow more and, consequently, spend more. For instance, lower interest rates on car loans, home mortgages, and credit cards make them more accessible to consumers” (Common Wealth Management, 2019).

With the aforementioned stimulated economy, with lower interest rates on car loans people are more likely to purchase vehicles from companies like Volkswagen. If the economy is running smoothly, it has a very positive affect on car companies, especially one such as Volkswagen.

“We assume that the economic situation in the USA will continue to be stable in 2020. GDP growth should be lower than in the reporting period, however. The US Federal Reserve could further reduce the key interest rate during 2020. Economic growth is likely to remain more or less stable in Canada” (VW, 2019). In the words of Volkswagen in their 2019 annual report, they believe that the Fed is doing a good job and could even go a step further to help them.

Fiscal policy is how governments adjust their spending levels and all of their tax rates as well. The fiscal policies vary between Volkswagen’s home country of Germany and the key target market in the United States. “The federal government uses fiscal policy -- taxation and government spending -- to steer the economy in the right direction by increasing or decreasing the demand and availability of goods and services” (Brunot, 2019). Essentially, they control the economy and can determine a lot of different variables. However, much of this has been affected by the pandemic.

“Fiscal policy, including both automatic stabilizers and pandemic-related tax and spending legislation, played a significant role in cushioning the blows to the economy of COVID-19 in 2020 and 2021” (Sheiner, 2021). Despite the changes because the pandemic, Volkswagen has seemingly been unaffected.

“Volkswagen has got off to a successful start in 2021 despite the global shortage of semiconductors and restrictions due to coronavirus pandemic. Sales revenue in the first quarter grew by 5.4 percent to EUR 20 billion” (VW, 2021). It appears as if Volkswagen has really done a great job with handling the pandemic globally. The pandemic had a lot of effect on the global economy and we are still seeing its effects on it today.

One really good example we can look to is the emissions scandal from 2015 where they cheated on diesel emissions tests. The “Volkswagen scandal has the potential to unhinge the German economic model. It has been over-reliant on the car industry, just as the car industry has been over-reliant on diesel technology” (Wolfgang, 2015). This obviously went against many German fiscal policies and posed a huge threat to the country’s economy.

Volkswagen has had their fair share of conflicts and have had to deal with lots of fall out in the last 6 years. However, despite all of this, Volkswagen still continues to work hard and be the best company that they can be. Furthermore, Volkswagen has plans to become a complete electric company at some point in the future. “Half of Volkswagen’s sales are expected to be battery-electric vehicles by 2030, the German carmaker said Tuesday. By 2040, the company said almost 100% of its new vehicles in major markets should be zero-emission vehicles” (CNBC, 2021).

It almost appears that Volkswagen has learned their lesson, so much so that they plan to make all their cars “zero-emissions” in the near future. Volkswagen has had to deal with many different key markets, many different fiscal policies in different countries. Through all this, they have kept their head above water and have even soared in sales and have still remained on of the premier car companies in the world.

It is believed that in the future there will be many fiscal policies involving zero-emissions cars. So, in a sense, Volkswagen is trying to get ahead of the game and prepare for the new policies that are likely to come. Volkswagen has learned from its past mistakes and is doing its best to set up a bright future for their company. With the fiscal policies changing overtime, Volkswagen has learned how to adapt and overcome adversity.

Page Break

Bibliography

Boundless. (n.d.). Boundless Economics. Retrieved December 05, 2021, from https://courses.lumenlearning.com/boundless-economics/chapter/introduction-to-fiscal-policy/

Brunot, T. (2016, October 26). How Do Fiscal Policies Impact the Retail Business? Retrieved December 05, 2021, from https://smallbusiness.chron.com/fiscal-policies-impact-retail-business-73966.html

How Does the Federal Reserve Affect the Economy? (2019, August 01). Retrieved December 05, 2021, from https://www.coastalwealthmanagement24.com/how-does-the-federal-reserve-affect-the-economy/

Münchau, W. (2015, October 04). Volkswagen's threat to the German model. Retrieved December 05, 2021, from https://www.ft.com/content/82315c6a-68fe-11e5-a57f-21b88f7d973f

Sheiner, L., Campbell, S., Kovalski, M. A., & Milstein, E. (2021, October 19). How pandemic-era fiscal policy affects the level of GDP. Retrieved December 05, 2021, from https://www.brookings.edu/blog/up-front/2021/10/19/how-pandemic-era-fiscal-policy-affects-the-level-of-gdp/

Successful start to the new fiscal year for Volkswagen. (n.d.). Retrieved December 05, 2021, from https://www.volkswagenag.com/en/news/2021/05/successful-start-to-the-new-fiscal-year-for-volkswagen.html

Taylor, C. (2021, July 13). Volkswagen wants half of its vehicle sales to be electric by 2030. Retrieved December 05, 2021, from https://www.cnbc.com/2021/07/13/volkswagen-wants-half-of-its-vehicle-sales-to-be-electric-by-2030.html

Volkswagen Konzern - AR 2019 - Report on Expected Developments. (n.d.). Retrieved December 05, 2021, from https://annualreport2019.volkswagenag.com/group-management-report/report-on-expected-developments.html

(n.d.). Retrieved December 05, 2021, from https://www.federalreserve.gov/faqs/about_12594.htm

rachho3

Dec 06, 2021

Replying to

Hi Josiah,

Great work on this week's milestone. I wanted to add a little more to your statement, "If interest rates are low, the presumption is that consumers can borrow more and, consequently, spend more."

After a little bit of research, I found a helpful website that laid out information on lower interest rates. Lower interest rates lead to higher aggregate demand and economic growth. They also: reduce the incentive to save., cheaper borrowing costs, lower mortgage interest payments, and depreciation in the exchange rate.

Resource:

Pettinger, T. (2019, August 3). Effect of lower interest rates. Retrieved from https://www.economicshelp.org/blog/3417/interest-rates/effect-of-lower-interest-rates/

caroco2

Dec 05, 2021

Hi Michael

I enjoyed reading your information on Coca-Cola. I believe that the fiscal policies and the effect of the procedures were explained in detail, significantly how the sugar tax affected the company when companies have to go up on prices that can affect the company's profit. When the United States dropped the tax rate to 21 percent, the company had to pay a tax on the offshore earnings, a net charge of $3.6 billion.

amanjo6

Dec 05, 2021

Milestone 3

Amanda Jones

Regent University

Federal Reserve & People's Bank of China

Every country has a central bank and tha bank will contribute in the foreign exchange markets to control its currency's value. In the United States, the central bank is the Federal Reserve System and the People's Bank of China in China. Each of the central banks have other duties besides the exchange market (Bajpai, P. (2021, May 19). They attempt to control the growth of the money supply in their respective countries to and will maintain economic growth and low inflation. The degree to which the house currency is controlled or "managed" varies among central banks.

Offering an efficient monetary policy involves achieving the price stability of goods and services. The Federal Reserve structure should design to ensure that the financial system and monetary policy are not concentrated in a few individuals' hands. Thus, the network has to accommodate all individuals from all parts of the country and the economy.

Central banks commonly manage the exchange rate for three reasons; to smooth exchange rate movements, determine the implicit rate of exchange boundaries, and reply to temporary disturbances. A central bank could be worried that its economy will be influenced by unexpected developments in the home currency's value, at that point, it might endeavor to control those currency developments after some time. Central banks carry out its nation's monetary policy and oversee its money supply, often mandated with maintaining low inflation and steady GDP growth. Some of the central banks will keep up their home currency rates inside informal or understood limits. Some times a central bank may try to protect a currency's incentive from a brief aggravation. The central bank's intervention strategy aims to counter dislocated market conditions.

The People's Bank of China officially became China's central bank in 1983. The People's Bank of China's governor is chosen by a committee or the party's top leader. However, the governor is subject to appointment and removal of position at any time. The People's Bank of China affects the economic growth in China. As a manufacturing and export-driven economy that receives tremendous forex capital for its exports, the Chinese currency forex rates also impact its money supply. The largest shareholder in Lenovo is the Chinese Government. China is the largest and fastest-growing economy globally as of July 2020 (Seth, S. (2021, September 13). Lenovo grew to become the market leader in China and raised nearly $30 million in an initial public offering in the Hong Kong Stock Exchange.

Effect of the fiscal policies in China

The fiscal policy is how the government adjusts its spending and revenue to influence a broader economy. This is done by adjusting the level of the expenditure and tax revenue. This is where the government can affect the economy by either increasing or decreasing economic activity in the short term. Government authorities closely observe money supply and take necessary actions suitable for the overall economy or selected sectors.

Much like the Federal Reserve, the Central Banks can affect the country's economic growth. The central banks control and manipulate the national money supply. They issue currency and set interest rates on loans and bonds. The central banks raise interest rates to slow growth and avoid inflation. Also they can lower the growth, industrial activity, and consumer spending. In this way, they manage monetary policy to guide the country's economy and achieve economic goals, such as full employment.

The economy is prone to changes in their performance. With the seasonal up and down movements and economic shocks will affect an economy's stability forcing the Federal Reserve and the People's Bank of China will help to develop strategies to restore the economic growth rate to its original state. It is at this point that monetary policies are used and applied.

However, even with the Covid-19 pandemic, the sales of Lenovo declined, but the company managed to transform the business. One reason for a decline is that many people were hesitant to make big purchases. Also, the problem with getting the products due to slow shipping played a part in reducing sales. But with companies allowing their employees to work from home and schools being virtual, the need for computers rose. Therefore sales increased and as did Lenovo's profits. "From achieving record pre-tax income of $1.02 billion to reaching near-record revenue of $50.7 billion, I could not be prouder of our strong performance," said Yuanqing (Haranas, M. 2020, May 20).

Conclusion

In conclusion, both the Federal Reserve and the People's Bank of China equally have a significant impact on their country's economy and how it can affect other countries. Lenovo still saw gains even when the economy was down due to Covid-19, and how the public did not want to make significant purchases shows us that the technology demand is still high even with the slow production. Colossians 3:23-24, whatever you do, work heartily, as for the Lord and not for men, knowing that from the Lord you will receive the inheritance as your reward. You are serving the Lord Christ.

References

Bajpai, P. (2021, May 19). How central banks control the supply of money. Investopedia. Retrieved December 4, 2021, from https://www.investopedia.com/articles/investing/053115/how-central-banks-control-supply-money.asp

Haranas, M. (2020, May 20). Lenovo profits and sales 'severely impacted' by covid-19. CRN. Retrieved December 4, 2021, from https://www.crn.com/news/data-center/lenovo-profits-and-sales-severely-impacted-by-covid-19?itc=refresh

Lenovo StoryHub. (2021, May 27). Lenovo delivers record fourth-quarter results and new fiscal year milestone - surges past US$60 billion revenue mark, with record annual profits. Retrieved December 4, 2021, from https://news.lenovo.com/pressroom/press-releases/fy-2021/

Seth, S. (2021, September 13). How does China manage its money supply? Investopedia. Retrieved December 4, 2021, from https://www.investopedia.com/articles/investing/072815/how-does-china-manage-its-money-supply.asp

Thomas, N. A. (2019). NIV Holy Bible, New International Version. Thomas Nelson.

michdut

Dec 05, 2021

Replying to

Hello Amanda,

I enjoyed reading your Milestone on the effects the Federal Reserve and Fiscal Policy have on Lenovo. Your paper was full of information and expanded how both systems work in the United States and China. I would make the following recommendations to improve your Milestone from a peer review. Ensure you review the requirements for the layout and format set by the professor. There are some grammar issues, recommend using a grammar checker to help. All paragraphs need to be indented, and subheadings need to match, in-text citations (Bajpai, P. (2021, May 19) should be (Bajpai, 2021). In-text citation should not include month and day. Review the APA format for references to ensure proper formatting. I would remove the subheading “conclusion” since the Milestone is not in a typical paper format. I would have liked to see in your Milestone besides COVID what fiscal policies have affected Lenovo. For instance, in January of 2018, the Republican tax law lowered the tax rate for corporations in the United States from 35% to 21% saving millions for companies like Lenovo. Later that year, following a $189 million net loss for the full fiscal year, dragged down by a $400 million non-cash write-off charge from deferred income tax assets, the tech giant started to turn around its fortune (Culpan, 2018). Again, I hope these suggestions help your Milestone and wish you the best with your final product.

Reference

Culpan, T. (2018). Tech Hindustan Times. Breaking down Lenovo’s turnaround as it posts first-quarter profit. Retrieved from: https://tech.hindustantimes.com/tech/news/breaking-down-lenovo-s-turnaround-as-it-posts-first-quarter-profit-story-GEWeHHVEcjV70eD8nZG0VI.html

Danielle Johnson

Dec 04, 2021

1. How does the policy of the Federal Reserve bank as well as the Central bank of its key market affect the company’s economic growth?

The Federal Reserve is the central bank for the United States. The functions of the Federal Bank are to conduct the nation's monetary policy, stabilize the financial system, be a voice for financial institutions, monitor US dollar transactions, and create consumer protection. (USA FACTS.2021) Investors are less likely to invest when the fiscal policy has overcrowded the economy out of fear that something is wrong. Fiscal policy is government spending on goods and services and taxes collected. The most immediate effect of fiscal policy is to change the aggregate .demand for goods and services. If the government increases its purchases but keeps taxes constant, it increases demand directly. Now, if the government cuts taxes or increases transfer payments, households’ disposable income rises, and they will spend more on consumption. This rise in consumption will in turn raise aggregate demand. (Weil.2018) The government can cause the economy to contract by introducing an increase in taxes or reduction in spending and running an expansionary fiscal policy, thus helping to restore output to its normal level and to put unemployed workers back to work.

The Federal Market Committee impacts the economy through businesses by its goals of increasing employment and maintaining stable prices. By the Federal Bank using their monetary policy, they can affect spending, investment, employment, production, and inflation to steer the government in the right direction. For example, if bank loan interest rates were low, more people would be interested in taking out a loan, which will result in more money being put back into the economy. The ability to affect output by affecting aggregate demand makes the fiscal policy a tool for economic stabilization. For the fiscal policy to stabilize business cycles, it should not be automatic but that does not mean that the lag ineffectiveness does not affect businesses.

2. Effect of fiscal policies of the home country and two key markets on the company.

More money being put back into the economy means consumers are more likely to buy the essential items sold at Walmart and increase their profit. Government spending in the United States can in turn be made a good thing for Walmart. Fiscal policies related to taxes affect the amount of spending people do. Consumers will be more conscious of their budget when taxes are higher. (Brunet.2020) By sales, Walmart is one of the world's largest retailers, so when the fiscal policy affects taxes, it can influence a retailer's operating costs and business expenses.

The effect of outside economic issues or solutions has proven to have a low impact on Walmart; due to their commitment to raise labor wages and maintain low-priced merchandise. The government's investment in building and maintaining stores is more likely to help the economy by providing fresh affordable food to homes, creating job opportunities, and assisting in Walmart's charity drive. (Walmart.2015)

Operating a Walmart in one of their larger markets, Mexico could have their financial performance adversely affected if America suffers from high rates of inflation and currency devaluations. Trading goods from foreign markets to US markets all come with an exchange rate; which is the rate at which one country can be traded for another's currency. Fiscal policy can affect the exchange rates through income changes, price changes, and interest rates. When the government lowers our taxes through the fiscal policy, more money is put into the consumer's hands which means more spending and an increased need for trading. For foreign markets, Walmart's e-commerce innovation increased net sales, making it easier for trading.

