ECON 230: Milestone 3 posts

Milestone 3

Gregory Churchill

Regent University

ECON 230 Macroeconomics

Professor Bajah

24 April 2022

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?

Banking profitability has an intimate relationship with GDP growth rate because banking revenue comes primarily from transaction fees and interest payments on loans from consumers and corporations. “In theory, real GDP growth [positively affects] banking performance through three mains channels: net interest income, loan losses improving, and operating costs” (Combey & Togbenou, 2017). A higher GDP implies lower unemployment and increases in loan drafting and consumer deposits. As a result, banks will have more loans to collect interest on and fewer consumers defaulting on existing loans. The relationship between a banks’ operating costs and GDP growth rate is ambiguous, although it follows that with an increase in banking activity, more banking transactions per hour results in lower operating costs.

The Federal Reserve Bank, or the “Fed”, is responsible for conducting national monetary policy, supervising and regulating banks, maintaining stability of the financial system, and providing certain financial services (The Fed - What Is the Purpose of the Federal Reserve System?, 2016). The US Federal Reserve Bank is the central bank of the United States, JP Morgan’s key market, and influences private bank interest rates using open market operations by buying and selling bonds to affect the money supply (Cowen, Pg. 738). JP Morgan Chase must adjust interest rates according to the money supply controlled by the Fed. Another factor that affects interest rates, and consequently profitability, of JP Morgan is the inflation rate. “Higher interest rates are set by Central Bank to control inflation. With higher interest rates, borrowing costs are more and hence consumers save more rather than spending which slows the economy and decreases inflation” (Thakur, 2018). A lower inflation rate means lower interest rates, and reduced profitability for JP Morgan. Another effect of low interest rates is that it encourages consumers to borrow more, which will increase profitability, especially when interest rates return to higher levels.

1. What is the effect of fiscal policies of the home country and two key markets on the company?

When talking about international business, one of the ratios to keep in mind is the exchange rate between the home country and the country business is conducted in. “A lower exchange rate promotes competitiveness of firms because goods manufactured prices at home decline and foreign demand raise. As a result, loans and deposits increase as well as banks’ profits. But a lower exchange rate may also reduce domestic consumer purchasing power, as imported goods become more expensive. This situation may increase loans losses and may have negative effects on bank’s profitability” (Combey & Togbenou, 2017).

JP Morgan is headquartered in New York City but operates globally. The two largest markets that JP Morgan conducts business in internationally are Europe (excluding the UK), and Japan. In 2017 the US lowered the corporate tax rate from 35% to 21%, which improved profitability of all companies based in the US. The benefits of a corporate tax cut don’t end with corporations, “Some of the gains from a corporate tax cut will flow to workers and consumers” (Cowen, Pg. 785).

When a company operates in many countries simultaneously taxes can get messy. JP Morgan earns roughly 5% of their income from Japan, where they are required to by corporate taxes on their earnings made within Japan. “A foreign corporation with a permanent establishment (PE) in Japan is liable for corporate income taxes only on the income attributable to the PE” (Japan - Corporate - Taxes on Corporate Income, 2019). JP Morgan’s largest market outside of the US is Europe (excluding the UK) at 12% of the company's market share. Europe consists of many countries and tax codes. A tax cut, or hike, in another company will affect JP Morgan’s profitability by the percentage of income from that country.

References

Combey, A., & Togbenou, A. (2017). The Bank Sector Performance and Macroeconomics Environment: Empirical Evidence in Togo. International Journal of Economics and Finance, 9(2), p180-188. https://doi.org/10.5539/ijef.v9n2p180

Guide to the Markets | J.P. Morgan Asset Management. (n.d.). Am.jpmorgan.com. https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/

The Fed - What is the purpose of the Federal Reserve System? (2016, November 3). Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/faqs/about_12594.htm

Thakur, M. (2018, November 26). Inflation vs Interest Rates | Top 5 Valuable Differences To Learn. EDUCBA. https://www.educba.com/inflation-vs-interest-rates/

Japan - Corporate - Taxes on corporate income. (2019). Pwc.com. https://taxsummaries.pwc.com/japan/corporate/taxes-on-corporate-income

Week 6: Milestone 3

Joseph Franzese

Dr. Bajah

ECON 230: Macroeconomics

27 April, 2022

Federal Reserve Bank Policies

The Federal Reserve Bank, established in 1913 by the Federal Reserve Act, is the central bank of the United States. The Federal Reserve controls the money supply and does so using Open Market Operations (OMO’s) and paying interest on reserves (Cowen & Tabarrok, 2015). The Federal Reserve controls interest rates through the buying and selling of bonds. When bonds are bought, their price increases and the interest rates decrease. This stimulates the economy as there is a higher supply of money. Selling bonds produces the opposite effect. The Federal Funds rate was kept below 0.5% for a number of years after the 2008 financial crisis in an attempt to stimulate the economy. When the Fed pays interest on reserves, it can regulate rates and the money supply independently of each other as they are typically tied closely (Cowen & Tabarrok, 2015). A current issued faced by the Fed is the rising inflation rate, which is currently at 8.5% which it is addressing through the raising of interest rates (Trading Economics, 2022).

The Bank of Korea Policies

As LG is based in South Korea, the Korean central bank also matters here. The Bank of Korea is the South Korean equivalent of the Federal Reserve, and has many of the same functions, most notably the control on interest rates and money supply. South Korea is currently battling inflation which is at 4.1% (Trading Economics, 2022). In response to this and the Russian-Ukrainian war, the Bank of Korea raised rates to 1.5% from 1.25% with plans of increasing the rate further to 2% by the end of the year (CNBC, 2022).

Impact on LG’s Profits

Being a well-established giant in the Korean economy, LG is not as impacted by loan interest rates and availability, as it is not as concerned with survival in the market as a small business. Small businesses, however, will likely struggle more as they rely on loans heavily to get themselves on their feet and secure a spot in the economy. LG’s products are also not loan based. While consumers typically seek loans for a car or a house, they rarely seek out loans to purchase a TV or refrigerator. This means that attainability and interest rates on loans should not have a strong impact on LG’s profits, as they are well-established and are not participating in a market that relies heavily on consumers seeking loans. This is true in Korea, the United States, and all countries in which LG’s products are sold.

Key Markets Affected by Bank of Korea Fiscal Policy

South Korea’s primary industry is the tech industry. This is dominated by LG and Samsung and the effects on this market are mentioned above. It is mostly insulated from rising interest rates as it is well-established and its consumers to not typically rely on loans for the purchase of its products. With much of the manufacturing outsourced to China, LG should remain stable. However, manufacturing in South Korea may take a hit. At times, especially for smaller manufacturers, loans may be required to obtain materials until a profit can be turned. With loans more expensive to maintain, manufacturers may need to choose between efficiency and survival.

References

Cowen, T., & Tabarrok, A. (2021). Modern principles of economics (5th ed.). Worth Publishers.

South Korea Inflation Rate - March 2022 Data - 1966-2021 Historical - April Forecast. Tradingeconomics.com. (2022). Retrieved 27 April 2022, from https://tradingeconomics.com/south-korea/inflation-cpi.

South Korea’s central bank unexpectedly raises rates as prices surge. CNBC. (2022). Retrieved 27 April 2022, from https://www.cnbc.com/2022/04/14/south-koreas-central-bank-unexpectedly-raises-rates-as-prices-surge.html.

United States Inflation Rate - March 2022 Data - 1914-2021 Historical - April Forecast. Tradingeconomics.com. (2022). Retrieved 27 April 2022, from https://tradingeconomics.com/united-states/inflation-cpi.

Week 6: Milestone 3

Joshua Swigart

Dr. Bajah

ECON 230: Macroeconomics

26 April, 2022

Federal Reserve Bank policies

Over the last three years, the Federal Reserve Bank has been trying to deliver powerful support to the economy until the economy is recovered from the COVID-19 pandemic. The Federal Open Market Committee (FOMC) has maintained its target range for the federal fund rate at 0 to ¼ percent (Monetary Policy, 2022, para. 9). They plan to maintain this rate until the labor market condition "have reached levels consistent with the Committee'sCommittee's assessments of maximum employment, and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time" (Monetary Policy, 2021, para. 10). As for their balance sheet policy, the Federal Reserve has increased Treasury securities holdings by "$80 billion per month and its holding of agency mortgage-backed securities by $40 billion per month" (Monetary Policy, 2022, para. 10). These purchases are intended to support the flow of credit to households and businesses. However, an improving labor market and recent developments in inflation led the FOMC to announce "it would double the pace of reductions in its monthly net asset purchases" (Monetary Policy, 2022, para. 10) starting in December 2021.

