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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).

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