Reference Page:

https://usafacts.org/articles/the-federal-reserve-explained/?utm_source=google&utm_medium=cpc&utm_campaign=ND-Economy&gclid=CjwKCAiAwKyNBhBfEiwA_mrUMlbX1ax7OQDgIIgnoEIQHGtW-cvrDdhqJXBJsdw4tBXJv5PBLRZohBoCGKEQAvD_BwE

https://smallbusiness.chron.com/fiscal-policies-impact-retail-business-73966.html

https://www.wsj.com/articles/walmart-sales-rise-even-as-pandemic-wanes-11621338667

https://www.econlib.org/library/Enc/FiscalPolicy.html

https://corporate.walmart.com/our-story/our-business/international/walmart-mexico

maripl1

Dec 04, 2021

Hi Clay, I like that your Milestone 3 about Coca-Cola is very informative. However, I noticed that you did not elaborate of how Federal Reserve or monetary policy affect Coca-Cola company here in United States and its key market, Europe. You explained in detail what the Federal Reserve does and how it supports economic growth, but how does it affect Coca-Cola company when it pertains to high inflation, and unemployment it its home based and in Europe. Coca-Cola Company, which was referenced below gives full detail of their revenue, market shares, and stocks. Even with the coronavirus, Coca-Cola stayed afloat and did well this year. The company itself was not impacted as bad as other companies. Great job on your Milestone 3!

Reference

The Coca-Cola Company. Published 7/21/2021. Coca-Cola Reports Second Quarter 2021 Results. Retrieved from https://www.coca-colacompany.com/press-releases/coca-cola-reports-second-quarter-2021-results

darisam

Dec 04, 2021

Milestone 3: Microsoft Game Studios

Darius Samuel

ECON 230

Regent University

Abstract

Most countries worldwide utilize a central bank whose duties are to carry out a nation's monetary policy and control its money supply. Understanding how another market’s central bank operates will prove its importance for Microsoft Game Studios because central banks have influence on a country’s interest rates and they participate in open market operations which controls the cost of what can be borrowed and lent in a country’s economy. This paper will discuss in detail the actions that central banks like the Federal Reserve take and how their policies influence Microsoft Game Studios during the recent times of COVID-19.

Central Banks: Monetary Policies

Central banks find their worth by being a recourse for their nation. In other words, Central banks are responsible for providing resources when commercial banks run into a supply shortage. Their most important task is to control inflation by providing their countries’ money with price stability. “A central bank also acts as the regulatory authority of a country's monetary policy and is the sole provider and printer of notes and coins in circulation (Investopedia).” In recent times COVID-19 has had a crucial impact on the monetary policies of the U.S. Federal Reserve. With the U.S. economy slowly plummeting late 2019, the Federal Reserve decided to design, develop, and launch within a short amount of time a sequence of innovative facilities to support the flow of credit to households and businesses nationwide.

“The Federal Reserve’s policy actions in response to the COVID crisis can be grouped into four broad categories. In the first category, we would include conventional monetary policy measures such as cutting interest rates, offering forward guidance, and rescaling and restarting programs to purchase Treasury securities and agency mortgage-backed securities (MBS) as well as repurchase agreement (repo) operations (Clarida, pg.2) In the second and third category it provided money directly to households and businesses. Lastly the fourth category gave the Federal Reserve a way to provide incentives to banks who helped support the flow of credit to households and business customers in America. Europe, another key market of Microsoft Game Studios utilizes the central banks as well in countries such as Italy which their bank is called Bank of Italy, Banco of España which is Spain, Deutsche Bundesbank for Germany, Banc Ceannais na hÉireann for Ireland, and the Bank of England for the United Kingdom. Even though each country has its respective central bank they all operate under one main bank called the European Central Bank. The European central bank is the prime component of the euro system and the euro system of central banks as well as one of seven institutions of the European Union. It is one of the world's most important central banks (Kuah, pg. 174) The ECB declares on their website “in the pursuit of price stability, the ECB aims at maintaining inflation rates below, but close to, 2% over the medium term (ECB, pg.1).” This means the ECB sets the inflation rate to a maintain medium to promote enough growth and employment for businesses.

Microsoft Game Studios' home country being the United States they are susceptible to our high tax rates however Microsoft utilizes the policies and rates set by European central banks to increase the total amount of profit received from purchases. If someone were to purchase a game from Microsoft Game Studios in Washington, after paying state taxes, Microsoft would then send their money to a subsidiary in Reno, Nevada where they then send half of the cash to a Puerto Rican entity. “The Puerto Rican company, after paying a 2 percent local tax and accounting for a share of Microsoft’s research costs, passes a portion of the remaining cash to an Irish company (Day, pg. 2). “The Irish subsidiary of Microsoftrecorded a profit of $315bn (£222bn) last year.

The profit generated by Microsoft Round Island One is equal to nearly three-quarters of Ireland’s gross domestic product – even though the company has no employees (Neate, pg 1).” “The company’s profits jumped from just under $10bn in the previous year and compare with Ireland’s 2020 GDP of €357bn ($433bn). Most of the profit - $301.1bn - related to the surplus and assets transferred from two liquidated subsidiaries, Microsoft Luxembourg USA Mobile SARL and MACS Holdings Limited, which the Guardian understands is not taxable under common global tax principles as an “unrealized gain”(Neate,pg.1).” During the recent times, the pandemic has caused the gaming industry to have outstanding numbers when it comes to products sold and profit made from pre-COVID-19 years. With over 2.5 billion players worldwide playing video games has shown a growing strength and bringing people together during the lockdown times and the social distancing period. In the five European countries most affected by the coronavirus emergency Dash Italy, Spain, France, Germany and the United Kingdom, visits and traffic on sites and apps dedicated to gaming increased on average by 19% in chess one week, from 6–12 April(Kuah, pg. 174)

Fiscal Policies

The Covid-19 Pandemic presented new challenges for central banks worldwide. Uncertainties about how long this global shutdown would last and the effect it would have on the global economy forced central banks to prevent potential hemorrhaging. In Microsoft Game Studios home country, the United States, “GDP collapsed at an annual rate of over 30 percent in the second quarter of 2020.” (Clarida,pg.14). To save the U.S. economy, the Federal Reserve had to respond quickly and decisively. “Legislation passed by the Congress in March 2020, December 2020, and March 2021 provided a total of nearly $5.8 trillion in fiscal support to the U.S. economy—about 28 percent of U.S. GDP.” (Clarida, pg.14). The Federal Reserve put into place a plethora of policies new and old to keep the U.S. Economy afloat. However, it was their efforts to put credit into households and to ensure that smaller banks did the same that had the greatest impact on Microsoft Game Studios.

As part of the Cares Act, the Federal Reserve put credit into households through stimulus payouts directly to families and relief packages to states and businesses. State and local relief packages found their way to households by way of bill relief programs. These relief packages also gave states, localities, and businesses the ability to retain more employees. For many households, these policies helped make ends meet. However, there was a conscious decision to provide these stimulus payouts and relief packages to households that were not at risk as well. This was done to encourage spending and to keep the economy afloat. Millions of households found themselves in the position to do some extra spending. At the same time Microsoft Game Studios was putting the finishing touches on their newest gaming console and marketing it to the masses. By the time the Xbox Series consoles released in November of 2020, most Americans had already received one stimulus check and a second was on the way. The consoles sold out almost immediately.

Protecting the economy was a global effort. As such, the Federal Reserve communicated and worked with other central banks. Because, the U.S. dollar is the most used currency for trading worldwide, it is imperative that other central banks have U.S. money to trade, not only with the Federal Reserve but, with each other as well. During the early days of the Covid-19 Pandemic, the Federal Reserve ensured that other central banks had U.S. tender on hand by initiating dollar swaps. The graphs below show previous dollar swaps in comparison to the dollar swaps of the early pandemic days.

(Clarida pg. 14)

While working with the Federal Reserve to secure U.S. money, central banks were also putting in place their own policies for the well-being of their specific economies. The European Central Bank put into place similar policies to those of the Federal Reserve. The central bank also put an emphasis on increasing credit in the household. While the European Central Bank did not offer stimulus payouts, they did focus on lessening the adverse fiscal impact borrowing. They made it so that borrowers will not be denied in the future because of pandemic struggles. This eased the minds of consumers and encouraged them to borrow. This gave consumers the option to request funds in time for the holiday season which, not coincidentally, aligned with the release of Microsoft Game Studios’ Xbox Series consoles.

References

Clarida, Richard H., Burcu Duygan-Bump, and Chiara Scotti (2021). “The COVID19 Crisis and the Federal Reserve’s Policy Response,” Finance and Economics Discussion Series 2021-035. Washington: Board of Governors of the Federal Reserve System, https://doi.org/10.17016/FEDS.2021.035.

Board of Governors Federal Reserve. Board of governors of the Federal Reserve System. (n.d.). Retrieved December 4, 2021, from https://www.federalreserve.gov/supervisory-regulatory-action-response-covid-19.htm.

Day, M. (2015, December 16). How Microsoft moves profits offshore to cut its Tax Bill. The Seattle Times. Retrieved December 4, 2021, from https://www.seattletimes.com/business/microsoft/how-microsoft-parks-profits-offshore-to-pare-its-tax-bill/.

European Central Bank. (2021, February 19). Our response to coronavirus (COVID-19). European Central Bank. Retrieved December 4, 2021, from https://www.ecb.europa.eu/home/search/coronavirus/html/index.en.html.

European Central Bank. (2021, July 8). Introduction. European Central Bank. Retrieved December 4, 2021, from https://www.ecb.europa.eu/mopo/intro/html/index.en.html.

Kuah , A. T. K. (n.d.). Digital Transformation in a Post-Covid World: Sustainable Innovation.

Neate, R. (2021, June 3). Microsoft's Irish subsidiary posted £220bn Profit in single year. The Guardian. Retrieved December 4, 2021, from https://www.theguardian.com/world/2021/jun/03/microsoft-irish-subsidiary-paid-zero-corporate-tax-on-220bn-profit-last-year.

tiarsma

Dec 05, 2021

Replying to

Hello Clay,

Your paper was well formatted and informative. Thank you for elaborating on the function of the federal reserve bank while also touching base on its affect with coco-cola.

Coca-Cola. Steward Redqueen. (2019, March 3). Retrieved December 5, 2021, from https://www.stewardredqueen.com/what-we-do/coca-cola/.

Josiah Caldwell

Dec 06, 2021

Replying to

Hello Darius, I found your post very cool and fun to read as I find companies that specialize in all things digital so interesting. You shed some light of how the monetary policies affect the company as well as some of the effects covid has had on them. Furthermore, I found the facts of what Microsoft would do with their money extremely interesting, was this a way to avoid certain taxes or something? Moreover, you spoke of how covid brought challenges to the central banks worldwide as I feel that was a very good thing to note and speak on. Overall, you did a good job with citing your work and giving us good information to help understand the topics at hand. Thank you for sharing and God bless!

maripl1

Dec 04, 2021

ECON 230: MILESTONE 3

Milestone 3: McDonald’s Corporation

Maria Plumb, Macroeconomics

ECON 230

Dr. Jeff Bajah

December 5, 2021

McDonald’s fast-food chain maybe one of the largest globally; however, it is still highly regulated by monetary, which is the Federal Reserve and fiscal policy in the United States and its key market, China. What is Federal Reserve? Federal Reserve is a monetary system and “central bank of the United States that conducts monetary policy and provides financial services to the U.S. government” (Amadeo, 2021, para. 1). Its role is to regulate and stabilize the economic growth and structure of the country, as well as its U.S businesses in the world. While the United States have the Federal Reserve that provides our financial services, China, on the other hand, does not have a Federal Reserve. However, a central bank is the “People’s Bank of China and does not have a single primary monetary policy tool” (Lee, 2013, para. 1). The monetary and fiscal policy in both U.S. and China can influence the financial growth of McDonald’s. However, unexpected events and changes in economic and fiscal policy can impact McDonald’s stability in both United States and its key market, China.

Federal Reserve and Central Bank Policy

As previously mentioned, the U.S. Federal Reserve does play a role in McDonald’s market stability. It oversees the market situation such as inflation and unemployment due to unpredictable situation such as the coronavirus that affected most businesses, particularly, McDonald’s in the U.S. and China. In 2020, fast-food chains like McDonald’s have shut down their regular operation, as their restaurant and other fast-food chains were empty due to the fear of coronavirus and only allowed drive thru and curbside pick-up in the U.S. As a result, McDonald’s revenue in its home country declined from an estimated $21.3 billion in 2019 to $19.2 billion in 2020 (McDonald's Revenue 2006-2021, para. 1). As the impact of the pandemic worsened, McDonald’s sales declined to 22 percent in the U.S. and “nearly 35 percent internationally” on the first quarter (La Monica, 2021, para. 2). With the dramatic drop in its sales, stocks and revenue, the Federal Reserve stepped in and offered financial support, which McDonald’s franchisees accepted (La Monica, 2020, para. 16) to keep their restaurants operational. The Federal Reserve procured debt, as well as bond purchases from huge companies such as McDonald’s as a mean of “unprecedented rescue” to support the economy’s financial institution and the “corporate America” (Dayen, 2020, p. 2) from the economic disaster resulting from the coronavirus and bailing out investors in the process. In March 2020, the Federal Reserve purchased $6.5 billion worth of McDonald’s debt/bonds. In addition, the Federal Reserve created the Coronavirus Aid, Relief, and Economic Security “(CARES) Act”, which became a law on March 27, 2020, to support the affected businesses, including McDonalds, other companies, as well as providing stimulus to those affected by the coronavirus (Dayen, 2020, p. 3).

Like the Federal Reserve in United States, China’s monetary policy is called the People’s Bank of China (PBOC), which is the central bank of China that serves the same purpose as the Federal Reserve relating economic growth, financial stability, and supporting small and big businesses. However, China’s central bank does not provide cash relief to people and enterprises during hardship. Instead, PBOC lends money to companies to strengthen “liquidity, support and equity financing, and reduce fees and taxes” (Maiello, 2020, para. 2) to keep businesses afloat, help with employment and other essentials that will assist in supply production and keeping workers employed. PBOC acts as a lender and a creditor allowing impacted companies to borrow money without being penalized and loosening up credit rules and requirements, making it easier for businesses to borrow money, most specifically those who uses “stocks as collateral” (para. 3). China’s central bank operate independently and uses several management methods, unlike the U.S Federal Reserve. During the coronavirus pandemic, Chinese shares fell, resulting in Shanghai Composite Index” closed nearly 8% lower. It was reported that goods and services were negatively impacted (BBC News, 2020, para. 1-2), which mean, it had affected McDonald’s goods and services as well, as the supply of materials, and manufacturing slows down, so does the operation of McDonald’s. As the coronavirus spread throughout China, PBOC attempts to help the economy by “lowering short term interest rates” to the borrower (para. 4). McDonald’s would likely have to adapt to China’s implementation of digital currency as China’s central bank prepares to start using digital payments and having McDonald’s participate in the “digital currency trial” (Cheng & Kharpal, 2020, para. 4) that PBOC wants to implement in the year 2020 during the pandemic, allowing the consumers to make digital payments once it officially launched (para. 11). China “instructed McDonald’s to expand its digital RMB payment across the country”, which is the Chinese currency just in time for the 2024 Olympic Games in Beijing and pressed “US companies to put in place a system that would allow “consumers to pay for their products in digital RMB” (Menten, 2020, para. 1-2).