Impact on Honda’s Profitability

"Because higher interests rates mean higher borrowing costs, people will eventually start spending less" (Seabury, 2022, para. 11). People spending less means less profit for Honda, generally. Additionally, the higher borrowing costs mean that people are less likely to get a loan to purchase cars. As the cost of goods increases, so will the reasons not to buy a car. People consider the cost of maintenance and operating a cat before purchase.

Fiscal Policies in Japan

With economic and financial market uncertainty surrounding the Russia-Ukraine war, Japan is taking further steps to stimulate its economy. In March 2022, parliament "approved a record $900 billion state budget for the next fiscal year" (Kajimoto, 2022, para. 1). The passing of this massive 900-billion-dollar budget allows Japan to "seek yet another spending package to support households facing rising food and fuel bills" (Kajimoto, 2022, para. 2). In challenging economic climates, which a global pandemic or war can cause, governments tend to increase their borrowing to stimulate growth and boost aggregate demand (Kenton, 2022, para. 4). However, all the borrowing and stimulus activity from the Bank of Japan has helped cause Japan'sJapan's huge public debt that is "twice the size of its $5 trillion economy" (Kajimoto, 2022, para. 15).

Impact on Honda's Profitability

Japan'sJapan's high level of fiscal spending could ultimately lead to financial repercussions as "High debt-to-GDP ratios could be a key indicator of increased default risk for a country" (Kenton, 2022, para. 10). With higher debt-to-GDP comes a higher likelihood of financial panic in domestic and international markets (Kenton, 2022, para. 4). This could negatively impact Honda's profitability as it would disincentivize individuals to make larger purchases such as purchasing a vehicle.

fiscal policies of the United States

For about the last three years, much fiscal spending in the form of various stimulus packages has taken place amid the pandemic. Many consumers have used these stimulus packages to purchase more goods or invest; however, many individuals and private businesses have suffered financially due to mandatory lockdowns. More fiscal spending has gone on in the last few years, so inflation has risen. By tightening interest rates, the United States seeks to combat inflation (Skidmore, 2022, para. 3). Vitez (2022) writes, "Raising the discount and prime interest rates creates a tight economic environment where the supply of money decreases" (para. 3).

Impact on Honda's Profitability

As stated earlier, the United States seeks to combat inflation by tightening interest rates. In this tight economic environment, the supply of money will decrease, and the cost of borrowing money will increase. Fewer people will be able to afford loans on vehicles or pay for the associated goods with owning a car, such as gas and gas insurance.

References

Kajimoto, Tetsushi. (2022). “Japan eyes more stimulus as record budget clears parliament.”

Reuters. https://www.reuters.com/world/asia-pacific/japans-record-budget-clears-parliament-paves-way-debate-fresh-stimulus-2022-03 22/#:~:text=Parliament%20approved%20the%20107.6%20trillion,from%20the%20COVID%2D19%20pandemic.

Kenton, Will. (2022). Debt-to-GDP Ratio. Investopedia.

https://www.investopedia.com/terms/d/debtgdpratio.asp#:~:text=The%20higher%20the%20debt%2Dto,the%20domestic%20and%20international%20markets.

Monetary Policy—February 2022. (2022). Board of Governors of the Federal Reserve System. Retrieved from https://www.federalreserve.gov/monetarypolicy/2022-02-mpr-

summary.htm

Monetary Policy—February 2021. (2021). Board of Governors of the Federal Reserve System.

Retrieved from https://www.federalreserve.gov/monetarypolicy/2021-02-mpr-

summary.htm

Monetary Policy—February 2022. (2022). Board of Governors of the Federal Reserve System.

Retrieved from https://www.federalreserve.gov/monetarypolicy/2022-02-mpr-summary.htmSeabury, Chris. (2022). “How Interest Rates Affect the U.S. Markets.” Investopedia.

Seabury, Chris. (2022). “How Interest Rates Affect the U.S. Markets.” How the Feds Interest Rates Affect Consumers. Investopedia.https://www.investopedia.com/articles/stocks/09/how-

interest-rates-affect markets.asp#:~:text=Because%20higher%20interest%20rates%20mean,will%20cause%22inflation%20to%20fall.&text=Conversely%2C%20falling%20interest%20rates%20can%20cause%20recessions%20to%20end.

Skidmore, dave. (2022). Fiscal Policy and Budget Deficits Following the Pandemic. Brookings.

https://www.brookings.edu/bpea-articles/fiscal-policy-and-budget-deficits-following-the-pandemic/

Vitez, Osmond. (2022). The Effects of Tightening Monetary Policy. Chron.

https://smallbusiness.chron.com/effects-tightening-monetary-policy-3870.html

Milestone 3

Andrea Lewis

Regent University

ECON 230 (02): Macroeconomics

Professor Dr. Bajah

April 24, 2022

Milestone 3

Samsung [Samsung Electronics Co., Ltd. (SEC)] whose home country is South Korea has many subsidiaries and facilities worldwide. The company distributes and sells its products and services globally, but its largest key consumer is the US market. Both the Korean and American markets are in economies that are controlled by monetary policies. This paper will discuss the Monetary policies of the Federal Reserve bank and the Central bank, also the Fiscal policies in South Korea, the United States (US), and the European Union (EU), also their impact on Samsung’s profitability.

Federal Reserve Bank

Federal Reserve Bank Policies

The Federal Reserve banking system (FRS or Fed) was established by the Federal Reserve Act on December 23, 1913. It is the Central bank of the United States and has countless managerial and other duties (it is said to work independently of the government, yet the Board is directly accountable to Congress). The system has twelve regional banks that are responsible for those individual regions. The bank locations are Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. Fed creates and issues money and formulates the monetary policy (based on inputs from a variety of sources) and considers the concerns of industry/business representative groups.

The policy controls the growth/quantity of money and credit available in the economy, to keep the economy even/stable, and the Fed committee meets eight times per year and has emergency meetings during troubled times. The article says, “the Federal Reserve sets U.S. monetary policy in accordance with its mandate from Congress: to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy” (New York Fed, 2021). The Fed/policy prefers the inflation rate to be about 2% (currently 8.5%), the unemployment rate to be about 3.5 % (currently 3.6%), and the GDP rate annual increase by about 2% [currently 9.19% (increase from -3.49% to 5.7%)]. Fed policies regulate local banks and use contractionary policies (e.g., restricting loans) which drive up interest rates, to reduce inflation, and expansionary policies (e.g., more money for loans) which drive down interest rates, to avoid recession but can lead to hyperinflation.

Concerning Monetary Policy response, the article states, “The Fed programs initiated during the pandemic were designed to provide backstop funding to a wide variety of markets … having these programs in place ensures trading occurs in these markets, thereby preventing them from freezing up entirely” (Bullard, 2020, para. 5). In 2020 a new expansionary monetary policy framework was introduced affecting/improving the labor market and employment, the monetary policy also reduced the reserve requirement (money local banks must keep on hand) from 10% to 0%, so banks could lend more, creating credit. The policy also provided unemployment insurance benefits, pandemic unemployment assistance, and a paycheck protection program (Bullard, 2020, para. 9).

In 2021 an expansionary Fed policy brought a broad number of actions to limit economic damage, including lending support to governments, employers, households, and financial markets, their help kept credit flowing to the broader economy. The Fed cut the Federal funds rate by 1.5% which lowered the cost of borrowing for businesses and households, also purchased massive amounts of debt securities, residential and commercial mortgage-backed securities, etc., toward their goal of maximum employment and price stability.

According to Chair Powell’s press conference, in 2022 and beyond, the Fed is looking to tighten its policies (i.e., contractionary), tapering/scaling down economic aid, shrink its balance sheets, restore price stability (reiterated), determined to raise interest rates, looking for inflation rates to come back down and not become entrenched, desiring to anchor the inflation rate at 2%, and sustain a strong labor market (Powell, 2022).