Effects of Fiscal Policy

What is fiscal policy? “Fiscal policy is federal government policy on taxes, spending, and borrowing designed to influence business fluctuations” (Cowen & Tabarrok, 2018, p. 789). Any changes in fiscal policy imposed by the government can impact any businesses and big corporations such as McDonald’s. Change in fiscal policy will affect McDonald’s company’s operations in the United States. However, it will also affect its franchisees globally, including McDonald’s China, as the government regulates spending “to control inflation” and support economic growth (Circle of Business, 2021, para. 1). The role of the government regarding fiscal policy is more to balance the budget “through spending and revenue changes” (Weinstock, 2020, para. 1). Implementation in spending and revenue changes can ease the burden on the impact of recession on people, business operations and its finances as “aggregate demand” contribute to the economy’s downfall, resulting in to increase in unemployment, a decline in revenue, stocks, and investment (para. 3). When hardship occurs under unexpected circumstances, such as recession, “policymakers”, which consist of Congress in the United States, would congregate to assess the seriousness of recession, and find a way to alleviate overall spending. Congress would then implement a plan to increase “government spending” and “decrease tax revenue” to encourage economic growth. An increase in government spending of goods and services, materials to manufacture products will help the economy as people spend more money (para. 5). In the case of McDonald’s, effects would be increase in sales and revenues; however, too much of “expansionary fiscal policy” can also have a negative effect, such as high inflation (para 6). As inflation rise, so does goods and services, discouraging people from spending money.

As far as McDonald’s China, changes in U.S. fiscal policy will impact McDonald’s franchisees based on the fluctuations in interest rates and taxes imposed as talks of trade and tariff between the United States and China continues (Lucas, 2019); this will have a huge impact on the McDonald’s business operation.

Although the United States and China may have different monetary and fiscal policies, they both have the same interest regarding McDonald’s business operational. Changes in both countries’ economic and fiscal policies will affect’s McDonald’s financial outcome.

Reference

Amadeo, K. (2021, October 31). What Is the Federal Reserve? Retrieved from https://www.thebalance.com/the-federal-reserve-system-and-its-function-3306001

BBC News. (2020, February 3). Coronavirus: China shares in biggest fall in four years. BBC. Retrieved from https://www.bbc.com/news/business-51352535

Cheng, E. & Kharpal, J. (2020, April 24). McDonald’s is reportedly part of China’s digital currency trial. CNBC. Retrieved from https://www.cnbc.com/2020/04/24/china-digital-currency-mcdonalds-starbucks-part-of-pilot-program.html

Lucas, A. (2019, August 3). US restaurant chains look to China for sales growth as trade war continues. CNBC. Retrieved from https://www.cnbc.com/2019/08/02/us-restaurant-chains-look-to-china-for-sales-growth-as-trade-war-continues.html

Jia, C. (2021, March 5). China's fiscal policy to be more sustainable in 2021. ChinaDaily https://global.chinadaily.com.cn/a/202103/05/WS6041bb2da31024ad0baad0e2.html

Circle of Business (n.d.). How Government Spending, Fiscal and Monetary Policy Impact on Business https://circlebizz.com/economics/government-spending-impact-on-business/

Cowen, T. & Tabarrok, A. (2018). Modern Principles of Economics. New York, NY. Worth Publishers

Dayen, D. (2020, May 27). How the Fed Bailed Out the Investor Class Without Spending a Cent

Just announcing $4.5 trillion in future spending to support securities markets was enough to keep owners of capital protected from the downsides of the coronavirus. https://prospect.org/coronavirus/how-fed-bailed-out-the-investor-class-corporate-america/

La Monica, P.R (2020, April 8). McDonald's sales have plunged because of coronavirus. CNN. Retrieved from https://www.cnn.com/2020/04/08/investing/mcdonalds-earnings-sales-dividend/index.html

Lee, Y.N. (2018, August 5). China’s monetary policy is complex and shifting. Here’s what you need to know. CNBC. Retrieved from https://www.cnbc.com/2018/08/06/china-monetary-policy-how-pboc-controls-money-supply-interest-rate.html

Maiello, M. (2020, April 7). China’s Economic Response to COVID-19 Has Helped, for Now Retrieved from https://www.chicagobooth.edu/review/chinas-economic-response-covid-19-has-helped-now

McDonald's Revenue 2006-2021 | MCD. Macrotrends. Retrieved from https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/revenue

Menten, J. (2021, October 20). China presses McDonald’s to expand e-currency system before Olympics. California News Times. Retrieved from https://californianewstimes.com/china-presses-mcdonalds-to-expand-e-currency-system-before-olympics/564302/

Weinstock, L.R. (2020, December 3). Introduction to U.S. Economy: Fiscal Policy. Retrieved from https://crsreports.congress.gov/product/pdf/IF/IF11253

maripl1

Dec 05, 2021

Replying to

@tamrwhi Thank you so much for your feedback. I really appreciate it. I see what you mean about starting another paragraph. I did not realized it until after I have already posted my Milestone. I actually have so much information about McDonald's revenue from McDonald's Corporation 2020 Finance Report; however, it is too vast if I have to break it down in comparison to McDonald's China. McDonald's China really do not have that many information as far as their revenue. In my Milestone 1 and 2, I discussed McDonald's revenue before and after the pandemic, as well as McDonald's China.

McDonald’s revenue in United States in 2019 was estimated at $21.3 billion; however, its revenue declined to $19.2 billion in 2020 when coronavirus impacted the entire world. As of 2021, McDonald’s revenue ended at a mere “$22.2 billion, which is an increased of 16.59%” from last year (McDonald's Revenue 2006-2021 | MCD, n.d., p. 1). It is estimated that McDonald's had a revenue at $10.726 billion from franchised restaurants worldwide, with the highest market coming from Asia and Europe in 2020, and a total brand value estimated at almost $130 billion (Lock, 2021).

China, on the other hand, shut down several hundreds of McDonald’s franchisees at the beginning of 2020 (Davies, 2020) and lost some revenue. Per McDonald’s CEO and president, Chris Kempczinski, only roughly 9% of the company's restaurants are in China, but the country represents only about 4% to 5% of sales system wide” (Jones, 2020, para. 5).

Reference

Davies, R. (2020, January 29). McDonald's shuts 300 restaurants in China as coronavirus spreads. The Guardian. Retrieved from https://www.theguardian.com/world/2020/jan/29/mcdonalds-shuts-300-restaurants-in-china-as-coronavirus-spreads

Jones, C. (2020, January 29). McDonald's sales soar but coronavirus leads to closure of hundreds of restaurants in China. USA TODAY https://www.usatoday.com/story/money/2020/01/29/mcdonalds-sales-highest-more-than-decade-company-reports/4602847002/

Lock, S. (August 31, 2021) McDonald’s - statistics & facts. https://www.statista.com/topics/1444/mcdonalds/

McDonald's Revenue 2006-2021 | MCD. Macrotrends. https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/revenue

tamrwhi

Dec 05, 2021

Replying to

@maripl1

Hi Maria,

Thankfully you selected a company with a significant amount of information that can be used in your papers. On the other hand, as you say, that can require discernment in selecting what information to use. You're doing great.

Blessings,

Tamra

michdut

Dec 05, 2021

Replying to

Hello Maria,

I enjoyed reading your Milestone on McDonald's regarding the Federal Reserve and Fiscal Policy. Your Milestone was full of information, and I felt you answered the required questions. I agree with the previous comment about having long paragraphs and feel it would help to break them up. While your Milestone covered the effects of COVID since it has had a significant financial impact on companies, were there any other examples of fiscal policy changes that have affected McDonald's. For instance, in January of 2018, the Republican tax law lowered the tax rate for corporations in the United States from 35% to 21% saving millions for companies like McDonald's. In a press release from McDonald's on March 29, 2018 – McDonald's Corporation announced it would allocate $150 million over five years to its global Archways to Opportunity education program (McDonald's, 2018). The company chose to invest their savings from taxes in the future of their employees. It was interesting to find that many companies chose different strategies for this benefit from this policy change. Again, great work, and I am sure your final product will be great.

Reference

McDonalds. (2018). McDonald's Triples Crew Tuition Assistance for Restaurant Employees, Lowers Eligibility Requirement to 90 Days [Press release]. https://corporate.mcdonalds.com/corpmcd/en-us/our-stories/article/ourstories.triples_crew_tuition.html

michdut

Dec 04, 2021

Coca-Cola Milestone 3

Michael Dutton

Regent University

ECON 230 Macroeconomics

Dr. Jeff Bajah

December 3, 2021

Introduction

After a series of financial panics in the early 1900s, the Federal Reserve System was established to provide central control over our economic system. According to the Federal Reserve Banks mission statement, its duties include supervising and regulating banks, maintaining the financial system's stability, and providing financial services to depository institutions, the U.S. government, and foreign official institutions (FRB, 2021). The Federal Reserve Bank is the central banking system of the United States of America. It often acts to stabilize or counter the market to maintain the country's economic growth. The Federal Reserve Bank's policies impact companies like Coca-Cola when implemented.

Monetary Policy

Monetary policy is when a nation acts by implementing procedures to control interest rates when borrowing money. These acts help ensure price stability and the trust of a nation's currency by modifying the supply or printing of money. "One of the Federal Reserve's most powerful tools is not its influence over the money supply but its influence over expectations, namely its ability to boost market confidence" (Cowen & Tabarrok, 2021, p. 761). Coca-Cola, like many companies, is affected by interest, exchange, and inflation rates. When a country has low interest and exchange rates, companies are inclined to borrow money and invest. While a country has a high inflation rate, manufacturers like Coca-Cola are discouraged from investing or producing.

Fiscal Policies

Fiscal policies are a means by which a government adjusts its spending and tax rates to keep an eye on and persuade its economy. Like the approach that central banks use monetary policy to influence a country's money supply. Before the 1920s, America's government approach to the economy was "laissez-faire." From the 18th century, this economic theory disagreed with the intervention from a country's government in business affairs. A French term that translates to "leave alone." People felt a business and society would be better off with less government involvement. After America participated in World War II, the government decided to take an active role in the economy. Using a combination of monetary and fiscal policies, the government could adjust the cost of money, inflation, and unemployment. One factor that affects these policies is that of the political inclinations and the beliefs of those in power at present. An example of why fiscal policy is essential would be in 2012, when many people worried about the economy facing another recession. This concern resulted from a simultaneous increase in tax rates and cuts in government spending in January 2013. Congress averted this concern by passing the American Taxpayer Relief Act of 2012 (H.R.8 - 112th Congress, 2012).

How Policies Affect Coca-Cola

Being a company that operates worldwide, Coca-Cola is affected when the government of any country decides to change its policies. In 2016, the United Kingdom implemented a sugar tax to help fight child obesity. Soft drink manufacturers like Coca-Cola would be taxed 18p per liter on drinks containing 5 grams of sugar or more per 100 milliliters, or 24p per liter if the glass has 8 grams of sugar or more per 100 milliliters. To counter the sugar tax policy implemented, Coca-Cola shrunk their bottle from 1.75 liters to 1.5 and increased their price by 20p. A half-liter bottle now increased 25% in price due to a policy set by the government. A spokesman for Coca-Cola European Partners, the bottler for Coca-Cola products in western Europe "We have no plans to change the recipe of Coca-Cola Classic so the government's soft drinks tax will impact it" (Wood, 2018).

In 2018, Coca-Cola received a significant corporate tax rate reduction when the U.S. dropped its tax rate from 35 percent to 21 percent. The U.S. corporate tax rate had been 35% for over 28 years. With a 21 percent rate, this gave a competitive edge to the US-based companies against the global effective tax rate of 24%. "With the reforms, Coca-Cola can now transfer cash generated from its global operations back to the U.S. without being subject to further taxation" (Ondieki, 2018). With the savings from the policy change, Coca-Cola chose to invest in the company's long-term growth.

References

Cowen, T., & Tabarrok, A. (2021). Modern principles of economics. New York, NY: Macmillan learning.

“FRB: Mission”. Federalreserve.gov. Retrieved December 3, 2021.

H.R.8 - 112th Congress (2011-2012): American Taxpayer Relief Act of 2012. (2013, January 2). https://www.congress.gov/bill/112th-congress/house-bill/8

Ondieki, A. (2018). Coca-Cola to reinvest tax savings in company, not employee bonuses. The Atlanta Journal-Constitution.

Wood, Z. (2018). Coca-Cola to sell smaller bottles at higher prices in response to sugar tax. The Guardian. Retrieved 3 December 2021, from: https://www.theguardian.com/society/2018/jan/05/coca-cola-to-sell-smaller-bottles-at-higher-prices-in-response-to-sugar-tax

folds

Dec 04, 2021

Replying to

Hi Michael,

All corporations operating within the US market must deal with their regulations of the monetary policy set forth by the United States Federal Reserve Bank, and the Coca-Cola Bottling Company is no exception. Coca-Cola is consumed throughout the world at a rate of 600 million times per day and is continuing to rise. Coca-Cola is seeking to future challenges and constantly seeking new markets and ways to increase its market share in areas where its presence is strong. What areas do you think Coca-Cola could improve in its market value? Are there any Federal reserves or Fiscal policies that are or should be in place to protect Coca-Cola?

According to Gilbert, (2021), Coca-Cola is a sponsor of the UEFA EURO 2020 tournament and a statement made by one of the spokespersons suggested people should drink water instead of Coca-Cola caused their stock dropped 5 billion and their stock prices are trading even lower to close at $54.97 from $56.17 bringing its total market value down by $5.1billion to $236.9 billion from $242 billion.

References

Gilbert, A. (2021). Coca-Cola shares drop $5billion after Cristiano Ronaldo’s gesture to drink water. Retrieved from https://www.usatoday.com/story/money/2021/06/16/coca-cola-shares-dropper-after-christiano-ronaldo-moves-coke-bottles/5293590001/ (para 1-3).

tamrwhi

Dec 04, 2021

Milestone 3 – Ford

Tamra White

Regent University

21FA ECON 230

Professor Jeff Bajah

December 3, 2021

Federal Reserve and Central Bank Policy Effects

Federal Reserve Bank Policy Effects

The Federal Reserve Bank's Federal Open Market Committee (FOMC) uses policy to determine a target federal funds rate, which is the "interest rate at which depository institutions lend reserve balances to other depository institutions overnight" (Federal Reserve Open Market Operations, 2021, para. 1). Varied tactics are utilized to stabilize the rate. The committee initially opted to set a range of "0 to ¼ percent" until such a time the "maximum employment and inflation has risen to 2 percent" and is expected to surpass that percentage consistently (Federal Reserve Press Release, 2021b, para. 4). Current measures cooperate through financial assistance plans for lending to American citizens and companies (Federal Reserve Press Release, 2021b, para. 2).

Adjustments to the federal funds rates create a domino effect in several other types of rates and eventually jobs and production and cost of consumption (Federal Open Market Committee, 2021a, para. 3). The Federal Reserve Bank recently published price changes at nearly a 4 percent increase (Federal Reserve Board Press Release, 2021, para. 2).

Federal Reserve Bank Policy directly affects Ford Motor Company's economic growth in the United States. In its Securities Exchange Commission Form 10-K for the year 2020, Ford Motor Company describes how policy changes to the federal funds rate, lowered "twice in March 2020…by a total of one-and-one-half percentage points," influence automotive economics (2021, p. 33). These changes impact the prices of its products, including the value of vehicle exports (Ford Motor Company 10-K, 2021, p. 33). Ford, therefore, needs to consider its economic policies once adjustments are made to the federal funds rate and the development of its interest rates for Ford credit customers.

Historically, Libor provided a methodology to determine costs for monetary commodities and agreements, but it is being eliminated (Ford Media Center, 2021, para. 4). Due to the transition, the "Alternative Reference Rates Committee (ARRC) established by the U.S. Federal Reserve System and Federal Reserve Bank of New York has recommended SOFR [Secured Overnight Financial Rate] as a replacement for Libor" (Ford Medial Center, 2021, para. 4).

According to Marquit and Curry, the "SOFR provides a robust and transparent method for determining a common benchmark rate based on observed, cleared transactions in the marketplace…by taking into account actual lending transactions between institutions, SOFR will be more reliable than Libor" (2021, paras. 2-3). Several contributors anxiously anticipated the switch to this method for Ford Motor Credit that provides a variety of maturity timelines (Seligson, 2021, para. 11). Furthermore, the SOFR is guaranteed and reduces risk (Marquit and Curry, 2021, para. 16). These calculations directly affect the Ford Motor Credit portion of the company and provide more stability in the company's rates.

Germany Central Bank Policy Effects

The German central bank is the Deutsche Bundesbank. Monetary policies are developed cooperatively with German "counterparties" who ensure collateral is a prerequisite of Germany Central Bank policy (Deutsche Bundesbank Eurosystem, 2021, paras. 1-3).

A review of German net purchases for 2019 equaled €20 billion or $22 U.S. billion. Net assets are allowed to "run for as long as necessary to reinforce the accommodative impact of the policy rates" (Deutsche Bundesbank Eurosystem, 2021, para. 7). In 2020, the interim policy allowed expanded net purchases through the European Central Bank Governing Council, equaling €120 billion or nearly $136 billion. This was further extended due to the "adopt[ion] of a temporary pandemic emergency purchase program (PEPP), the terms and conditions of which allow it to be implemented more flexibly than the Asset Purchase Programmes...[and] has a maximum envelope of €1,850 billion [or $2 billion] and will run until at least March 2022" (Deutsche Bundesbank Eurosystem, 2021, para. 8).

Due to the pandemic, Ford Motor Company is looking at newer ways to remain financially solvent and purchase necessary production items. According to Reuters, in 2020, Ford "applied for 500 million euros ($582 million) of Germany loan guarantees aimed at cushioning the impact of the COVID-19 pandemic" (para. 1). The expanded programs through the government provided opportunities that previously did not exist for the automotive industry.

Fiscal Policy Effects

United States Fiscal Policies

United States fiscal policies proposed in 2021 to battle the pandemic's effects have had on the country include the American Jobs Plan and the American Families Plan (International Monetary Fund, 2021, para. 2). According to the International Monetary Fund, the plans will increase spending and tax expenditures by U.S. $4.3 trillion over the next decade (about 18.7 percent of 2021 G.D.P.)" (2021, para. 3). Target areas of the proposed plans include "infrastructure, research and development, education, childcare, elderly, and the poor" (International Monetary Fund, 2021, para. 4). Pouring resources into the hands of the poor will allow opportunities for those to purchase automobiles from Ford that may not otherwise be able to do so. Additionally, funding infrastructure will benefit Ford Motor Company through improved road systems and direct automotive production.

Over the last few years, some challenges to infrastructure funding have influenced car travel. In the U.S.A. Facts Infrastructure report, private and public automotive travel was down 60 percent from 2019 to 2020 (2021, para. 1). Also, from 2019 to 2020, there was a slight improvement in the condition of federal highways (U.S.A. Facts, 2021, para. 7). The result is decreased automotive sales. According to Centeno, "Ford Motor Company sales decreased by 3 percent to 2,422,698 units during the 2019 calendar year in the United States" (2020, para. 1). Furthermore, for 2020, approximately "25 percent less" vehicles were sold by Ford to dealers and distributors (Carlier, 2021, para. 1). To date, in 2021, Ford has seen a 6 percent decrease in sales compared to 2020, with nearly 1.7 million vehicles sold (Ford Media Center, 2021b, p. 2).

German Fiscal Policies

The pandemic continues to affect the European Union. However, Germany predicts a more robust economy for 2021, with "significant government underspending resulting in a headline deficit of around 6.5% of G.D.P., then around 4% in 2022" (Fitch Ratings, 2021, para. 6). The challenge is increasing liabilities from "59.7% in 2019" to "71% of G.D.P. by 2022" (Fitch Ratings, 2021, para. 6). However, elections and the continued pandemic could change predictions and affect Ford Motor Company in changes to tax or emissions policies.

German fiscal policies consider their impact on the more significant infrastructure concerning the automotive industry and Ford. One such area includes fiscal policies surrounding fuel consumption, including an "annual circulation tax component based on CO2 based on engine size with an exemption for battery electric vehicles" (He and Bandivadekar, 2011, p. 5). The policies drive cleaner consumption while providing financial foundations for automotive technology.

Concerning fiscal policies and oil, Germany's policy efficiency of nonfixed fiscal measures is 98% for petrol and 93% for diesel vehicles (He and Bandivadekar, 2011, p. 7). Also, the implied price signal for petrol is $27/(gCO2/km), and diesel is $36/(gCO2 /km) (He and Bandivadekar, 2011, p. 8). A lower price signal is a good indicator. Comparing Germany's price signals with those in the United States, the implied price signal in the U.S. is $24/(gCO2/km) (He and Bandivadekar, 2011, p . 8). Unfortunately, the CO2 tax is linked with a motor transfer tax (He and Bandivadekar, 2011, p. 11). Still, these fiscal policies encourage and reward Ford Motor Company to produce lower emissions vehicles.

References

Board of Governors of the Federal Reserve System. (2021a). Federal Reserve Board approves fee schedule for Federal Reserve Bank priced services. Press Release. Retrieved from ttps://www.federalreserve.gov/newsevents/pressreleases/other20211201a.htm

Board of Governors of the Federal Reserve System (2021b). Federal Reserve Issues FOMC Statement. Press Release. Retrieved from https://www.federalreserve.gov/newsevents/pressreleases/monetary20211103a.htm

Carlier, M. (2021). Vehicle Sales for the Ford Motor Company 2009-2020. Statista. Retrieved from https://www.statista.com/statistics/297315/ford-vehicle-sales/

Centino, D. (2020). U.S. Ford Motor Company Sales Decrease 3 Percent During 2019 Calendar Year. Ford Authority. Retrieved from https://fordauthority.com/2020/01/ford-motor-company-sales-numbers-figures-results-2019-calendar-year/

Deutsche Bundesbank Eurosystem. (2021). Monetary Policy Framework. Retrieved from https://www.bundesbank.de/en/tasks/monetary-policy/monetary-policy-framework

Federal Open Market Committee. (2021). About the FOMC. Retrieved from

https://www.federalreserve.gov/monetarypolicy/fomc.htm

Federal Reserve Open Market Operations. (2021). Policy Tools. Board of Governors of the Federal Reserve System. Retrieved from

https://www.federalreserve.gov/monetarypolicy/openmarket.htm

Federal Reserve. (2020). 2019-2020 Review: Overview. Review of Monetary Policy Strategy, Tools, and Communications. Retrieved from https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications.htm

Fitch Ratings. (2021). Germany Extends Stimulus; Election to Shape Fiscal Policies. Fitch Wire. Retrieved from https://www.fitchratings.com/research/sovereigns/germany-extends-stimulus-election-to-shape-fiscal-policies-21-05-2021

Ford Media Center. (2021). Ford Credit Issues Private A.B.S. Linked to Alternative Reference Rate. Retrieved from https://media.ford.com/content/fordmedia/fna/us/en/news/2021/06/07/ford-credit-issues-private-abs-linked-to-alternative-reference-r.html

Ford Media Center. (2021). New products, strong inventory make Ford America's top-selling automaker for second straight month; Ford brand SUVs post best October results in 21 years; F-series expands lead; October new vehicle orders hit 77,000; Lincoln brand SUV sales o continue to climb, pp. 1-2. Retrieved from https://media.ford.com/dam/fordmedia/North%20America/US/2021/11/02/2021/-oct-ford-sales.pdf

Ford Motor Company. (2021). 10-K. United States Securities and Exchange Commission.

Retrieved from https://sec.report/Document/0000037996-21-000012/

He, H. & Bandivadekar, A. (2011). A Review and Comparative Analysis of Fiscal Policies

Associated with New Passenger Vehicle CO2 Emissions. The International Council on Clean Transportation. Retrieved from https://theicct.org/sites/default/files/publications/ICCT_fiscalpolicies_feb2011.pdf

Hodge, A. & Lin, L. (2021). Boosting the Economy: The Impact of U.S. Government Spending Plans. International Monetary Fund. Retrieved from https://www.imf.org/en/News/Articles/2021/07/01/na070121-boosting-the-economy-the-impact-of-us-government-spending-plans

Marquit, M. & Curry, B. (2021). SOFR is Coming: What is the Secured Overnight Financing Rate? Forbes Advisor. Retrieved from https://www.forbes.com/advisor/investing/secured-overnight-financing-rate-sofr/

Reuters. (2020). Ford applies for German Covid-19 loan guarantees – Handelsblatt. Retrieved from https://www.reuters.com/article/health-coronavirus-germany-ford-motor/ford-applies-for-german-covid-19-loan-guarantees-handelsblatt-idUSKBN26J1N7

Seligson, P. (2021). Ford's SOFR Loan Is First New Deal to Use Libor's Replacement.

Bloomberg. Retrieved from https://www.bloomberg.com/news/articles/2021-09-09/ford-s-sofr-loan-is-first-new-deal-to-use-libor-s-replacement

U.S.A. Facts. (2021). What does America spend on transportation and infrastructure? Is

transportation infrastructure improving? State of the Union. Retrieved from https://usafacts.org/state-of-the-union/transportation-infrastructure/

folds

Dec 04, 2021

Milestone 3 British Petroleum (BP)

Felicia Olds

Regent University

ECON 230 Macroeconomics

Dr. Jeff Bajah

December 7, 2021

The Federal Reserves, the Central Bank of the United States, provides the nation with a safe, flexible, and stable monetary and financial system (Board of Governors, 2021, page 1, para 1). The federal fund’s rates and interest rates that banks charge each other for overnight loans effectively affect the base rate for the United States and it can cause a ripple across the US and beyond. When the Fed funds rates are low, the US banks can borrow more money from each other while reducing the interest rates that are charged to commercial and retail clients. This can lower the costs to other businesses and consumers who normally respond by borrowing and spending more. The economy grows and ultimately one will see a rise in inflation which will cost funds to be withdrawn from the banks and hopefully receive a better return elsewhere. Which will increase the demands for stocks, bonds, and commodities which can drive the cost of demands higher. Others may look to invest their money overseas which can decrease the demand for the US dollar and lower its demand for other major currencies causing an effect for other foreign countries such as the EU. As their currency increases, it lowers the exports from the US causing them to become more expensive and exports more attractive as it could slow down GDP growth in the EU and other countries to include Germany and the United Kingdom BP’s two key countries. These countries will sell commodities and increase demand which will drive up prices up and improve GDP. When the federal funds rate goes up, banks will borrow less money from each other and improve the interest rates that are charged to commercial and retail clients. This will increase the costs of borrowing for consumers and businesses who will in turn borrow less and save for better returns on deposits with low spending, low economic growth, and the reduction of inflation. Investors may look to sell their investments while seeking to transfer their money back to the US to increase its currency. The economy could increase exports and GDP growth in Germany and United Kingdom.

According to Cowen and Tabarrok “The federal government takes in about $3.6 trillion, or approximately $11,000 for every man, woman, and child in the United States and through three sources—the individual income tax, the Social Security and Medicare taxes, and the corporate income tax—account for more than 90% of the revenue” (page 781, para 1). Looking below the largest revenue is in the individual income taxes followed by Social Security, Medicare, and payroll taxes are required for every person who works in the US pays 6.2% of wages with employee match. The taxes are based on a marginal rate that determines the taxes one would have to pay based on their income. The Corporate income rate has decreased from 35% to 21% as of 2017 (para 2). If the corporate tax rate is cut, it will increase the return to capital overall. A high return to capital will increase the incentive to invest. An increase in investments will make the return to capital in all sectors decline. An increase in investments will cause an increase in demand for workers, which raises wages. The greater the production, the lower the prices. However, a cut in corporate taxes will cut the flow of workers and consumers as the increase is passed on to workers and consumers (para 22).

Quantitative Easing/UK

Quantitative easing is when bonds are bought to lower interest rates on savings and loans. The Bank of England in the UK uses quantitative easing to help keep inflation low and stable; also, to help support consumers’ jobs and income (2021, para 1, & 2). To keep inflation on target, the bank changes the economy’s key interest rate or bank rate. This determines how much interest one will receive on savings and the interest rate paid on loans. By doing this, could affect the amount of spending there is in the economy and help the inflation rate rise or fall. By lowering the bank rate, will boost the economy and meet inflation targets. According to BBC News (2021), In the UK, the inflation rate rose to 4.2% in 2021 which was its highest in ten years.

(Page 1, para 10)

Inflation

There are several reasons for the hike in inflation (page 1, para 6-9):

· Demand for oil and gas pushing up energy prices worldwide. This means the higher bills and the extra costs are being passed on to not only the consumers but businesses as well.

· Shortages of many goods, including building materials, and computer chips, which has caused supply problems price increases. Due to the pandemic, the warehouses and factories shut down plants, businesses could not get the supplies that they needed, workers left the office to work from home, multiple layoffs, businesses shut down permanently, and record number of retirements.

· Government support to businesses during the pandemic- reduced Value Added Tax or VAT for hospitality. Gratuity was and is still automatically added on any type of service rendered. Small businesses were able to apply for loans to stay afloat to make payroll without repayment until the pandemic ended.

· Businesses are struggling to recruit truck drivers and hospitality staff. This is partly due to the pandemic. Several truck drivers refused to travel to other states because of the pandemic in fear of catching Covid and dying. Because of this, everything came to a standstill. There are ships with containers sitting in the water for more than ninety days waiting to be unloaded. The hospitality staff almost became obsolete. Hotels shut down, no workers to clean rooms, no food delivery, or cooks to prepare meals for guests, there was a no travel ban in almost every state and country.

Although the US provided stimulus packages and gave consumers cash to spend to boost the economy. If goods are not purchased while the economy was at a standstill the economy, the supply chain is scrambling to keep up with consumers’ demands for materials, food, fuel, rubber, petroleum, computers, and vehicles. Covid-19 has wreaked havoc on global supply chains and is the key reason why we’re seeing inflationary pressures around the world. Although Covid is still surging and resurging, supply chains are still trying to sort themselves out. Covid has scrambled supply chains, squeezed off international travel, and shut down business and services.

Germany

According to Kirby, “Germany saw its October CPI rise to about 4.5% over 12-months, the highest since August 1993 which caused energy price hikes- which probably won’t change anytime soon and are also pushing prices higher” (2021, para 18). According to the United Nations Food and Agricultural Organization, food prices globally are now at their highest levels in more than a decade. The International Monetary Fund (IMF) states that consumer prices could rise 4.8% globally within the next year. The United Nations has also estimated that high shipping costs could push prices higher by 1.5% feeling the impact of price increases (para 21). According to Pfaffenbach, The Bundesbank warns that “inflation in Europe’s largest economy was likely to stay well above 3% for some time and upcoming wage negotiations should deliver large increases” (2021, para 2). The Bundesbank also known as the German Federal Bank, is the central bank of the Federal Republic of Germany and part of the European System of Central Banks.

Germany’s economy increased in the first half of the year as businesses reopened, however, it slowed down due to the supply disruption and lack of workers. The German central bank stated, “that inflation in Germany could come in just below 6% this month, December before easing next year as a 2020 VAT cut and other temporary factors fall out of the calculation” (para 6).