Impact

The Fed’s monetary policies rule Samsung’s key market – the US and thereby affects Samsung’s growth and profitability within this market. The text says, “the Federal Reserve usually has more influence over aggregate demand than any other institution and shifts in aggregate demand can greatly influence the economy in the short run” (Cowen & Tabarrok, 2021, p. 733). The monetary policy reduced unemployment, kept the exchange rate stable which aided import/export costs, changed the interest rates of loans and credit cards, allowed businesses to maintain operations, kept workers employed which aided businesses to supply consumers’ demand, and increased consumer spending. The impact on Samsung’s profitability and Economic Growth was incredibly positive; it all garnered year-over-year (YOY) record-breaking revenue for Samsung. Sales/revenue in Korean won (KRW) had a growth of 2.78% in 2020, and 18.07% in 2021 (WSL Markets, 2022). In 2022 it is currently 24%, as the Byford (2022) article states:

Samsung attributes the 24-percent year-on-year revenue growth to increased sales of consumer products like premium smartphones, TVs, and appliances. The more profitable semiconductor business drove operating profit growth of 52 percent year on year, despite supply chain issues limiting production of RAM and flash storage. (para. 2)

Central Bank

Bank of Korea Policies

Bank of Korea (BOK), owned by the government and operated by the Monetary Policy Committee, is the Central bank of South Korea that issues the Korean won currency, manages currency exchange (rates), formulates Monetary and credit policy, and regulates the state of the economy. They have issued monetary stimulus, in 2020, to combat the pandemic issues and have tightened their monetary policy from 2021 to the present. They are holding steady at 1.25% but have done back-to-back interest rate hikes (back to pre-pandemic levels) to restrict inflation and to now brace for risks and supply pressures from the Russian-Ukraine war. Reuters stated, “Bank of Korea Governor Lee Ju-yeol maintained his hawkish tone and said there is a need to further raise interest rates if current growth momentum is retained. The BOK's monetary policy board on Friday lifted borrowing costs by 25 basis points to 1.25%, the highest since March 2020” (Kim & Roh, 2022, paras. 2-3). They are faring well thus far in their economic recovery measures.

Impact

Samsung’s target audience prioritizes technology and ranges from ages 15 to 60s. They are loyal and look for updates and yearly upgrades, desiring the latest and the best technology offers. The impact on Samsung’s growth and profitability continues to rise because of this audience, their love of social media and streaming, desire for larger memory components, etc., and the present economic climate (created by shocks and monetary/fiscal policies) which is very favorable to Samsung. In 2020 South Korea’s monetary policy was accommodative (somewhat expansionary – cutting interest rates and increasing liquidity). In 2021 it transitioned into contractionary with interest rate increases. Currently, in 2022 it remains contractionary, holding firm at the same higher interest rate with future plans to increase. While the higher interest rates will affect the economy and Samsung, this impact should be softer – offset by the expansionary fiscal policies.

Fiscal Policies of South Korea

The entity responsible for fiscal policies in South Korea is the Ministry of Economy and Finance (MOEF). The fiscal policies affect/manage distributing resources, government accounting/budget, taxation, spending, national debt, monitoring public institutions, unemployment rates, currency exchange, etc. In 2020 South Korea’s fiscal policy was very expansionary. Concerning 2021 and 2022 the fiscal policy was and remains very expansionary and is aiming to increase spending aggressively to boost the economy and welfare, increase exports and retail, and decrease unemployment. The Kim (2020) article states:

The finance ministry said total spending will increase 8.5% to record 555.8 trillion won ($468.30 billion) next year, while expected revenue is seen increasing a mere 0.3% to 483 trillion won, as businesses and income earners are hurt by the pandemic. That will take South Korea’s public finances further into deficit, raising its debt-to-GDP ratio by 6.9 percentage points to a record 46.7% in 2021. The government projects fiscal spending to increase by 5.7% per year between 2020 and 2024, taking the debt level to 54.6% of the economy by 2023. Last year it predicted a level of 46.4% for 2023. “Even if debt and fiscal deficit increase a bit it looks more appropriate to boost spending to make sure fiscal (policy) does its part,” finance minister Hong Nam-ki said in a briefing. (paras. 2-5)

Impact

The COVID-19 pandemic shocked economies worldwide and reduced purchasing power. At the front end of the pandemic in 2020, Samsung closed some facilities, deferred opportunities, and suffered lackluster sales. These losses were not greatly damaging to a stable mega-corporation like Samsung, but management knew they had to change course, so they cut quotas and production for smart devices and maximized on services, semiconductors, memory chips, components, etc., that consumers needed to adjust to the new way of life within the pandemic. The company was strong, so it never suffered as others did, however, as government policies poured money back into the economy, increasing demand, Samsung rebounded, and its profitability and revenue soared to record highs and remain high at present in 2022. The company continues to invest in innovation, product development, and making certain components for itself to reduce or eliminate outsourcing reliability and supply issues.

Fiscal Policies of the United States

Fiscal policies are determined by the executive and legislative branches of the government. They are used for changes in the national budget, such as increasing or lowering taxes and government spending, to impact, drive, and manage the economy. This can also influence interest rates, deficits, exchange rates, consumer spending, consumer tax bills, etc., or balance the budget through a neutral policy. Fiscal policies are used just like monetary policies in expansionary and contractionary measures to regulate the economy and influence GDP, etc. but are better for long-term use than monetary policies and can also provide government employment. The United States (US) is Samsung’s largest key market for revenue. The fiscal policies of this market aim to promote sustainable growth, increase or decrease the velocity of money, maintain price stability, reduce poverty levels, affect consumer household income, create jobs, and stimulate the economy. The Bullard (2020) article states:

One piece of evidence that the fiscal response was successful is that personal income increased in the second quarter of 2020—the opposite of what normally occurs during a recession. Even though the U.S. economy experienced its biggest contraction on record, with real GDP declining by 31.4% at an annual rate, personal income rose during this period because the government borrowed money and gave it to businesses and households that were disrupted … In addition, after such a large decline in the second quarter, real GDP increased by 33.1% at an annual rate in the third quarter of 2020, according to the initial estimate from the U.S. Bureau of Economic Analysis. (paras. 11, 15)

2021 continued with further expansionary fiscal policies. In 2022 GDP growth and inflation are high, stemming from shocks by the pandemic and now the Russian-Ukraine war; fiscal policy aims to follow suit with Fed, initiating a contractionary policy, slowing down GDP growth and bringing inflation rates down.

Impact

Fiscal policies create investment opportunities when there is more money flowing through the economy from government spending and elsewhere. They may also create opportunity loss when inflation, high taxes, etc. cause the business to defer an investment opportunity (as Samsung deferred expansion in Ukraine). The policies can bring profit to a business from increased employment, low taxes, increased household income, etc., causing consumer spending. The impact on Samsung’s profitability has been and remains extremely high and positive because consumer unemployment was and remains down, more money remains flowing through the economy, GDP was and remains high, and consumers’ need for technology during the pandemic and beyond is very great, so spending remains increased.

Fiscal Policies of Europe & Impact

Europe is Samsung’s second-largest key market for revenue. There is no central authoritative body responsible for formulating Fiscal policy in the European Union (EU); each country sets its own policy. The report states, “the EU economic affairs commissioner, Italian Paolo Gentiloni, is calling for loosening public spending restrictions for good … the EU needs “a debt reduction path that is realistic for all member states,” code for a straitjacket with a lot more wiggle room” (Barbero, 2021, para. 8). If granted, this would be an accommodating policy (lightly expansionary), would add more money to economies, and be profitable for businesses like Samsung. Partner countries with weaker economies would be at risk of rapidly rising inflation, interest rates, and debt crisis with grossly bloated national debts. However, Samsung maintains great profit in the EU, and in 2021, took the number one spot for smartphone shipments to that market.

Conclusion

Fiscal policies, which are tied to the annual federal budget, are often used in combination with Monetary policies and are vital systems/tools to influence, shape, and manage economies. Both systems can affect/change aggregate demand, unemployment levels, and economic stability, and both systems employ stimulus packages and the Paycheck Protection Program. In larger countries/economies, there may also be state and local fiscal policies formulated by local and state branches of government, working in tandem with federal fiscal policies.

Monetary policies in all markets discussed are gearing up with a contractionary plan to fight inflation and will be reducing the money supply and increasing interest rates. US Fiscal policies are gearing up with like contractionary measures to raise taxes and decrease/discourage spending (i.e., government, business, and consumer) in efforts to bring a down-turn to inflation and stabilize the economy. South Korea’s fiscal policy remains expansionary, and the EU is undecided but is presently accommodating.

Though the rates (inflation, etc.) in the US are more drastic, unlike Korea’s two-way policies (one contractionary and the other expansionary) which land softer on their economy, the US plans for one-way policies (both monetary and fiscal are contractionary), so, it is going to get difficult or harsher before it gets better. China and other countries watch our rates keenly to know whether to seize investment opportunities or to defer and Samsung is doing the same exceptionally well and prospering.

References

Barbero, M. (2021, September 22). Europe is fighting over its fiscal future: France and Italy want to fend off the frugals and make COVID-19-era budget flexibility a feature, not a bug. Foreign Policy. https://foreignpolicy.com/2021/09/22/europe-economy-eu-fiscal-policy-france-italy-budget-flexibility/#:~:text=The%20EU's%20stability%20and%20growth,of%20the%20excess%20every%20year

Bullard, J. (2020, November 10). Monetary policy and fiscal policy responses to the COVID-19 crisis. Federal Reserve Bank of St. Louis. https://www.stlouisfed.org/publications/regional-economist/fourth-quarter-2020/monetary-policy-fiscal-policy-responses-covid-crisis

Byford, S. (2022, January 26). Samsung sets revenue records with stronger product sales: Next Galaxy S intended to increase flagship growth. The Verge. https://www.theverge.com/2022/1/26/22902283/samsung-earnings-q4-2021-record-revenue-galaxy-s22

Cowen, T., & Tabarrok, A. (2021). Modern principles of economics (5th ed.). Worth Publishers.