Fiscal Policy United Kingdom (UK)

Fiscal policy involves changing the level of taxation and government spending to influence the rate of economic growth.The total UK government spending was around £745 billion in 2015, which is 43% of GDP. Of this, £50 billion was on capital spending, and public services such as education and healthcare are 22% of GDP. According to Pettinger, (2017), there are three types of fiscal policies used in the UK.

Expansionary fiscal policy is used to stimulate aggregate demand and boost the rate of economic growth. It involves higher spending, lower taxes, and will result in higher government borrowing. Expansionary fiscal policy will be used in a recession or a period of a negative output gap (para 2). The two major examples of expansionary fiscal policy are tax cuts and increased government spending. Both policies are intended to increase aggregate demand while contributing to deficits or drawing down budget surpluses (para 2).

Deflationary fiscal policy is used to reduce aggregate demand and reduce inflationary pressures. It involves lower government spending and/or higher taxes. It will reduce a fall in government borrowing (para 3). Examples of deflationary fiscal policy are when price levels decline, leading to lower production, reduced wages, decreased demand, and continued price declines, it can ripple through the economy, causing some consumers and companies to default on debt obligations, and Central banks use monetary policy (such as lowering interest rates) to halt a deflationary spiral and spur demand (para 3).

Monetary fiscal policy affects how much prices are rising – called the rate of inflation. We set monetary policy to achieve the Government's target of keeping inflation at 2%. Low and stable inflation is good for the UK's economy, and it is our main monetary policy aim. Examples are buying or selling government securities through open market operations, changing the discount rate offered to member banks, or altering the reserve requirement of how much money banks must have on hand that's not already spoken for through loans (para 4).

FIG 1. (Riley, G. 3:35 min of video)

The above graph shows the government spending in the UK. Notice how social protection, education, and health care are the biggest sources of government spending in the UK and the below graph shows the government spending and tax revenues from the UK government from 1980s until 2021.

Fig 2 (Riley, G. 4:02 of video)

Fiscal Policy United States (US)

Fiscal policy is the legislative actions a government makes to regulate its economy to attain growth and alleviate poverty, usually through spending and taxation (O’Connell & Schmidt, para 1). During the Covid-19 pandemic, the U.S. federal government took an aggressive stance on fiscal policy by inoculating stimulus funds directly to the American people by financing major jobs and programs to keep Americans working while expanding unemployment benefits to protect potentially impoverished U.S. households (para 2). Its primary goal is to help the economy avoid operating at the extremes, for example, a recession or out-of-control economic growth, while stabilizing the business cycle and regulating economic output.

Implementation of the Fiscal Policy

The fiscal policy is implemented through the collection of tax revenues on individuals and businesses, via tax vehicles like capital gains and property taxes, among others, the federal government can steer financial assets to areas of the economy where they’re needed most. Capital gains are either long-term or short-term. Long-term capital gains are from an asset you’ve held for more than one year, and short-term capital gains apply to profits from selling an asset you’ve held for less than a year. Government spending is another implementation. Federal tax dollars are spent on nationwide needs like infrastructure, defense, public works, government employment, subsidies and public health, research, and welfare programs. These implementations are like the UK fiscal policies.

CBO (2021, para 4)

The above chart shows U.S. Federal spending and revenue components for the fiscal year 2020.

Major expenditure categories

Social Security at 1.1 trillion, these benefits are paid to people who are retired or disabled. Medicare at 769 billion, these benefits cover premiums and other offsetting receipts. Medicare is available to people who are 65 or older and certain people who are receiving disability payments from social security.

Discretionary category

Other at 988 billion, these benefits cover federal civilian and military retirement, some veteran benefits, earned income tax credit, SNAP, and other mandatory programs, minus income from offsetting receipts.

Non-defense at 9.14 billion, these benefits cover programs related to transportation, education, veterans’ benefits, housing assistance, and other activities. By spending trillions annually, the government aims to pour more cash back into the U.S. economy and to boost demand for private-sector products and services. Taxes are the primary revenue sources

References

BBC News, (2021). What is the UK's inflation rate and why is the cost of living going up? Retrieved from https://www.bbc.com/news/business-12196322 (page 1, para 6-10).

Board of Governors and the Federal Reserve System, (July 29, 2021). Monetary Policy Principles and Practice. Monetary Policy: What Are Its Goals? How Does It Work? Retrieved from https://www.federalreserve.gov/monetarypolicy/monetary-policy-what-are-its-goals-how-does-it-work.htm (page 1, para 1).

Congressional Budget office. (2021). The Federal Budget in Fiscal Year 2020: An Infographic. Retrieved from https://www.cbo.gov/publication/57170 (para 4).

Cowen, T. & Tabarrok, A. (2021). Modern Principles of Economics, 5th Edition (New York: Worth Publishers, (page 781, page 1, 2, & 22).

Kirby, J. (2021). Inflation isn’t just a US thing. Supply chains are screwing with prices for a lot of the world. Retrieved from https://www.vox.com/2021/11/24/22799217/global-inflation-us-eu-germany-uk(page 1, para 18, 21).

O’Connell, B. & Schmidt, J. (2021). What is Fiscal Policy? Retrieved from https://www.forbes.com/advisor/investing/what-is-fiscal-policy/ (para 1-4).

Pettinger, T. (2017). UK Fiscal Policy. Retrieved from https://www.economicshelp.org/macroeconomics/fiscal-policy/uk-fiscal-policy/ (para 2-4).

Pfaffenbach, K. (2021). Germany’s economy is taking a breather but inflation isn’t, Bundesbank warns. Retrieved from https://www.reuters.com/markets/rates-bonds/germanys-economy-is-taking-breather-inflation-isnt-bundesbank-warns-2021-11-22/ (para 2, 6).

Riley, G. (n,d,) UK Fiscal Policy. YouTube video. Retrieved from https://www.youtube.com/watch?v=NxK6x4830L0&list=RDCMUCe83jLdZ3PuqVwAHe6B3U2A&index=1 (Fig1 3:35 min of video), (Fig2 4:02 min of video).

rachho3

Dec 04, 2021

Hi Carol,

I enjoyed reading your thoughts on Federal policies and how it affects Toyota. I have some ideas that might interest you. How do you feel about Toyota's attempt at making more fuel efficient vehicles? The Prius model has been on the market for nearly 20 years now, but for their standard vehicles like Camry and Highlanders, the fuel economy is just so-so (especially with the large SUVs like the Highlander). I found an article written by Thomas Klier and Christopher Sands of Brookings called Metropolitan Policy Program that goes into more detail about policies aimed at making cars more fuel efficient. "The Department of Energy is administering a $25 billion Advanced Technology Vehicle Manufacturing Loan Program as well as $2.8 billion of stimulus money directed to electrification and next generation battery programs. While substantial, this approach to raise fuel efficiency is targeting a specific technology, electrification, rather than casting a wider net" (Klier & Sands, 2010, para. 8).

Resources:

Klier, T., & Sands, C. (2010, September). The federal role in supporting auto sector . The Federal Role in Supporting Auto Sector Innovation. Retrieved December 4, 2021, from https://www.brookings.edu/wp-content/uploads/2016/07/0927_great_lakes_auto.pdf.

katrhob

Dec 20, 2021

Replying to

Hi Carol-

Great post on your research on federal policies and Toyota. I found a NY Times article by Jack Ewing, Toyota, lagging rivals, outlines plans to expand sales of electric vehicles due to stocks falling as bond yields rise ahead of the Federal Reserve's policy meeting.

The Japanese automaker pioneered hybrid vehicles that use electric and gasoline motors, but it has been slower than rivals like Volkswagen, General Motors and Ford Motor to sell cars that run solely on batteries. G.M. aims to phase out gasoline-powered vehicles in favor of electrics by 2035. Toyota aims to produce 3.5 million electric vehicles by 2030, or about one-third of Toyota’s sales before the pandemic. Toyota will offer 30 battery-powered vehicles by the end of the decade. According to Mr. Toyoda, who has been criticized by environmentalists for the company’s resistance to electric cars, indicated that Toyota is still not ready to go all-in on electric vehicles. The company will continue to sell hybrids and fossil fuel-powered models because not every region has electric vehicle chargers and related infrastructure. Hope this helps and something you'd be interest in in using.

Blessings,

K. Hobbs

caroco2

Dec 04, 2021

Milestone 3

Carol Cook

Regent University

ECON-230 Macroeconomics

Dr. Jeff Bajah

December 3, 2021

Federal Reserve Policies

The central bank of the United States is the Federal Reserve System which has five functions. Those functions are "to promote the effective operation of the United States economy and more generally the public interest" (About the Fed, n.d.). The Federal Reserve handles the country's financial arrangement to advance employment, stabilize cost, and moderate interest rates that are long-term in the economy. The Federal Reserve also promotes balance of the financial system and contains real risk through dynamic checking and monitoring the United States financial system. It fosters installment and repayment framework security and effectiveness through administrations to the financial banking and the U.S. government that work with U.S.- dollar exchanges and installments. It promotes shopper assurance and local area advancement through consumer-focused oversight and assessment, examination and investigation of arising customer issues and patterns, local community financial improvement exercises, and the organization of purchaser laws and guidelines.

The automobile business is exceedingly conscious of interest rate costs. The reason being is that the automobile industry has a lot of obligations. If there is an increase in the interest rates, it will make the debt obligation considerably more costly. If the costs increase, the company would have to produce more sales to maintain their profit. When interest rates are low, sales increase. Low rates help dealers sell more high-end cars to clients, improving the bottom line. When interest rates are increasing, sales and profit can decrease. In the past, automobile corporations had difficulties in making their sales. The companies began loaning money at a higher rate to subprime customers to improve sales. Using this tactic, the sales increase but only for a short period. After time passed, customers started to miss payments, and banks began to repossess cars. The companies then tried to increase sales by selling to third-party groups. So we see that the Federal Reserve can positively impact the growth of the automobile corporation and have devastating effects on a company (MSG, n.d.).

Fiscal Policies

Fiscal policies can affect companies as well as assets. In July 2014, Japan put a new policy into place that increased the sales tax but reduced the corporate tax by 5.6 percent. The primary purpose was to get Japan from under two decades of deflation. Surprisingly, the consumer price index increased 3.4 percent after the implementation in one year and continued from year to year. The index had the quickest growth the country had seen in thirty-two years. That same year Japan had a 1.6 percent GDP growth and a robust capital expenditure. Toyota is the largest holding and the world global sales leader in automobile sales. In 2014 Toyota sold 9.1 million vehicles and was a model of leadership and perseverance because of withstanding natural disasters and recessions. Japan is Toyota's second primary market, representing 26 percent of the unit sales, followed by the United States (Grint, 2014). By cutting the corporate tax, Toyota will save a great deal of money and increase profit. Toyota released a report in November that revenue increased by 36 percent, and the operating income increased from 519.9 billion yen to 1.747 trillion yen. Toyota has increased their revenue with the help of Japan's innovative policies, which includes "using negative interest rates to encourage spending and injecting money into the economy through large-scale asset purchases, a policy known as quantitative easing" (Dooley, 2021).

In the United States, Toyota cut production at five plants. The cut was due to the guidelines that were put into place by the CDC and the spread of Covid in some of the plants. "While the situation remains fluid and complex, our manufacturing and supply chain teams have worked diligently to develop countermeasures to minimize the impact on production," the company said in a statement (Seid, 2021). Despite the fiscal rules and the production cutbacks, Toyota still made a profit. It increased sales by 27.9 percent with the help of the low interested rates that the Federal Reserve put into place because of the pandemic. Toyota has always been one step ahead of all the other automakers, management prepared for changes, and they were successful in execution. Toyota has always been known for its long-lasting cars, dependability, and high-quality designs.

References

Board of governors of the federal reserve system. Federal Reserve Board - About the Fed. (n.d.). Retrieved December 2, 2021, from https://www.federalreserve.gov/aboutthefed.htm.

Inflation? not in japan. and that could hold a warning for ... (n.d.). Retrieved December 2, 2021, from https://www.nytimes.com/2021/07/15/business/economy/inflation-us-japan.html.

MSG Management Study Guide. Interest rates and automobile sales. (n.d.). Retrieved December 2, 2021, from https://www.managementstudyguide.com/interest-rates-and-automobile-sales.htm.

rachho3

Dec 03, 2021

Milestone 3: Apple Inc

Rachel B. Howard

ECON 230

Dr. Jeff Bajah

Regent University

December 5, 2021

Introduction

The Federal Reserve system is the central bank of the United States and was established in 1913 by the Federal Reserve Act. The main function of the Federal Reserve is to support America’s banking system (Federal Reserve History, 2021). The policies of the Federal Reserve system are broken down into monetary policy and fiscal policy. Both policies affect the economic growth of Apple in different ways in the United States and as well another major market, China.

Federal Reserve and Monetary Policy

As mentioned earlier, the Federal Reserve was created in the early 20th century in an effort to stabilize the United States’ financial banking system. A brief description in Modern Principles of Economics says that “the Federal Reserve usually has more influence over aggregate demand than any other institution and shifts in aggregate demand can greatly influence the economy in the short run” (Cowen & Tabarrok, 2020, pg. 733). This essentially explains why and how the Federal Reserve policies affect Apple’s economic growth. For example, if interest rates are lowered, which the Federal Reserve is allowed to do, consumers are more likely to purchase luxury products that they may otherwise abstain from in higher interest times. Consumers feel more comfortable getting loans for large purchases like homes or cars and their leftover funds support smaller purchases such as cell phones and laptop computers.

Monetary policy is the effort put out by the Federal Reserve to uphold employment, stable interest rates, and balanced prices (Federal Reserve System, 2021). Large corporate companies, such as Apple, rely on a stable economy to offer a variety of job opportunities with good benefits and higher wages. The United States has seen increase in prices of goods and services due to the COVID-19 pandemic. This has affected all businesses large and small in regards to employment and having to increase their prices.

Fiscal Policy

Fiscal policy is federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations (Cowen & Tabarrok, 2020, pg. 805). In the United States, fiscal policy directly affects Apple’s economic growth through a sort of “trickledown effect”. Weinstock of Congressional Research Service says that an increase in government spending by either acquisition of goods and services through the private sector itself or transferring funds to individuals who will spend that money themselves, which is most likely the case of Apple consumers (Weinstock, 2021, para. 2).

The People’s Bank of China’s fiscal response to the COVID-19 pandemic has interestingly held at equilibrium. China’s central bank was not quick to increase funding to Chinese citizens, but said they would “loosen their monetary policy as appropriate” (Cheng, 2021, para. 16). The stated goal of this would be to prevent an increase in prices for consumers and businesses.

Conclusion

The actions of the Federal Reserve bank in the United States and the People’s Bank of China have varied between the countries. Both countries’ responses to the COVID-19 pandemic have affected Apple’s economic situation. The United States has seen an increase in prices which will surely have a negative result on Apple’s sales this year. The Federal Reserve’s control over aggregate demand will have an influence on Apple in ways such as interest rate control and unemployment rates.

Resources

Board of governors of the Federal Reserve System. Federal Reserve Board - Monetary Policy. (n.d.). Retrieved December 3, 2021, from https://www.federalreserve.gov/monetarypolicy.htm.

Cheng, E. (2021, October 21). China may be moving toward easy monetary policy, but it will have to tread delicately. CNBC. Retrieved December 3, 2021, from https://www.cnbc.com/2021/10/22/china-may-move-toward-easy-monetary-policy-but-must-tread-carefully.html.