Kim, C. (2020, September 15). South Korea unveils aggressive spending plans for growth, virus depletes ammunition. Reuters. https://www.reuters.com/article/southkorea-economy-budget/south-korea-unveils-aggressive-spending-plans-for-growth-virus-depletes-ammunition-idUSKBN25S3CY

Kim, C. & Roh, J. (2022, January 14). S.Korea's c.bank delivers back-to-back rate hikes amid inflation worries. Reuters. https://www.reuters.com/markets/asia/skoreas-central-bank-raises-rates-amid-inflation-worries-2022-01-14/

New York Fed. (2021). Monetary policy implementation. Federal Reserve Bank of New York. https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation

Powell, J. H. (2022, March 16). FOMC press conference [Video]. Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/videos.htm

WSL Markets. (2022). Samsung Electronics Co. Ltd. SSNLF (U.S.: OTC). https://www.wsj.com/market-data/quotes/SSNLF/financials/annual/income-statement

Hi Brenna,

I like how you spoke about the impact of trade during the pandemic and how the company adapts to reach more customers by creating downloadable apps for their games in order to reach customers. Adjusting to the fact that people are stuck at home concerned for their health is the best way the company can help adapt to newer times as the world adjust to the effects of the pandemic. That includes finding new ways to reach customers as well new ways of presenting and selling products in order to still suffice the needs and wants of the customers in the market.

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

ECON 230: Milestone 3

Brenna May

ECON 230

Dr. Jeff Bajah

April 24, 2022

Company overview

SEGA can trace its origins back to 1940 in Hawaii to a small company started by three Americans called Standard Games. The company at that point manufactured and operated coin-based games, mostly servicing American bases in Hawaii (Gates, 2018). In 1951 Standard Games moved to Tokyo and rebranded as Service Games of Japan, the direct predecessor of SEGA. The company would eventually become SEGA Enterprises through a series of sales, acquisitions, and mergers and would become one of the first major trans-pacific business partnerships after World War II (Gates, 2018).

SEGA began with manufacturing and selling pinballs machines, later SEGA would go on to develop their own games and consoles. Many of their first games would be in house games sold in Japan while in the US and Europe these games would be provided as arcade machines to pay and play. One of these first games was simulator, first sold in house in Japan and was widely popular. Due to the success of the game, it was exported to the US and Europe as an arcade game where it also saw similar success.

After the success of this game SEGA developed their first console system, the 8-bit Master System. This console sold incredibly well in Japan and was a great hit. Due to the success SEGA went public on the stock market and launched a subsidiary in the United States under SEGA Enterprises. SEGA would go on to create more consoles including the Genesis, Dreamcast, and Saturn. These consoles were huge success and helped grow the gaming console industry throughout the 80s and 90s. SEGA also developed popular anime franchises into video games, strengthening their success in Japan. Other franchises such as Sonic the Hedgehog, Warhammer, Frogger, and Yakuza gained immense popularity and success in the US as well as Japan.

Effect of fiscal policies of the home country and one key market on the company

Japan’s economy is heavily dependent on international trade and commerce. The Covid-19 pandemic has drastically affected Japan’s economy. Product distribution and trade worldwide was put on hold due to the pandemic. SEGA reports a drastic decrease is Pachinko and Pachislot machine (a type of Japanese arcade game machine) installation and operation sales (SEGA Sammy Holdings Inc., 2021). While traditional arcade machines have been in decline in the west for decades these game machines are still quite popular in Japan, and this proved to be a significant loss for SEGA. However, SEGA reported significant growth in consumer areas in 2021, surely thanks to e-commerce sites like Steam (SEGA Sammy Holdings Inc., 2021). As well as the increasing popularity of downloading games instead of buying physical copies. Another factor that played a role in SEGA’s growth of full game purchases was the fact that more people were at home and had more free time than ever, and with video games being readily available for purchase and download all without leaving the couch, SEGA was able to see significant growth despite the worldwide negative effects of the Covid-19 pandemic on the markets.

Similarly to the Federal Reserve of the United States, Japan’s central bank, the Bank of Japan, controls and implements monetary policies to maintain market and monetary stability (Bank of Japan, 2022). The Bank of Japan helps control price and market stability, high interest rates, and inflation through operational tools such as money market operations. The bank does this by providing loans or purchasing and selling from financial institutions (Bank of Japan, 2022). Although Japan did see increased prices, inflation, and the sinking value of the Yen, the Bank of Japan was able to keep the market and prices stable enough for SEGA and other Japanese corporations to not lose their key markets within the country.

The Federal reserve used similar operations and tools to maintain stability in the US so US markets were also preserved. Japan’s government and economic policies throughout the pandemic forced SEGA, as well as other corporations, to shift their focus and resources towards e-commerce sales and away from physical operations like the pachinko and pachislot machines.

References

James, Gates. (2018). We Nearly Had it All: the Story of Sega. Culture Trip.

https://theculturetrip.com/europe/united-kingdom/articles/we-nearly-had-it-all-the-story-of-sega/

(2022). Outline of Monetary Policy. Bank of Japan.

https://www.boj.or.jp/en/mopo/outline/index.htm/

(2022). What are Money Market Operations? Bank of Japan.

https://www.boj.or.jp/en/announcements/education/oshiete/seisaku/b31.htm/#:~:text=The%20primary%20means%20of%20money,such%20as%20Japanese%20government%20securities.

(2021) Fiscal Year Ended March 2021: Results Presentation. Sega Sammy Holdings Inc.

https://www.segasammy.co.jp/english/pdf/release/202103_4q_presentation_20210513_e.pdf

Milestone 3

Ashley Taylor

Macroeconomics

Dr.Jeff Bajah

April 24th, 2022

Fiscal Policy & COVID-19 in United States

A fiscal policy is a type of government policy that uses taxes, spending, and borrowing in order to even out booms and busts within markets to influence business fluctuations(Cowen, T., & Tabarrok, A, 2020, pg. 805). During COVID-19 the United States government limited face to face interaction putting many businesses at distress just to stay open(United States Congress, 2021, pg. 2). The governments action to help with this recession in the economy was to try to support the umemployed, as well as, help small businesses stay afloat (United States Congress, 2021, pg. 2). Despite the support the government has been trying to give the economy in the last couple years, it is still recovering from the pandemic.

Overall the goal of the fiscal policy is to help the economy return to full employment in order for the economy to operate at its full potential. Fiscal policy can work because the boost from government spending or tax cuts should enable the economy to slowly build the gdp back up(Cowen, T., & Tabarrok, A, 2020, pg. 805).However, we have seen slow progress in the progression within the United States. And with more cases of COVID-19 the potential risk that the economy may not bounce back from the recession anytime soon is likely. Especially considering that the government can no longer provide supplies for resources.

Effects on the Pharmaceuticals Wholesaling Industry

With the economy opening businesses back up, the pharmaceuticals wholesaling industry is expected to grow at a low rate(Moses, J., 2020, Industry Performance). However, “Congress has not provided us with the funding we need to continue the COVID-19 response and minimize the pandemic’s impact to the Nation and our economy.” (The United States Government, 2022, para. 1). So that’s crucial to this industry because it could impact the industry in a negative way. It could possibly lead to lose of jobs because the demand of vaccines will go down. In fact, “The federal government does not have adequate resources to purchase enough booster vaccine doses for all Americans, if additional doses are needed” (The United States Government, 2022, para. 4). This could create cynical unemployment for the industry.

Fiscal policy Effects on McKesson Corporation

This is important for McKesson Corporation because they play a crucial role in the pandemic because they are one of the nations largest drug and medical distibutors(Moses, J., 2020). In the recent years with COVID-19 many stimulus checks were distributed to many households (United States Congress, 2021, pg. 2). This could have been good for McKesson Corporation if those individuals chose to spend the money on prescriptions and other medical supplies. However, if they are not spending the money in some way in order to counteract the falling aggregate demand the stimulus checks would not have boosted the economy. It would have only supported those individuals and businesses. Which is probably why we have not seen the United states economy back to normal, on top of the concern for their health.