Cowen, T., & Tabarrok, A. (2020). Modern Principles of Economics (5th Edition). Macmillan Higher Education. https://macmillan.vitalsource.com/books/9781319329464

Fiscal policy: Economic effects - FAS. Congressional Research Service. (n.d.). Retrieved December 3, 2021, from https://sgp.fas.org/crs/misc/R45723.pdf.

Wheelock, D. (2021, September 13). Overview: The history of the Federal Reserve. Federal Reserve History. Retrieved December 3, 2021, from https://www.federalreservehistory.org/essays/federal-reserve-history#:~:text=The%20Federal%20Reserve%20System%20is,of%20the%20American%20banking%20system.

rachho3

Dec 06, 2021

Replying to

@tamrwhi Thank you for that resource! It was very helpful and I am adding it to my milestone now. Thanks again for your help!

katrhob

Dec 19, 2021

Replying to

Hi Rachel-

In an article back on March 17, 2021 the Federal Reserve announced the decision to leave its short-term interest rate target unchanged, at near zero. At the same time, the Fed also revised its economic growth and inflation expectations higher. The S&P 500 spiked about 40 points in mid-afternoon trading, before correcting a bit. Apple’s stock also reacted positively to the day’s developments, rising from below $123 per share and erasing most of the day’s losses, which had reached -2.5% at one point. With interest rates staying close to zero for at least another year, Apple’s average $70 million in net interest income over the past three quarters (vs. $380 million in the previous three periods, when rates were higher) will probably remain low for a while longer. But don’t forget the liability side of the equation. Lower rates lead to lower borrowing costs for Apple. Lower debt expenses mean cheaper access to more cash, should the Cupertino company need it. The lower the rate, the more incentivized Apple should be to put its cash to work: whether to build a plant, launch a product, or pay shareholders back.

Hope this adds to what you already have

Blessings,

K. Hobbs

katrhob

Dec 20, 2021

Replying to

Hi Rachel-

Hope this adds to what you already have

Blessings,

K. Hobbs

Drew Aiken

Dec 03, 2021

Tesla’s Global Impact

Drew Aiken

Regent University

Professor Bajah

Tesla is part of the S&P 500 and many of the Federal Reserve’s policy and spending effect the economy as a whole. In a recent article about the market in by US News “Tesla shares jumped 8.5 %, helping lift the S&P 500 consumer discretionary sector by about 1.5%.” This just indicates how influential Tesla is in the US economy so any Federal Reserve policy about the economy heavily impacts Tesla. The Fed often lowers interest rates in order to stimulate the economy, this was seen during the whole COVID pandemic. This lowering of interest rates allows people to borrow more money creating more money in people’s pockets allowing them to spend it. This indirectly effects Tesla because the more money people have the more likely they are to spend it on products like Tesla cars.

The US government is a large supporter in green and nature type iniatives. Tesla could be categorized under a planet saving type company because electric vehicles are saving a lot of issues that people have with gas and pollution due to the current car situation in the United States right now. According to Mercury News Tesla was built on US government money. “Tesla was built on government cash. For years it used government incentives for people to buy electric vehicles. Much of its current profits are thanks to the sale of government regulatory credits to other, traditional automakers, which allowed them to keep making gas-guzzling pickups and SUVs rather than reduce their emissions.” This just shows how important the fiscal policies of the United States really impact Tesla because Tesla would not be around unless if not for these sort of policies guaranteed by the United States government. This market of electric vehicles is one that has the power to long term effect the trajectory of the United States market which is why it it is supported by the US government.

Service, C. N. N. W. (2021, October 28). Analysis: Elon Musk used government money to build Tesla. but he fears a tax on billionaires. The Mercury News. Retrieved December 3, 2021, from https://www.mercurynews.com/2021/10/28/analysis-elon-musk-used-government-money-to-build-tesla-but-he-fears-a-tax-on-billionaires/.

Wall Street Hits Records as Tesla ... - money.usnews.com. (n.d.). Retrieved December 3, 2021, from https://money.usnews.com/investing/news/articles/2021-11-01/futures-hit-new-peaks-in-a-big-week-for-federal-reserve.

folds

Dec 04, 2021

Replying to

Hi Drew,

I agree with you that the more money people have, they are more likely to spend on products, but I do not agree with you on spending it on a Tesla. According to Brinkman, “We expect Tesla is going to have to raise a large amount of capital in coming years to fund its aggressive and capital-intensive plans to transition becoming a mass-market manufacturer – higher interest rates could make this capital more costly” (p 1, para 4). According to Malter & Sprague (2018), Tesla says the company “has succeeded in spite of government subsidies, not because of them” and pointed to competitors receiving more support para 4).

Reference

Chang, S. (2015). Why is Tesla a short idea during the Fed liftoff. Retrieved from https://www.marketwatch.com/story/why-tesla-is-a-short-idea-during-the-fed-liftoff-2015-05-18 (p 1, para 4).

Malter, J, & Sprague, K. (2018). How government policies and taxpayer money have helped Elon Musk and Tesla. Retrieved from https://www.cnbc.com/2018/10/21/how-government-policies-and-taxpayer-money-have-helped-musk-and-tesla.html (para 4).

Danielle Johnson

Dec 04, 2021

Replying to

Hey Drew, thank you for your response to this week's post and your interesting topic of Tesla. I agree that the more money people have the easier it is to spend money on new cars. With the support of the US going green, buying a tesla car is a smarter long term investment. Using the fiscal policy in their advantage to increase sales was a smart tactic for tesla. What are your opinions on how the fiscal policy affects the Tesla Company?

etopeka

Dec 08, 2021

Replying to

Hi Drew,

Wonderful information on Tesla’s government incentives that allowed them to become one of the most profitable companies in the world. The massive economic power Tesla has shown when the government largely provides tax incentives for electric vehicles that primarily benefit an all-electric car company. It is ironic I selected BMW for my paper, labeled as a competitor of Tesla in the car industry. Tesla is ranked most valuable car company in the world in 2021and sold 627,350 car unit in 2021 (Carlier, 2021, para. 1). Conversely, BMW sold only 28,162 electric vehicles in 2020 (Statista, 2021). Tesla has only been around since 2003 but their value is catching up to BMW – a company that has been around since 1916.

A few points to help strengthen your paper would be to expound on details regarding Teslea’s ability to capitalized on Federal Reserve low rates. Display correlations with data and years, when rates where low how did Tesla profit and what where the differences in revenues over years. I think you discussed the fiscal policies of the U.S. government and how Tesla benefited, however, more data on that would provide factual data to support your claim. Overall great job!

References

Statista (2021). BMW Group’s global BMW I series* Vehicles Sales from FY 2014 to FY 2020. In Statista. Retrieved December 07, 2021, from https://www-statista-com.ezproxy.regent.edu/statistics/417011/global-sales-of-bmw-i-electric-vehicles/

Statista (2021). Tesla – Statistics & Facts. Retrieved by Statista:

https://www-statista-com.ezproxy.regent.edu/topics/2086/tesla/#dossierKeyfigures

Antazah Blalock

Dec 02, 2021

Milestone 3

Antazah Blalock

Regent University

Econ 230

Dr. Bajah

12/02/2021

Introduction

The Federal Reserve Board, also known as the Fed, is the world's most powerful financial institution and the United States' central bank. It was created to provide the nation with a safe, adaptive, and stable monetary system. A central bank is a financial institution in charge of setting up and disseminating money and credit within a country or group of countries. The central bank is primarily in charge of money supply and domestic bank reform in advanced economies.

The Federal Reserve's monetary policy objectives are twofold: to promote economic circumstances that contribute to price stability and maximum long-term job creation. The Fed's obligations are further divided into four categories: performs monetary policy in the United States to enhance full employment, stable prices, and reasonable long-term rate of interest; fosters stability of the financial and tries to minimize and consist dangers through close surveillance and involvement in the U.S and abroad; encourages personal financial institution stability of the financial system and screens their effect; and supports monetisation.

How Fed affect Mc Donald’s economic growth

Increases in the cost of living have a far greater influence on the level individuals than they do on higher-income consumers. As a result, low-income establishments such as McDonald's bear the brunt of our government's cost-cutting monetary policies. If low-income people have less discretionary cash to spend on burgers, it's a sign that the Federal Reserve's policies aren't having the expected effect. The Fed Reserve (Fed) sets short-term interest goals, to be more specific. By keeping borrowing costs low, interest rates boost economic growth. Economic growth looks to be a no-brainer on the surface, but it leads to "inflation," which means you'll have to pay more for products and services (Evans, al., 2018).

Higher interest rates, on the other hand, cut borrowing costs while simultaneously lowering inflation. These rates are adjusted by the Federal Reserve in order to keep growth and inflation under control. While growing inflation forces companies to increase employee pay to keep up, many Americans, particularly the elderly, have left the workforce and are no longer able to support themselves. Instead, they augment their income with assets and investments they've accumulated while working. Bond rates are controlled by the Federal Reserve's interest rate, while stock prices adjust for inflation. Bonds pay lower rates of return due to the lower federal interest rate. A sizable chunk of the baby boomer generation is retiring and quitting the workforce.

Many retirees are increasingly relying on fixed-income sources, such as bond income, rather than staking their retirement assets solely on stock market increases. Because fixed-income rates are linked to the Federal Reserve's interest rate, they are the hardest hurt by inflation. Those with fixed income sources have less disposable income since the price of goods and services grows faster than inflation. McDonald's has been seeing a drop in revenue. Reduced interest rates, which were anticipated to aid the economy, may not be having the desired effect (Moessner, et al., 2021)

How fiscal policy affects Mc Donald’s

Fiscal policy is indeed the process by which a country modifies its tax rates and spending in order to impact a country's economy. This policy, which is similar to monetary policy, allows a central bank to impact a state's money supply. These two approaches are used to direct a state's financial goals. This is an explanation of how fiscal policy operates, how it should be administered, and how it impacts different people in the economy. The federal budget determines today's budgetary policy in the United States. Government's spending are laid out by federal budgets priorities for the fiscal year, as well as how it intends to fund those priorities, such as through new or current taxes. The president and Congress work together to put together the budget. The fiscal policies of an economy, even if they are expenditure or taxes, have a direct impact on businesses. On Mc Donald's, fiscal policy can have the following four effects:

Investing possibilities

Private investment and government spending can both generate investment opportunities for firms. This is most obvious during an expansionary policy, when lower taxes allow more money from the government and other sources to flow into the economy. If a balance between demand and pricing is achieved Mc Donald’s my expect to grow and prosper. McDonald's success depends on its global expansion and product mix. SWOT analysis highlights external strategic variables that help in cooperate growth. McDonald's has three key opportunities: developing globe growth, Middle East market growth, and product diversity. Despite its dependency on Western markets, Mc Donald's is expected to prosper and grow in emerging areas like Asia. A market development plan can also be used by the company to begin conducting business in Middle Eastern countries where it has not previously done so. McDonald's could create new goods or enter new markets to meet market concerns. McDonald's SWOT analysis reveals that the company has a lot of room to expand and grow globally.

Slower growth

When demand falls and the equilibrium is disrupted, a contractionary monetary policy may be implemented to prevent inflation. With less money circulating through the economy, firms frequently restrict their expansion and make attempts to stay in the black as a result of higher taxes. McDonald's Corporation has unveiled new activities that will help the company become the world's leading omni-channel restaurant chain. Mc Donald's and its partners offer customers across the world, and the strategy includes revised principles to guide behaviour and actions, as well as growth pillars that capitalize on the company's competitive advantages.

alterations in taxation

Depending on their location, businesses are liable to a range of taxes, including local, state, and federal taxes. Businesses should think about how their state's tax system operates, as well as how it ties to federal budgeting guidelines. Because each McDonald's restaurant is unique due to its location and other circumstances, the following assumptions will be used in our example. A total of $465,000 in Pre-Debt Cash Flow (PDCF), interest expense of $10,000, depreciation and amortization costs of $50,000, G&A costs of $35,000. After deducting the $10,000 in interest, $50,000 in depreciation, and $35,000 in G&A costs from the $465,000 in pre-debt cash flow, we have $370,000 in taxable income (Stoian, et al., 2020)

Unemployment rates

Reduction of unemployment is a fundamental objective of fiscal policy. For example, the country can lower taxes to place more money in the hands of consumers. As a result, individuals may be able to use money, and businesses may see increased demand. Demand may increase, necessitating the completion of additional manufacturing tasks, and businesses can respond by expanding their workforce and hiring more workers. As a result, with the correct fiscal policies in place, a low unemployment rate might gradually grow. According to many McDonald's franchisees, increased unemployment benefits are exacerbating the problem of attracting and employing workers. The National Owners Association (NOA), an independent organization of McDonald's franchise owners, faulted recruitment issues on the "perverse impacts of the existing jobless benefits" in a note to its members.

References

Evans, J. D., & Robertson, M. L. (2018). The effects of the Fed’s monetary tightening

campaign on nonbank mortgage lending. Economics Letters, 171, 164-168.

Moessner, R., & Allen, W. A. (2021). Effects of the Fed’s enhanced swap line with the

ECB on CIP deviations. Applied Economics, 53(10), 1178-1183.

Stoian, A., & Iorgulescu, F. (2020). Fiscal policy and stock market efficiency: An ARDL

bounds testing approach. Economic Modelling, 90, 406-416.

rachho3

Dec 04, 2021

Replying to

Hi Antazah,

Thank you for sharing your research on how the Federal Reserve affects McDonald's revenue. I found your point about the retiring baby boomers very interesting. Those that survive on Social Security only are truly on fixed incomes. Adding to the work you've already done, I found this tidbit of information you may like to include: "Older households are also much more likely to hold long-term assets, whose values are sensitive to changes in interest rates. Thus an increase in interest rates — a shift toward a more contractionary monetary policy — would reduce wealth by more for older than for younger households. This wealth effect in turn leads to lower consumer spending" (Roche, 2019, para. 4).

Resource:

Roche, J. (2019, October). Monetary policy and consumer spending by different age groups. National Bureau of Economic Research . Retrieved December 3, 2021, from https://www.nber.org/digest/oct19/monetary-policy-and-consumer-spending-different-age-groups.

meghjon

Dec 06, 2021

Replying to

HI Antazah,

Nice post this week. I can tell you did research on the effects of the Federal Reserve on McDonald's. I found your post intriguing and well supported, I too found it interesting how you included the effects of the inflation rates from the Federal Reserves on the elderly people . If your McDonald's is anything like mine, there is a morning rush of older people who go there to grab a cheap breakfast and socialize with others and with them being on a fixed income, even the slightest price increase could effect their monthly income from Social Security. The inflation prices take away from what they are already receiving and should the price increase affect them enough, it could take away from the social experiences that they may not get on a normal daily basis. I thought including this in your post really pulled in your readers and connected them to your topic. Good job!

jaylkin

Dec 07, 2021

Replying to

Hello Antazah!

I really appreciate reading all these posts on McDonald's because it gives me ideas on want to add for the final milestone; mine is on McDonald's as well. Your inclusion of different generations such as baby boomers and how the impact is something I would never think to include. My only suggestion for you would be to make "Investing possibilities", "slower growth", alterations in taxation", and "unemployment rates" subheadings rather than headings. It appears they are examples of how fiscal policy impacts McDonald's rather than the beginning of new sections (Purdue Writing Lab, 2021). Great work!