Sources

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

Moses, J. (2020). Pharmaceuticals Wholesaling. IBISWorld. Retrieved April 24, 2022, from https://www.ibisworld.com/united-states/

The United States Government. (2022). Fact sheet: Consequences of lack of funding for efforts to combat COVID-19 if Congress does not act. The White House. Retrieved April 23, 2022, from https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/15/fact-sheet-consequences-of-lack-of-funding-for-efforts-to-combat-covid-19-if-congress-does-not-act/

United States Congress. (2021). Fiscal policy and recovery from the covid 19 ... - congress. Congressional Research Service. Retrieved April 24, 2022, from https://crsreports.congress.gov/product/pdf/r/r46460

Macroeconomics Milestone 3: Coca-Cola

Sophia Dickinson

Dr. Jeff Bajah

Regent University

ECON 230: Macroeconomics

24 April 2022

Fiscal Policies

Fiscal policies are federal government policies on taxes, spending, and borrowing designed to influence business fluctuations (Cowen and Tabarrok, 2018). In Coca-Cola of Great Britain’s tax report from 2021, the company noted the taxes they paid and collected represented a significant part of their contribution to economies, communities, and countries around the world in which Coca-Cola products are sold. As an international corporation, Coca-Cola is subject to many forms of business taxes, including corporate income taxes, stamp duties, payroll taxes, customs duties, excise taxes, non-creditable VAT and GST taxes, and local sales taxes (Coca-Cola Tax Policies UK, 2021).

Many of the tax policies from Europe are also applicable in the home market, the United States. Taxes have traditionally been higher in the United States than in other markets, which has led Coca-Cola to move operations into cheaper countries such as Brazil in order to lessen the burden of taxes. This has led to an increase in global profits for Coca-Cola. However, it outsources to foreign countries and therefore negatively affects the home market of the United States. Employment had received a cut globally due to Covid-19; however, it hit hardest in the United States due to the taxes and interest being higher, and therefore the company saved more money when firing employees from the United States rather than from Brazil, where labor, taxes, and interest are cheaper.

Profits in Coca-Cola’s key market are also affected by outsourcing. According to Coca-Cola UK’s tax policies, they work closely with Her Majesty’s Revenue and Customs (HMRC) to engage in open dialogue with HMRC. These talks are in relation to tax planning, compliance, strategy, risks, and significant transactions and allow for Coca-Cola to engage in fact-based dialogue should there be any differing opinions between the HMRC and Coca-Cola. The Coca-Cola company is prepared to reference relevant legislation and tax law to negotiate and fairly solve issues (Coca-Cola Tax Policies, 2021). Coca-Cola pays roughly €3.8 billion in taxes in Europe yearly. These taxes are a crucial contribution to the fiscal budgets of governments in the markets in which Coca-Cola operates (Coca-Cola Tax Policy Uk, 2022).

The United States, unlike many other global trading countries, has a worldwide system in how it applies tax rules to its international business. This system hinders profits for US-based companies due to tax policies. While foreign companies only get taxed by the countries they operate out of, US-based companies get taxed in foreign countries and taxed by the United States if they wish to bring the profits back to America. This may be an effort to reduce outsourcing work; however, it is a threat to Coca-Cola’s profits. To combat this issue, Coca-Cola may need to support proposals that would account for a loss in business if the United States does not change its tax policies for US-based companies. If the current operating system is not reformed, American companies will suffer, and foreign countries will prosper. As a US-based company, Coca-Cola’s best interest is in a policy change and investing in other countries, such as their European markets, to cover the costs if the income taxes are not lowered and the company needs to move overseas (Rocco, 2022).

Macroeconomics Milestone 3: Coca-Cola

Sophia Dickinson

Dr. Jeff Bajah

Regent University

ECON 230: Macroeconomics

24 April 2022

Impact on Coca-Cola’s Profitability

Within the past three years, decisions by the Federal Reserve Bank have impacted the sales of Coca-Cola. When the Federal Reserve Bank lowered inflation, Coca-Cola, like many companies, prospered. However, when a slowdown was enacted, sales began to falter. Increased interest rates require Coca-Cola to set aside more resources to achieve funding. Additionally, this could potentially lead to a decrease in profits. As a positive effect, these higher costs would require Coca-Cola to be more conscious of its spending and resource usage. Lessening waste and reevaluating resource usage could increase future profits or, at a minimum, soften the blow of decreased profits if the cut costs are not enough to cover losses from new policies.

Central Bank Policy in Europe

As a key market for Coca-Cola, Europe’s Economic and Monetary Union (EMU) plays a prominent role in the profitability of Coca-Cola in Europe. The EMU is an organization that supports sustainable economic growth. Additionally, the organization encourages high employment through various economic policies. They implement four primary economic ideas through multiple policies, including “implementing an effective monetary policy for the euro area with the objective of price stability, coordinating economic and fiscal policies in EU countries, ensuring the single market runs smoothly, and supervising and monitoring financial institutions” (European Commision, 2020).

Impact on Coca-Cola’s Growth

Within Coca-Cola’s key European markets, the company has been focusing advertising efforts and new market research to serve the inhabitants better and cater to their desires. Contrary to what some may believe, even with inflation, Coca-Cola sales continue to rise (Rocco, 2022). This may primarily be due to the lifting of Covid-19 restrictions. Even though Coca-Cola costs more, it is now far more easily accessible than before.

Macroeconomics Milestone 3: Coca-Cola

Sophia Dickinson

Dr. Jeff Bajah

Regent University

ECON 230: Macroeconomics

24 April 2022

Page Break

Key markets and home country government actions can be good indicators of potential profits and losses for a multinational corporation. Since the United States is the home country of Coca-Cola as well as part of the key market, it is necessary to observe the Federal Reserve Bank closely. Observing allows for a more accurate prediction of what to expect in Coca-Cola’s future regarding overall loss and profits. In this paper, I will focus on the United States, which is both the home country and its key market; therefore, I will also write about one of Coca-Cola’s other key markets, Europe.

Federal Reserve Bank Policies

Actions by the Federal Reserve Bank affect the United States and the many nations that conduct business with the United States. Even countries that do not directly do business with the United States can be affected if their business partners conduct business with the United States. Multinational corporations like Coca-Cola, whose home country is the United States, are greatly affected by the Federal Reserve Bank. Over the past few years, the Federal Reserve Bank has enacted policies that directly affect multinational corporations. A notable change in the Federal Reserve Bank was the expansion of its holdings of Treasury securities. They increased by $80 billion from June 2020 to November 2021 (The Federal Reserve, 2022).

In February of 2022, the Federal Reserve Bank reaffirmed a monetary policy that slowed the pace of net asset purchasing (The Federal Reserve Bank, 2022). Covid-19 has dramatically affected the financial world, and many policies have been made to combat its effects within the last three years. While Covid-19 was unexpected and had global consequences, The Federal Reserve Bank was able to utilize its assets and tools to counteract the effects. Recently, they used their ability to increase or decrease the holdings of securities to affect the interest rates in the United States. Early into Covid-19, they bought securities to reduce the interest rate; however, recently, they enacted a slowdown which increased interest rates, returning them to what they were previously or even higher than the rates were pre-Covid-19 (Cowen and Tabarrok, 2018)

How does the policy of the Central bank of its key market affect the company's economic growth?

Sega as a corporation has a significant direct connection to the central market of Japan. As many individuals know, the Covid-19 pandemic has catastrophically affected individuals worldwide. Moreover, many companies and corporations have changed their plans and schedules to conserve funds and strengthen already established connections with investors. Continually, this information is general knowledge to anyone who has seen how impactful this pandemic has affected all facets of a business. Although, Japan had experienced an increase in production at the start of 2019, the pandemic greatly affected even the country's central growth, which only further showcases the impact of the pandemic. This year, economic growth should recover from the slight recovery of the previous year. Export growth in Japan should remain strong, while higher spending drives recovery as consumer demand stagnates and fixed asset investment increases (FocusEconomics, 2019).

However, rising energy prices, rising inflation, and a weaker yen pose a potential downside risk to the outlook. Focus Economics panelists expect economic growth of 2.5% in 2022 to decrease by 0.3 percent from last month's forecast and 1.7 percent in 2023. gain (FocusEconomics, 2019). Consequentially, due to the increase in adverse effects of Covid-19, these figures for 2019 impacted negatively as stocks and goods had gotten shifted from one place to another to account for the drop in the overall production of profits from SEGA (Sammy, 2021). Therefore, the answer to this is simple: SEGA was severely affected by the Covid-19 pandemic, and the Japanese economy was also negatively impacted. Ultimately, SEGA gets involved regardless of what it as a firm tries to accomplish as SEGA gets connected at a fundamental level to the central market of Japan.

Nevertheless, the bank does play a role. As Japan's central bank, the Bank of Japan determines and conducts monetary policy to preserve price stability. Price stability is critical since it serves as the foundation for the country's economic activities. The Bank impacts the creation of interest rates to create currency and monetary control while conducting monetary policy using operational tools such as open market operations (Bank of Japan, 2020). The Policy Board decides on the primary position for fiscal policy during Monetary Policy Meetings (MPMs). At these meetings, the Policy Board considers the business and market environment, decides on the guidelines for money market operations and the Bank's monetary policy position for the near future, and broadcasts its conclusions immediately following the session. The Bank determines the amount of daily open market operations, selects operational mechanisms, and distributes and absorbs capital in the market based on the guidelines (Bank of Japan, 2020).

Effect of fiscal policies of the home country and one key market on the company.

Japan's fiscal tightening of economic structures during the Covid-19 pandemic forced SEGA to make difficult decisions. For example, they were selling and shifting many stocks and differing much of its catalog of old arcade titles to change focus on making the majority of its income from pachinko and title creation for other corporations. Ultimately, the tightening of Japan's policies directly affected the decision of SEGA to make more of a significant effort to focus its spending on adapting to the difficulties of the pandemic (Sammy, 2021). Furthermore, the evidence can be displayed by the drop in income during the 2019-2021 years at the pandemic's peak, raising the stress for many institutions. Japan's strategy of saving some of its resources isn't anything strange, as losing too much in a short period could cause anyone to tighten resources to starve against an economic collapse. Furthermore, if you traded assets at a reasonable price, those prices should tell you all relevant facts about the overall situation (Alex, 2019). Therefore, it's Japan's policies that also impacted SEGA (Alex, 2019, ch29, p. 11-35).

References

Alex, T. (2019, September 1). Modern principles: Microeconomics, fifth edition Macmillan Learning. 5th Edition Macmillan Learning for Instructors. Retrieved April 21, 2022, from https://www.macmillanlearning.com/college/us/product/Modern-Principles-Microeconomics/p/1319245420

Focus Economics. (2019). Japan economy - GDP, inflation, CPI, and interest rate. FocusEconomics | Economic forecasts from the world's leading economists. https://www.focus-economics.com/countries/japan

Sammy, S. (2021, September 1). Sega fiscal year ended March 2021 results presentation. Fiscal year ended Presentation. Retrieved April 9, 2022, from https://www.segasammy.co.jp/english/pdf/release/202103_4q_presentation_20210513_e.pdf

The bank of Japan. (2020). Retrieved April 22, 2022, from https://www.boj.or.jp/en/mopo/outline/index.htm/

Milestone

Nakira Riddick

Regent University

Professor Bajah

22nd April 2022

Federal Reserve Board monetary policy is implemented through "open market operations (OMOs)", "discount rates (DRs)", and "reserve requirements (RRs)". Monetary policies are used by the Federal Reserve to keep tabs on and regulate the amount of money that is freely accessible (Cowen & Tabarrok, 2015). To maintain the dollar's purchasing power, it aims to foster long-term growth, generate jobs, constrain interest rates, and manage inflation. Individuals and businesses alike are affected as a result.

The Federal Reserve's primary responsibility is to ensure that the United States' economy remains robust. The Fed's monitoring strategy aims to achieve three main goals: setting long-term interest rates, maintaining price stability, and increasing maximum sustainable employment (Cowen & Tabarrok, 2015). The Fed's goal is to increase the number of jobs that the economy can support while maintaining a steady inflation rate by increasing the maximum sustainable employment. Businesses benefit from stable prices because customers are less concerned about price volatility. In addition, it facilitates long-term borrowing and lending. Interest rates should be kept low by the Fed so that people may buy homes and businesses can expand. The Federal Reserve boosts interest rates during periods of inflation to stabilize the economy.

According to monetary policy, which is Fed policy, interest rates can impact a company's ability to borrow money at a fair rate depending on how high or low they are. Because of high-interest rates, the money a company needs to borrow might cost more than it is worth in the long term, resulting in a lower total profit margin for the organization. A rise in interest rates will decrease the number of money firms may earn from their customers. If a company's earnings are low, it may not be able to pay off its debts and the interest on its loans, and it may be forced to file for bankruptcy (Cloyne et al., 2018). A well-balanced economy is tough to maintain, and our government's goal is to ensure that we don't plunge into an economic slump or boost inflation too high.

According to John Maynard Keynes' views, the amount of taxation and spending affects inflation, employment, and the movement of money across the economic system, whether it is raised or lowered. Monetary policy, determined by the Federal Reserve in the United States, is typically used in conjunction with fiscal policy to affect the economic direction and achieve economic goals (Afonso et al., 2019). Taxes, expenditures, inflation, and employment contribute to GDP, making sound fiscal policy essential for effective economic management. To get an idea of a country's output, look at this statistic.

A few indicators, such as GDP and total demand, are frequently used to gauge an economy's health. The purpose of fiscal policy is to boost GDP and aggregate demand long-term and sustainable way. Government expenditure, individual taxation, and business tax policies all have a role. Taxes and expenditures are the two most important levers of fiscal policy. According to taxes, governments have to spend money in particular areas, and people have to spend a given amount (Monasterolo & Raberto, 2018). For example, tax rates might be reduced to encourage consumer expenditure. The government thinks that tax cuts would stimulate the economy by giving households more disposable income to spend on products and services. Spending is used as a fiscal policy instrument to direct government funds to those areas of the economy that need a boost (Cowen & Tabarrok, 2015). As with taxes, the government expects that the money will be used to purchase other products and services.

For businesses, the fiscal policy directly influences their bottom line, whether in the form of expenditure or taxation. The following are four outcomes that fiscal policy may have on business: Businesses may take advantage of government and private investment possibilities. As a result of low taxes, more money enters the economy from the government and other sources, increasing the demand for goods and services (Monasterolo & Raberto, 2018). Businesses may prosper and develop if the pricing and demand are in harmony. Depending on their location, businesses are subject to taxation at many levels, including municipal, state, and federal. Businesses must understand how state and local taxation affects them and how that affects federal budgetary policy.

Fiscal policy's primary goal is to reduce unemployment. For example, taxes may be lowered to give customers more money in their wallets. As a result, consumers may be able to spend more money, and businesses may have to contend with an increase in demand. In response to rising demand, firms may have to take on more production responsibilities, which may need the creation of new employment and the recruitment of additional personnel (Afonso et al., 2019). As a result, a low unemployment rate may rise over time with sound fiscal policy. A contractionary financial policy may be triggered when the balance between supply and demand is disrupted. Due to growing taxes, businesses tend to limit their expansion and take measures to keep the economy afloat with less money flowing through it.

References

Afonso, A., Alves, J., & Balhote, R. (2019). Interactions between monetary and fiscal policies. Journal of Applied Economics, 22(1), 132-151.

Cloyne, J., Ferreira, C., Froemel, M., & Surico, P. (2018). Monetary policy, corporate finance, and investment (No. w25366). National Bureau of Economic Research.

Cowen, T., & Tabarrok, A. (2015). Modern principles of economics. Macmillan International Higher Education.

Monasterolo, I., & Raberto, M. (2018). The EIRIN flow-of-funds behavioral model of green fiscal policies and green sovereign bonds. Ecological Economics, 144, 228-243.

Milestone Three

Derek Pulizzi

Dr. Jeff Bajah

Regent University

ECON 230: Macroeconomics

April 24, 2022

Milestone Three

The Federal Reserve Bank and the Central Bank are two key financial institutions that carry out much of the monetary functions that are necessary for the flow of the economy. Discrepancies in the performance of the functions within these institutions can be felt across various markets and economies due to their vast power and overall economic impact. While observing a multinational corporation like Toyota Motor Corporation, it is highly beneficial to analyze the monetary actions that take place within the key market as well as the home environment. Toyota Motor Corporation is based in Japan and the company’s target market is the United States. Therefore, it is important to explain how the Federal Reserve Bank, or the FED, and the Central Bank of the United States impact the home country of Toyota.

Federal Reserve Bank Policy & Economic Growth

Policies are bound to change given the environment of the nation, and with that being said, it is essential to understand recent policy changes that came about from the Covid-19 pandemic. To reduce the negative effects associated with the uncertainty of the recent pandemic, the Federal Reserve Bank enacted policies that directly kept credit flowing. To safe keep the structural integrity of the economy, the FED authorized policies that included “large purchases of U.S government and mortgage-backed securities and lending to support households, employers, financial market participants, and state and local governments” (Milstein & Wessel, 2021, para. 2). By increasing the lending powers during this time of uncertainty, the Federal Reserve Bank artificially hindered the imploding economic downfall that was likely to occur if not acted upon strategically. Additionally, if the FED had not created policies to prevent any further economic destruction caused by the Covid-19 pandemic, countries like Japan whose home to multinational corporations like Toyota Motor Corporation that are dependent on the monetary framework of the U.S would be directly impacted. The Federal Reserve Bank supported the U.S economy and financial markets by cutting the target for the federal funds rate to lower the cost of borrowing for businesses, providing forward guidance to lower interest rates, and providing quantitative easing to buy securities needed for market functionality and effectiveness (2021).