Jayla

References

Purdue Writing Lab. (2021). APA headings and seriation // Purdue Writing Lab. Purdue Writing Lab. Retrieved December 7, 2021, from https://owl.purdue.edu/owl/research_and_citation/apa_style/apa_formatting_and_style_guide/apa_headings_and_seriation.html.

Daphne Johnson

Dec 02, 2021

Hello, Josh

Reading your paper was very interesting and you came across some great points on McDonalds concerning the Central Banks. Operations at McDonalds are 96% operating on drive thru only. I like how the FED’s stepped up and added $2.3bil to the economy, I know I was blessed with a few dollars to support my lifestyle.

China is one of the central markets for McDonalds. The Central Banks and Feds use reserve to make more money. I guess how every you look at the economy in a sense one hand washes the other. We as consumers rely on companies to fare well so we can borrow from Banks and these financial institutes. I never knew how the FED’s and Banks affect the economy and now reading your paper gives little more incite. Like the fiscal policy and how it effects the economy.

The fiscal policy and monetary policies run the economy, as I gathered from the article from the (Circle of Business, 2021). Fiscal policy focused on changing the government spending and taxation process and the monetary policy are influencing the supply of money by controlling interest rates. I enjoyed your post and look forward to reading more, great job.

How Government Spending, Fiscal and Monetary Policy Impact on Business: 2021, CIRCLE OF BUSINESS

Joshua Vonhof

Dec 02, 2021

Week #6: Milestone 3

Josh Vonhof

Dr. Jeff Bajah

ECON 230 — Macroeconomics

21 December, 2021

Milestone #3

Federal Reserve & Central Banks Effect on McDonald’s Economic Growth

Both the Federal Reserve and central banks can make changes and decisions that have far reaching implications on many companies growth. McDonald’s is in no way exempt from this. In the U.S., the Federal Reserve is considered to be the central banking system. And it serves several different, but very important functions.

The first of these functions is conducting “the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy” (About the Fed, 2021, para. 2). This function of the Federal Reserve has become even more important with the spread of COVID-19. In its early stages, the virus caused widespread fear that resulted in a rapid drop in financial markets as well as severe damage to the economy as a whole. With so many people staying home, employment rates dropped drastically along with severe price fluctuations affecting many items. This was certainly the case for McDonalds as well. According to an article by authors Balu and Russ, “About 96% of McDonald’s locations are operating with [only] drive-thru, delivery or reduced seating capacity” (Balu & Russ, 2020, para. 9). With dining rooms being closed and many restaurant operating on limited hours; many locations have had to cut employees or lost them as a result of the pandemic. In response to this, the Federal Reserve “stepped in with a broad array of actions to limit the economic damage from the pandemic, including up to $2.3 trillion in lending to support households, employers, financial markets, and state and local governments” (Cheng et al., 2021, para. 1). Also included among the broad array of actions were temporarily relaxing regulations, direct lending to major corporate employers, and reducing the federal funds rate to name a few. All of this provided McDonald’s with the opportunity to receive funds in order to retain employees and keep their locations operational. Which is incredibly important for a company that relies so heavily on high sales volume. And while it did not protect McDonald’s entirely from the challenges facing a company during this difficult time. The Federal Reserve’s actions helped to serve as a hedge that protected many companies that could have suffered significantly more damage had they not been given additional funds to help keep people employed. Plus, on top of this, access to additional loans with lower interest rates have allowed companies to to get the funds that they need.

The Federal Reserve also “fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government that facilitate U.S.-dollar transactions and payments (About the Fed, 2021, para. 2). This is of vital importance for any company that operates within the United States. Transactions are supposed to be fair to both parties. A win-win situation where the consumer gets the product that they want and the company gets money in return for selling the consumer their products. This is an idea that is even discussed several times in Scripture. Proverbs 11:1 states that, “The Lord detests dishonest scales, but accurate weights find favor with him (New International Version, 2011, Proverbs 11:1). Back then, merchants would use weights to determine the weight as well as the price of a particular product. They could use dishonest weights and measures in an attempt to charge their customers more. This would obviously be considered an unethical business practice. The Federal Reserve helps to ensure not only that the companies are maintaining ethical practices, but also that the customers are not cheating the companies out of the money that they deserve. This is extremely important for a company such as McDonald’s that is constantly looking to expand and grow to new areas. It gives then the confidence that transactions will be well regulated and that they will get the money that they deserve for each transaction no matter where they go in the country.

Finally, while the Federal Reserve does a lot to help these companies, they can also make life more challenging on them as well. It has already been established that the Federal Reserve is in charge of regulating the financial space. And while many of the regulations help to ensure fair business transactions and practices for both sides; these regulations can present challenges for businesses. There are a considerable number of Federal Reserve Regulations that set limitations for banks. There are many times when these “regulations are restrictive, meaning they limit a bank’s activities” (What is the Fed: Supervision and Regulation, n.d., para. 9). This can create problems for McDonald’s as the company often has large portions of money invested into real estate for their numerous locations along with investments into different countries and product ideas. With so much of the company’s resources tied up in these different areas, it is very important that the company can get the funds that they need for other expenses that may arise. This could prove challenging if regulations slow down the process.

In McDonald’s other key market, China, the Central Bank of China has functions very similar to that of the U.S. Federal Reserve. Among the tasks that the Chinese Central Bank is responsible for are monetary management, financial inspection, payment and settlement systems, currency issuance, and fiscal agency functions to name a few (Operations of the Bank, 2021). All of these different functions of the Central Bank can affect McDonald’s for better or worse depending on the decisions that the Central Bank chooses to make. For instance, while the Central Bank of China has managed inflation relatively well, “Inflation rates of developed regions in the world are still generally lower than in China” (Textor, 2021, para. 2). These higher inflation rates are important to McDonald’s because it affects the costs of everything within that market. For instance, food and labor costs, which are two of the largest costs in the fast-food industry will both be significantly higher with higher inflation rates. This could force McDonald’s within the Chinese market to raise the prices of their food or find some other way to cut costs in an effort to remain profitable. The Central Bank of China can impact inflation rates by issuing more currency, or by taking some currency out of circulation.

The Chinese Central Bank is also responsible for monitoring the reserve ratios of the country. Reserve Ratio’s determine “the portion of reservable liabilities that commercial banks must hold onto, rather than lend out or invest” (Kent, 2021, para. 1). As was mentioned previously, McDonald’s has large portions of money tied up in various investments including the vast amounts of real estate that they own and the investments that they have made into the different markets and communities that they are involved in. Pair this with the face that the company is always is looking for new investment and growth opportunities. This puts McDonald’s in a positions where it will have to borrow money at times. The reserve ratio set by the Central Bank of China will affect how readily available and how much the different McDonald’s franchisees and the company as a whole can borrow and use. Thus impacting their ability to make new investments and continue growing the company within the Chinese market.

Effects of Fiscal Policy

Fiscal policy involves “how governments adjust their spending levels and tax rates so they can influence the economy” (What is Fiscal Policy?, 2020, para. 3). Much of the recent U.S. fiscal policy has been devoted to responding to the COVID-19 Pandemic. The United States Government responded to the challenges of this crisis by coming up with an “enormous $5.2 trillion” response which “likely has put the economy on a path to recovery, but it may end up discouraging future spending on other pressing needs” (Romer, 2021, para. 1). Included in this fiscal response were stimulus checks, the Paycheck Protection Program, and additions to the Public Health Fund. All of this certainly helped to pump money back into the U.S. economy, giving people spending money that they may not have had otherwise. This certainly benefited McDonald’s as the company did not lose as much in sales as they could have had this money not been added into the economy. Especially with people having additional stimulus money to spend. The potential downside for the company is that in the near future this could have serious negative impacts as well. One of these negatives that has already begun to come to fruition is a lack of available workers. Many companies are unable to find enough employees because of the stimulus payments along with increased unemployment payments. This makes it difficult for many fast-food companies to keep staff their restaurants, and thus to keep their stores open for their normal hours. This has impacted McDonald’s and other companies sales significantly.

As far as fiscal policy in China is concerned, the country has been more sparing than the United States. According to Evelyn Chang, “China’s monetary policy remains within a normal range” and the country’s leadership has decided that they “would not embark on large-scale, flood-like stimulus” (Cheng, 2021, para. 3). This is certainly a more cautious approach than the U.S. which is giving out money hand-over-foot. And while a more cautious approach will certainly affect companies such as McDonald’s in the short term because there will be less money circulating in the economy short term. It will help protect against inflation in the future and will force more people to remain employed than in the United States. These are two big benefits for McDonald’s within the Chinese market looking forwards. And are big reasons why McDonald’s may look to continuing to increasing their investment and growing their company within the Chinese market.

References

About the Fed (2021). The Federal Reserve. Retrieved from https://www.federalreserve.gov/aboutthefed.htm

Balu, N. & Russ, H. (2020). McDonald’s Global Sales Suffer as COVID-19 Lockdowns Limit Options. Reuters. Retrieved from https://www.reuters.com/article/us-mcdonald-s-corp-results/mcdonalds-global-sales-suffer-as-covid-19-lockdowns-limit-operations- idUSKCN24T1FO

Cheng, E. (2021). China’s Central Bank Keeps the Brakes on Economic Stimulus. CNBC. Retrieved from https://www.cnbc.com/2021/09/08/chinas-central-bank-keeps-the-brakes-on-economic-stimulus.html

Cheng, J. et al. (2021). What’s the Fed Doing in Response to the COVID-19 Crisis? What More Could it Do? Brookings. Retrieved from https://www.brookings.edu/research/fed- response-to-covid19/

Kent, W. (2021). Reserve Ratio Definition. Investopedia. Retrieved from https:// www.investopedia.com/terms/r/reserveratio.asp

New International Version (2011). Bible Gateway. Retrieved from https:// www.biblegateway.com/passage/?search=Proverbs%2011%3A1&version=NIV

Operations of the Bank (2021). Central Bank of the Republic of China. Retrieved from https://www.cbc.gov.tw/en/lp-453-2.html

Romer, C. (2021). The Fiscal Policy Response to the Pandemic. Brookings. Retrieved from https://www.brookings.edu/bpea-articles/the-fiscal-policy-response-to-the-pandemic/

Textor, C. (2021). Monthly Inflation Rate in China October 2021. Statista. Retrieved from https://www.statista.com/statistics/271667/monthly-inflation-rate-in-china/

What is Fiscal Policy? (2020). Its Up to Us. Retrieved from https://www.itsuptous.org/US-fiscal-policy

What is the Fed: Supervision and Regulation (n.d.). Federal Reserve Bank of San Francisco. Retrieved from https://www.frbsf.org/education/teacher-resources/what-is-the-fed/supervision-regulation/

meghjon

Dec 05, 2021

Replying to

Hello Josh,

I thought your paper was very interesting and very supported by your research and understanding of the topics presented. McDonald's is very much affected by the FED and the Central Banks. The monitoring of the finances and the support of the economy is what they are looking at. Luckily for McDonald's, they are successful in having a good amount of support from the economy and while the inflation causes the prices to rise, McDonald's customers will still choose to support the business instead of deciding on eating something at home because of the easiness of ordering and not having to cook. With your response to the Chinese market having lower inflation rates, and possibly being forced to raise the costs in that area too, the point of raising those prices would be to match the costs in the other McDonald's locations. I think it should be a matter of the prices matching the market that they are in, and with the inflation rate being lower in China, the prices should remain the same price instead of raising them because it is in accordance with the economy that they are currently in. Nice post this week.

Josiah Caldwell

Dec 06, 2021

Replying to

Greetings Josh, I loved reading your milestone about McDonalds. I found the quote saying that “96%” of McDonalds locations are switching to drive thru only, and reduced seating inside quite crazy. I work for Doorash and have had to sit in pretty long lines due to this, but I had figured that it was just the local locations not something the whole world was experiencing. It is truly amazing the effect that the pandemic has had on all of us, even corporations like McDonalds. Furthermore, I loved your highlight of Proverbs 11:1 as that is a scripture that I have kept close in my education as it comes up in lots of different situations. Overall, I think that you did a good job with the assignment, you did a good job with highlighting what role the Fed plays in regards to McDonalds. Moreover, you did a good job with showing us how the central bank of China operates in comparison to the United States. Thank you for sharing, God bless!

Christian Bering

Dec 06, 2021

Replying to

Hey Joshua,

Very thorough post this week! I really enjoyed reading it. The section on the federal reserve was very insightful. What caught my attention was that you mentioned that the federal reserve is not only for the oversight of the US economy, but it also fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government that facilitate U.S.-dollar transactions and payments. Apart from that, the federal reserve has to be careful to not overstep its bounds and become too involved in regulating. Thanks for the post and keep up the great work.

Nicolas Arters

Dec 02, 2021

Milestone Three

Nicolas Arters

Regent University

ECON 230

Abstract

Central banks are used in most countries worldwide. These banks have a monopoly on the production of money and the policy of these central banks can have an enormous effect on a country’s economy. Due to the power central banks hold, it is very important for Samsung and other corporations to be attentive to the actions that these banks take. This paper will first and foremost discuss the actions central banks can take and the effect they can have. Then, the effect these actions have on companies such as Samsung will be discussed. Following this, the paper will cover some of the actions taken by not only the Bank of Korea, but of the Federal Reserve in the United States which is a key country for Samsung. In conclusion, a few possibilities for the future of central banking will be discussed.

Central Banks and Their Actions

Central banks have been a central part of countries’ money supply for hundreds of years. These institutions primarily focus on ensuring the healthy circulation of money throughout a country. This can be accomplished by successfully completing many objectives and duties. Central banks also are charged with monitoring general banking, setting the tone for interest rates, and selling or taking back government bonds in circulation. Central banks also set the monetary policies of a country which, depending on the decisions that are made, can have a drastic impact on the profitability of a company. Every choice that a central bank makes, does have a significant impact on the country on a macroeconomic level. These choices do not just have an impact on a government or foreign company invested in the country, these choices have an impact on the citizens of a country as well. For instance, if the Federal Reserve raises its interest rates, this can lead to higher interest rates for credit cards, mortgages on homes, and car loans. These higher interest rates can lead to reduced consumer spending or purchasing power, which absolutely affects the profit margin and overall revenue of companies. For a company such as Samsung, who is active in many different countries around the world, it is very important to pay close attention to the Central Banks in key market countries and its home country.

The Bank of Korea

This paper will cover the subject of Samsung and Central Banks through discussion of the interest rate changes that have been trending worldwide. As previously stated in this paper, the monetary policy on interest rates has a significant impact on overall consumer purchasing power and spending in economies. The trends that are seen in central banks worldwide have been consistent across the board due to the pandemic. The trend is that central banks have been changing their monetary policy to lower interest rates. For the Bank of Korea in South Korea, this trend is true as well. We have seen the Bank of Korea lower its interest rates so that more money can be in circulation, hopefully providing assistance to boost an economy in need. According to Kwanwoo (2021), “South Korea's central bank on Thursday kept its policy rate unchanged at a record-low 0.50%, amid concerns about the resurgence of local Covid-19 cases weighing on the economy.” Even as the economy began to recover, the central bank still held onto its all-time low policy rate. This all-time low is excellent for a company such as Samsung. This provides Samsung with the opportunity to borrow more money to hire more employees and expand operations more than before. However, an all-time low policy for interest rates can also lead to hyperinflation if left unattended. However, the Bank of Korea has not been negligent and turned a blind eye to possible hyperinflation. In an article published later in the year, it is seen that South Korea’s central bank raised their interest rates slowly over different times. According to Kwanwoo (2021), “The Bank of Korea increased its benchmark seven-day repurchase rate by 0.25 percentage point to 1% on Thursday. In August, South Korea became the first developed economy in Asia to raise rates since the start of the Covid-19 pandemic, nudging up from a low of 0.50%.” Taking the interest rate raising slow ensures that the circulation of money will not be changed drastically and hurt an economy not ready for such a strong jump. For Samsung, it also gives them time to adjust to new rates and plan their monetary decisions around possible higher rates.