In addition to the policies previously mentioned that were aimed at providing some sort of economic stability during a time of instability, the U.S Federal Reserve Bank also increased the holdings of treasury securities to potentially counteract the impact of the pandemic. While these holdings were high back in March, recent analytics show that they will slowly go back to normal in hopes of driving interest rates up (The Federal Reserve, 2022). This strategic process of the Federal Reserve Bank to lower money supplies and raise interest rates is to slow down the economy to provide sustainability. Since the Bank of Japan and the Federal Reserve of the United States are similar in their policies, this noticeable decrease in treasury securities and increase in interest rates directly affect prominent multinational corporations like Toyota Motor Corporation. The spike in interest rates in Toyota’s key market, the United States, negatively impacts the company’s potential for economic growth in that the company will resort to finding alternative resources to gain additional funding and less borrowing will take place in the marketplace. Less borrowing suggests the reduction of cash flow in the economy towards businesses and with a corporation like Toyota, this can be rather difficult to navigate.

Fiscal Policies of Japan (Home Country)

There are notable similarities and differences between the central bank of the United States, the Federal Reserve Bank, and the Bank of Japan. Cargill and O’Driscoll (2018) provide insight into the greatest difference between the two banking systems that directly influence the growth potential of vital corporations like Toyota who dominate the market in Japan. “Japan’s far more stable and lower inflation record is considered a special case because of the country’s rapid reindustrialization, international isolation, and government administration of the economy,” they articulate (Cargill & O’Discoll, 2018, p. 52). While Japan and its central bank are moving towards sustainability after a time of hardship, it is the factors that led to low economic growth in the country and how the post-Covid-19 environment can spark this again. It was observed that in the 1990s and the 2000s Japan’s fiscal spending was at an all-time high. While the debt accumulated from the large government expenditures has slowly decreased, Covid-19 created a breeding ground for new ways of generating debt in times of worry (Hansen & Imrohoroglu, 2016). Japan’s accumulation of debt and the policies that were fostered from this by the Bank of Japan could unfortunately result in default. The impending risk of default would directly impact Toyota Motor Corporation as it can inevitably lead to an economic recession. An economic recession would result in limiting the goods produced in the manufacturing plants and letting go of employees to make ends meet.

Fiscal Policies of the United States (Key Market)

The key market for Toyota Motor Corporation, the United States, has a different way of carrying out fiscal policy than that of Japan. “The United States Constitution stipulates that both Congress and the president must approve all expenditures” (Tabarrok & Cowen, 2014, p. 775). While the Constitution was written to provide a means of checks and balances regarding the economy of the nation, there are times when fiscal policy must be utilized promptly so that the economy does not crash. When the pandemic first hit back in 2019-2020 and individuals were guided to stay at home to stop the spread of the virus, businesses had to shut down as a result. In addition, small businesses that could not afford extensive shutdowns had to shut down permanently as the debt they accumulated was detrimental to their growth. Now in 2022, the government has created policies that have aided in the increase in consumption of goods and investment into the market. While the economy is still trying to get back up on its feet, the Covid-19 environment has undeniably been the main source of fiscal spending in the United States. With too much money circulating and the average spending increasing, inflation has taken its toll on the people of the nation. Inflation and the depreciation in the real exchange rate directly impact companies abroad the United States deals business with. For example, Toyota Motor Corporation’s prominent market is the United States, but during times of inflation, consumers are less willing to spend their hard-earned cash on expensive investments like an automobile. With a decrease in consumer spending, Japan is forced to limit its production as inflation has raised the total price of the vehicle.

References

Cargill, T. F., & O’Driscoll, G. P., Jr. (2018). The Federal Reserve in the Shadow of the Bank of Japan. Journal of Private Enterprise, 33(1), 47-62. https://ezproxy.regent.edu/login?url=https://www.proquest.com/scholarly-journals/federal-reserve-shadow-bank-japan/docview/2043221079/se-2?accountid=13479

Hansen, G. D., & Imrohoroglu, S. (2016). Fiscal reform and government debt in Japan: A neoclassical perspective. Review of Economic Dynamics, 21, 201-224. https://doi.org/10.1016/j.red.2015.04.001

Milstein, E., & Wessel, D. (2021, December 17). What Did the FED Do in Response to the COVID-19 Crisis? Brookings. Retrieved April 18, 2022, from https://www.brookings.edu/research/fed-response-to-covid19/

Tabarrok, A., & Cowen, T. (2014). Modern Principles of Economics (3rd ed.). New York, NY: Worth Publishers Inc.

The Federal Reserve Holds More Treasury Notes and Bonds Than Ever Before. Peter G. Peterson Foundation. (2022, March 15). Retrieved April 18, 2022, from https://www.pgpf.org/blog/2022/03/the-federal-reserve-holds-more-treasury-notes-and-bonds-than-ever-before#:~:text=Currently%2C%20the%20Federal%20Reserve%20holds,trillion%20since%20March%2018%2C%202020.

Macroeconomics Milestone #3

Ruth N. Jones

Dr. Jeff Bajah

Regent University

ECON 230: Macroeconomics

22, April 2022

Macroeconomics Milestone 3

When observing a multinational corporation, it is important to take account of the actions of the key market and home country governments’, as they can serve to be an indicator of future potential for profit or loss for the company. In the case of Samsung, with the United States as its key market (market.us, 2019), and South Korea as its home country, it is necessary for the Federal Reserve Bank and Central Bank of the United States to be examined, along with the general fiscal policy of South Korea, Samsung’s home market. Such observation can give us a clearer picture of what can be expected from Samsung in the future as far as overall gain or loss.

Federal Reserve Bank Policies

Firstly, the actions of the Federal Reserve Bank can have a profound effect not only on the United States as a whole, but also on other nations that do business with the United States in any way. This would include multinational corporations like Samsung, especially since the United States is Samsung’s key market (market.us, 2019). There are a few specific policies that the Federal Reserve Bank has enacted over the past three years that have served to especially effect multinational corporations such as Samsung.

The Federal Reserve Bank notably expanded its holdings of Treasury securities by $80 billion over the course of a few months from June 2020 to November 2021 (The Federal Reserve Bank, 2022). Most recently, however, as of February 2022, the Federal Reserve Bank reaffirmed some monetary policy they had initially affirmed in January of 2012, which included slowing the pace of net asset purchases (The Federal Reserve Bank, 2022).

Within the past three years, Federal Reserve Bank policies have been heavily influenced and even necessitated by the COVID-19 pandemic and some of the ensuing Omicron variant outbreaks. These unexpected, globally reaching issues have proved difficult to navigate, but it seems as if the Federal Reserve Bank has continued to make use of the tools it has always had at its disposal, such as expanding or limiting its holding of securities. These specific actions they have taken recently (increasing or decreasing the holding of securities) have served to either increase or decrease interest rates across the United States, with earlier buying of securities serving to decrease interest rates while their more recent slowdown in buying securities has served to slowly push interest rates back up (Cowen & Tabarrock, 2021). This more recent slowdown in the Federal Reserve buying securities could prove to be a problem for Samsung, as increased interest rates may mean having to set aside more resources in order to gain fundings from various sources. This could lead to a drop in profitability, but it could also force Samsung to be more mindful of the resources they make use of, limiting their waste and overall helping to either bring increased profitability, or at least lessen the damage of decreased profitability.

Central Bank Policies — Home Market

Besides the Federal Reserve Bank of the United States, other nations across the world also have their own unique central banks. Although all of these central banks ultimately have the same general goal (regulating their respective country's money supply), they may go about achieving this goal in a unique way and may add on other goals depending on the specific needs of the country they serve. In the case of Samsung—whose home country is South Korea—the Bank of Korea serves as its home country’s central bank and has a separate, specific goal of price stability (Bank of Korea, 2019).

In pursuit of that goal, the Bank of Korea recently decided, as of April 14, 2022, to raise the Base Rate from 1.25% to 1.50%, stating the following:

“The Korean economy has continued to recover. Exports have sustained their buoyancy while facilities investment has slowed due to global supply constraints. Private consumption has recently shown modest improvement thanks to the easing of domestic COVID-19 restrictions, after having moderated. Labor market conditions have continued to improve, with the year-on-year increase in the number of persons employed remaining high. Going forward, the economy is likely to sustain its recovery albeit partly affected by the Ukraine crisis, as exports are expected to continue their solid trend of growth while private consumption is likely to improve.” (Bank of Korea, 2022)

In light of not only this specific choice from the Bank of Korea, but also their reasoning behind it and the overall economic climate of South Korea at the time, it seems as if Samsung will be able to enjoy at least fairly increased or stable profitability in their home market, which, in turn, could serve to offset any potential losses in the United States from the Federal Reserve Bank’s policies.