Federal Reserve Decisions

The United States is a key market country for Samsung. Not only is there a similar trend of lowering interest rates seen with the Federal Reserve, there is also a similar trend of the climbing of interest rates now that the pandemic is subsiding. According to VOA (2021), “The U.S. Federal Reserve signaled Wednesday a sooner-than-expected increase in interest rates as the COVID-19 pandemic continues to recede and inflation continues to rise.” As seen with South Korea, our central bank seeks to combat the rising inflation due to the amount of money currently in circulation. For Samsung, their profitability should not be affected negatively in a drastic way as long as the interest rates are not raised too high too quickly. I believe Samsung will continue to hold onto its strong profits even as the interest rates slowly balance back to their normal rates. These higher interest rates mean less consumer purchasing power, although I am sure Samsung has been prepared for these raised rates.

References

Jun, K. (2021). Bank of korea holds rate steady at record low. WSJ Pro.Central Banking, Retrieved from http://eres.regent.edu/login?url=https://www.proquest.com/trade-journals/bank-korea-holds-rate-steady-at-record-low/docview/2512573957/se-2?accountid=13479

Jun, K. (2021). Bank of korea raises rates again with an eye on inflation; central bank seeks to dial back stimulus brought on by the pandemic. WSJ Pro.Central Banking, Retrieved from http://eres.regent.edu/login?url=https://www.proquest.com/trade-journals/bank-korea-raises-rates-again-with-eye-on/docview/2601696465/se-2?accountid=13479

us central bank signals sooner-than-expected interest rate increase. (2021, ). States News Service

jaylkin

Dec 07, 2021

Replying to

Hello Nicolas,

Your post was very insightful! I appreciated the depth and textual evidence you used to back up your claims. I honestly knew nothing about central banks or the difference between them until this past week. I agree with your point that South Korea is attractive to companies, especially those in the United States. In comparison to China and other Asian countries, South Korea is more business-friendly and their policies reflect that (Ease of Doing Business in South Korea, 2021, p. 2). I think you articulate yourself well and are very thorough in your work. My only critique would be to make sure an abstract is necessary before submitting to avoid going over the page count. Nice Work!

Jayla

References

Ease of doing business in south KOREA2021 DATA: 2022 forecast. Ease of Doing Business in South Korea | 2021 Data | 2022 Forecast. (2021). Retrieved December 7, 2021, from https://tradingeconomics.com/south-korea/ease-of-doing-business#:~:text=Ease%20of%20Doing%20Business%20in%20South%20Korea%20is%20expected%20to,according%20to%20our%20econometric%20models.

crissau

Dec 07, 2021

Replying to

Nicolas,

This is a very informative and well-written paper. Your knowledge of the research is reflected well. One thing I noticed is that there is no citation in the body of the work, only references at the end. Each reference must have a citation in the body. Owl.purdue.edu has a great online writing lab if you ever have questions on how to cite works. Also, when writing an APA paper be sure to use a hanging indent in your references. I once had a professor count off points for not doing it. Like I said this is a great paper, I just do not want you to get points deducted for APA formatting mistakes.

etopeka

Dec 08, 2021

Replying to

Hi Nicolas,

You provided some good insight regarding the macroeconomic impacts of Central banks and the Federal Reserve as Samsung’s bottom line can vacillate. The details you mentioned regarding, the Bank of Korea specific to historic low interest rates – possible leading to hyperinflation, the first rate increase during COVID-19, and potential impact on Samsung are all critical to Samsung.

Just a few points of improvement to help with your paper. An abstract is not necessary in our Milestone assignments and really should be reserved for large papers. An introduction would be a more appropriate title. Evidence of how the Bank of Korea rates have directly affected Samsung would provide a stronger academic research aspect to the paper. For instance, the bar graph below according to Statista (2021), Samsung electronics global revenue was $200.61 billion US in 2020 – only a slight decrease from 2019 which was 206.21 billion US. This could be attributed to the low interest rates the Bank of Korea directed to help with cash circulation during the pandemic.

Lastly, under the Federal Reserve Decision section – it could have been some data presented to support how the United States is a key market for Samsung. According to Vailshery (2021), in 2020 “the Americas…has a 33 percent share” (para. 1), of sales revenue compared to Korea at 16 percent (Vailshery, 2021, para. 1).

References

Statista (2021). Samsung Electronics Share of Revenue From 2011 To 2020, by region. In Statista. Retrieved December 07, 2021, from https://www-statista-com.ezproxy.regent.edu/statistics/237092/share-of-revenue-at-samsung-electronics-by-region/

Statista (2021). Samsung. (February 18, 2021). Samsung Electronics' global revenue from 2005 to 2020 (in trillion South Korean won/billion U.S. dollars) [Graph]. In Statista. Retrieved December 08, 2021, from https://www-statista-com.ezproxy.regent.edu/statistics/236607/global-revenue-of-samsung-electronics-since-2005/

Clay Gould

Dec 01, 2021

Milestone 3: Coca-Cola

Clay Gould

Regent University

Abstract:

In this paper, I will talk about how the policy of the Federal Reserve bank (Monetary policy) as well as the Central bank of its key market, affects the company’s economic growth. I will also talk about the effects of fiscal policies of the home country (United States) and one key market (Europe) on the company and its profitability.

Monetary Policy:

Monetary Policy is the policy of the Federal Reserve bank. According to the Board of Governors of the Federal Reserve System, “Monetary policy in the United States comprises the Federal Reserve’s actions and communications to promote maximum employment, stable prices, and moderate long-term interest rates” (BGFRS, 2021). The primary tool the Federal Reserve uses to conduct monetary policy is the federal funds rate. The Modern Principles of Economics textbook defines the Federal Fund rate as “a short-term interest rate that is largely under the control of the Federal Reserve” (Cowen & Tabarrok, 2021, p. 749). Changes in the federal funds rate influence other interest rates that in turn influence borrowing costs for households and businesses as well as broader financial conditions. The European Central Bank (ECB) manages monetary policy for European countries. According to the European Commission, “the ECB aims to keep price inflation in the euro area below but close to 2% over the medium term. This 2% inflation target is considered optimal for promoting growth and employment” (European Commission, 2021, p. 5).

According to the Board of Governors of the Federal Reserve System’s 2021 Monetary Policy Report, “To avoid sustained periods of unusually low or high inflation, a fundamental aspect of the Federal Open Market Committee's (FOMC’s) monetary policy framework is for longer-term inflation expectations to be well anchored at the Committee’s 2 percent longer-run inflation objective” (BGFRS, 2021, p 4). Over the past 3 years, since inflation rates have been on the rise, the Federal Open Market Committee has decided to implement a monetary policy that contains the fluctuation of the inflation rate. Page 35 of the 2021 Monetary Policy Report states that “Monetary policy abroad remained accommodative, as central banks focused on supporting growth and viewed the recent rise in inflation as transitory” (BGFRS, 2021, p 35). “the Federal Reserve has continued to expand its holdings of Treasury securities by $80 billion per month and its holdings of agency mortgage-backed securities (MBS) by $40 billion per month” (BGFRS, 2021, p 39). This helps to support the flow of credits to businesses and individuals and will remain in effect until significant progression is made to the goals of maximum employment and price stability.

Europe is Coca-Cola’s key market. Europe’s Economic and Monetary Union (EMU) is an organization that is set in place to “support sustainable economic growth and high employment through economic and monetary policy” (European Commission, 2021, p. 1). There are four main economic activities that stem from this. They include “implementing an effective monetary policy for the euro area with the objective of price stability, coordinating economic and fiscal policies in EU countries, ensuring the single market runs smoothly, and supervising and monitoring financial institutions” (European Commission, 202, p. 1).

Fiscal Policies:

A statement from Coca-Cola’s Great Britain tax report from 2020 notes that:

The Company’s business activities around the world incur a substantial amount and variety of business taxes, including corporate income taxes, customs duties, excise taxes, stamp duties, employer portion of payroll taxes, and non-creditable VAT and GST taxes, among others. In addition, we collect and remit other taxes such as employee payroll taxes and creditable VAT and GST taxes. The taxes we pay and collect represent a significant part of our economic contribution to the countries and communities in which our products are sold. (Coca-Cola Great Britain Tax Policy, 2020, para 5-6)

In 2020, Coca-Cola paid €3.8 billion in taxes in Europe, which indirectly employed 374,222 people, and in turn, brought more than 1.6 million customers to the company (Coca-Cola Company Financial Statement, 2020, p. 19). The company also stated, “Finally, taxes paid by us as well as by our suppliers and trade partners make an important contribution to the fiscal budgets of governments in the markets in which we operate” (Coca-Cola Company Financial Statement, 2020, p.18).

Coca-Cola has been accused of packing profits in countries with lower tax codes to avoid the US higher tax rates. “Companies with a single corporate structure are supposed to allocate profit between the parents and a foreign subsidiary…” (Rubin, 2020, para 10). A US tax court judge ruled that Coca-Cola will owe money from 2007 to 2009 for packing profits in Brazil, Ireland, and Egypt (Rubin, 2020).

The tax rates for the Coca-Cola Company differ from the US Federal income tax rate of 21%, due to the “tax impact of significant operating and non-operating items, along with the tax benefits of having significant operations outside the United States and significant earnings generated in investments accounted for under the equity method, both of which are generally taxed at rates lower than the statutory U.S. rate” (Coca-Cola Company income tax quarterly report, 2020, section 13).

In 2020 the Federal Reserve spent $428 million buying debt in individual companies in the first wave of its corporate bond-buying in response to the coronavirus. The Federal Reserve spent $6.6 million on Coca-Cola debt (Sardana, 2020). The Coca-Cola Company also sold $9.5 billion worth of euro-denominated bonds in 2015, which makes it the largest sale by a U.S. issuer ever (Heller, 2015). Mike Cherney from the Wall Street Journal stated that “selling bonds in euros makes sense for companies such as Coca-Cola Co. that have large international footprints, because it allows them to better match liabilities with revenues in the same currency” (Cherney, 2015, para 1). Cherney also noted that “companies can also lower their borrowing costs by selling to a new set of buyers” (Chernery, 2015, para 4).

In an interview with former Coca-Cola CEO, Muhtar Kent, he talks about the disadvantages Coca-Cola and other US-based companies face regarding tax policies. Kent states:

Today, most OECD capital-exporting nations have a territorial tax system for their international companies -- countries such as Australia, Britain, France, Germany, Switzerland, and 21 more. The U.S. is part of a shortlist of countries that actually have a worldwide system in the way it applies tax rules to its international business and gets to a quasi-level playing field through a system called deferral. (Rubenstien, 2010, Para 11)

In other words, while foreign companies get taxed only by the country in which they operate, US-based companies get taxed in foreign countries with which they conduct business, and then the US taxes those profits if the company decides to bring those profits back to the US. Kent also states that “Under proposals now being considered here in the U.S., the benefits of deferral would be further restricted to put U.S. companies at an even greater disadvantage versus their foreign competitors operating under territorial tax systems” ( Rubenstein, 2010, para 14). This poses a clear disadvantage for Coca-Cola and other US companies. With one of the highest corporate tax rates in the world, and operating under a system of foreign income tax that carries a heavier burden than that of any other country, the future of American businesses is on the line.

References:

Cherney, M., & Cox, J. (2015, February 26). Coca-Cola sells $9.5 billion in Euro-denominated Bonds. Retrieved November 29, 2021, from https://www.wsj.com/articles/coca-cola-sells-9-5-billion-in-euro-denominated-bonds-1424992985

Coca-Cola Company statistics and Facts. (2021, October 06). Retrieved November 18, 2021, from https://market.us/statistics/food-and-beverage-companies/coca-cola-company/

Cowen, T., & Tabarrok, A. (2021). Modern principles of economics (4th ed.). Macmillan learning.

Heller, M. (2015, February 27). Coca-Cola joins Euro Bond Rush. Retrieved November 27, 2021, from https://www.cfo.com/capital-markets/2015/02/coca-cola-joins-euro-bond-rush/

Rubenstein, D. (2010, September 8). Archived content. Retrieved November 28, 2021, from https://www.businessroundtable.org/archive/media/news-releases/remarks-by-ceo-muhtar-kent-on-trade-and-global-competitiveness

Smith, D. (2021, September). Rethinking the role of Bonds - Janus Henderson Investors. Retrieved November 28, 2021, from https://www.janushenderson.com/en-gb/investor/article/rethinking-the-role-of-bonds/

Josiah Caldwell

Dec 06, 2021

Replying to

Hello Clay, I enjoyed reading your post about Coca-Cola. I think that you did a great job with analyzing the monetary policy, you gathered some good information from Cowen and Tabarrok, the Board of Governers Federal Reserve System as well as the European Commission. I think that the resources you gathered really helped bring your points across and bring more understanding. Furthermore, I found it so intriguing as to how you found Great Britain’s tax reports, as I have struggled to find such resources like that in my research. I think that you overall did a great job with this milestone. Thank you for sharing, God bless!

Christian Bering

Dec 06, 2021

Replying to

Hey Clay,

I really enjoyed reading your discussion post this week! What stood out to me about your post was your thoroughness and effect that the monetary policy has on Coca Cola. A trend that I’ve seen is that over the past three years is that inflation rates have risen to an unusual level that is negatively affecting the US economy. The central bank can decide to get highly involved and intervene by lessening the amount of money circulating, or they can choose to be more hands off and let the economy run more independently. In your opinion, do you think that the federal reserve and the central bank are too involved in the oversight of the US economy? Thanks for the post and keep up the great work!

mattsherry

Dec 06, 2021

Replying to

Clay, your description of the Monetary policy and its effect on the multinational corporation Coca-Cola was exquisite. I am very intrigued by your detailed research of fiscal policies for the company in Great Britain. You indicated that the European Central Bank or the ECB attempts to maintain a level 2% inflation target because it is "optimal for promoting growth and employment." This percentage of inflation has a considerable effect on the received income and operations of Coca-Cola. An article written by Deeanna Merchan of Treehozz.com states that "in 11 years, the price of an identical bottle of Coca-Cola has doubled in price (Merchan 2020)." As Inflation percentages continue to raise the price of identical items may do the same as this example; as you stated, The Federal Reserve/The Central bank does its best to maintain this percentage at an economically healthy value. Just as the nation of Great Britain, the United States desired Inflation percentage is 2% (Inflationdata.com 2021). This percentage constantly fluctuates and has many controllable and uncontrollable factors that affect it. An example of an uncontrollable factor would be a worldwide pandemic that affects many businesses' operations. A controllable factor committed by the Central bank of a nation would be managing tax rates on companies within their region of control. Coca-Cola continues to be a significant presence in their key market of Europe and the United States.

References

How does inflation affect coca cola? (n.d.). Retrieved December 6, 2021, from https://treehozz.com/how-does-inflation-affect-coca-cola#:~:text=Economic%20Forces%20Inflation%20increases%20cost%20of%20production.%20Due,less%20favourable%20profit%20margin.%20Explore%20more%20on%20it.

McMahon, T. (2021, November 10). What is quantitative tightening? What is the Current U.S. Inflation Rate? Retrieved December 6, 2021, from https://inflationdata.com/Inflation/Inflation_Rate/CurrentInflation.asp?reloaded=true#/.

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