Fiscal Policy — Key Market

Alongside the policies of the Federal Reserve Bank, the United States government apart from the Federal Reserve Bank has a good deal of authority to handle, make, and change certain aspects of fiscal policy. The effects of this fiscal policy have proven to be especially noticeable and effective over the past three years thanks to the government having to react quickly in light of the COVID-19 pandemic and how it affected the national and international economy.

The overall fiscal policy of the United States government during the pandemic mostly seemed to involve increasing the budget for certain things, such as federal aid to state and local businesses being raised to $597 billion, and $599 billion being added to the federal deficit in order to pay for public health measures (Romer, 2021). These boosts in government spending as part of the United States’ fiscal policy would have served Samsung well as far as helping to limit the loss in profitability they may have experienced as a result of dealing with COVID-19. This overall fiscal policy of increased spending and increasing the budget would be beneficial to Samsung’s profitability in the United States post-COVID, as the extra money they would have access to could be reinvested into the company, potentially increasing their profitability.

Fiscal Policies – Home Country

Lastly, with so much focus being turned to the financial and governmental actions being taken by the United States as Samsung’s key market, it is also important to acknowledge the actions of the home country of Samsung—in this case, South Korea—and how its own fiscal policy over the past three years has been either a benefit or a sort of hinderance for Samsung.

Within the past three years, thanks to the COVID-19 pandemic and other smaller Omnicron variant outbreaks that have lingered, the fiscal policy of the South Korean government has had to change their plans unexpectedly. Within the past year especially, South Korea has engaged in expansionary fiscal policy, with plans to continue in that through 2022 in the hope to boost the economy and assist in its recovery in a post-COVID environment (Yonhap, 2021). This expansionist fiscal policy ultimately means that the government of South Korea is hoping to expand the money supply by increasing spending (Amadeo, 2022). This allows consumers to buy more and stimulates the economy, which is integral to the economy’s recovery post-COVID (Amadeo, 2022). This expansionary policy is excellent news for Samsung, as this expanded money supply will hopefully encourage consumers to buy more of their products, easily driving up their profitability.

References

Modern Principles of Economics, 5th Edition (New York: Worth Publishers, 2021), Tyler Cowen and Alex Tabarrock.

Samsung Electronics Co., Ltd. Statistics and Facts. (2019). Market.us. Retrieved April 4, 2022, from https://market.us/statistics/smartphone-brands/samsung/?msclkid=d24438b3b43c11ec8df234a63fb9e896

The Fed - Monetary Policy: Monetary Policy Report. (February, 2022). Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/monetarypolicy/2022-02-mpr-summary.htm

‌ Yonhap. (2021, October 13). S. Korea to continue expansionary fiscal policy next year: finance minister. The Korea Herald. http://www.koreaherald.com/view.php?ud=20211013000840

Objectives of Monetary Policy | Monetary Policy | Bank of Korea. (2019). 한국은행. https://www.bok.or.kr/eng/main/contents.do?menuNo=400012

Monetary Policy Decision | Monetary Policy | Bank of Korea. (April 14, 2022). 한국은행. Retrieved April 19, 2022, from https://www.bok.or.kr/eng/bbs/E0000627/view.do?nttId=10070040&menuNo=400022&pageIndex=1

Romer, C. D. (2021, March 25). The fiscal policy response to the pandemic. Brookings. https://www.brookings.edu/bpea-articles/the-fiscal-policy-response-to-the-pandemic/

‌ Amadeo, K. (2014, December 11). Expansionary Fiscal Policy and How It Affects You. The Balance; The Balance. https://www.thebalance.com/expansionary-fiscal-policy-purpose-examples-how-it-works-3305792‌

Timothy, I enjoyed reading your milestone, and definitely learned some interesting things while reading! Firstly, setting up the groundwork early on by stating the presence of COVID-19 as a main factor in the decisions of various central banks and governments is important, as decisions made in this specific climate would be notably different from decisions made at other times. The way you set apart space for specifically addressing the effects on profitability that would come from certain decisions that were made was a very good idea, as it naturally draws the eye and attention to what the point of the writing is. My only critique would be to bold the headings if at all possible, so as to make the delineation between sections more distinct.

Milestone #3

Timothy Venable

Regent University

ECON 230 - Macroeconomics

Dr. Jeff Bajah

April 24, 2022

Federal Reserve Bank Policies

Over the past three years, the United States monetary policy has been in response to the COVID-19 pandemic. “From June 2020 until November 2021, the Federal Reserve expanded its holdings of Treasury securities by $80 billion per month and its holdings of agency mortgage-backed securities by $40 billion per month” (Monetary Policy Report - February 2022, 2022, para. 10). The Federal Reserve purchased and repurchased more Treasury Bills during this time to stimulate the economy through higher money supplies and lower interest rates (Cowen & Tabarrok, 2020, p. 739). However, beginning in December of 2021, the Federal Reserve decided to reduce their number of monthly net asset purchases in response to inflation and the growing labor market (Monetary Policy Report - February 2022, 2022, para. 10). With this decrease in purchasing Treasury Bills, the Federal Reserve is trying to slow the economy through lower money supplies and higher interest rates (Cowen & Tabarrok, 2020, p. 739).

Impact on McDonald’s Profitability

Since “higher interest rates lead to substantially less borrowing” (Gross & Souleles, 2002, p. 22), there will be fewer people willing to get loans to open up McDonald’s franchises. Additionally, as a result of inflation, the costs of goods are increasing, which can affect the prices of McDonald’s products, as well as the number of employees they hire.

Bank of Japan’s Policies

“The Bank of Japan has adopted a negative interest rate policy to increase the total amount of money in circulation with the aim of eliminating deflation” (Kobayashi & Bremer, 2022, p. 1). “Deflation is a decrease in the average level of prices (a negative inflation rate)” (Cowen & Tabarrok, 2020, p. 670). This policy discourages saving money with the negative deposit rates and encourages borrowing, spending, and investing money (Hayes, 2021, para. 3).

Impact on McDonald’s Growth

This negative interest rate policy is particularly beneficial for the growth of McDonald’s. In Japan, this policy encourages potential franchise owners to take out loans to start franchises, as well as encourages Japanese customers to spend money on the menu items McDonald’s offers.

U.S. Fiscal Policies

“Fiscal policy is federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations” (Cowen & Tabarrok, 2020, p. 805). As a result of the COVID-19 pandemic, the countries of the world experienced increased fiscal expansion (Ilori et al., 2022, p. 1). The fiscal expansion in the United States involved increased “output along with consumption and investment, in addition to a depreciation in the real exchange rate and in the terms of trade” (Ilori et al., 2022, p. 1). As a result of increased spending (i.e. the Federal Government passed out a number of stimulus checks during the pandemic), Americans increased their consumption of goods, as well as invested their money. However, due to the lockdown measures, many small businesses went out of business. With so much money in circulation, the U.S. dollar’s worth (real exchange rate) has depreciated. Additionally, the fiscal spending of the United States government has caused inflation.

Impact on McDonald’s Profitability

While fluctuations in the United States’ fiscal policy will affect McDonald’s, the effects of these policies will particularly harm small businesses in America, who do not have the money or name recognition that McDonald’s has. In 2020, McDonald’s outperformed its sector in sales, in spite of the stagnation it experienced from the COVID-19 pandemic (Hines, 2021, p. 32). And, “the company’s operating income…is expected to rise at an annualized rate of 6.1% to $8.9 billion over the five years to 2021, driven by economic recovery following the pandemic” (Hines, 2021, p. 32).

Japan’s Fiscal Policies

Due to increased levels of fiscal spending, many advanced countries have increased their public debt-to-GDP ratios (Sakuragawa & Sakuragawa, 2020, p. 1). “Among them, Japan has the highest debt-to-GDP ratio, and is one of the countries for which there is great concern about debt sustainability” (Sakuragawa & Sakuragawa, 2020, p. 1). As a country’s debt-to-GDP increases, its risk of default increases as well (Kenton, 2022, para. 6). Economic effects from sovereign default include going into a recession, the currency being devalued, and/or the country being locked out of debt markets for an extended period of time (Chen, 2022, para. 24).

Impact on McDonald’s Profitability

As was mentioned above, high levels of fiscal spending can ultimately lead to an economic recession, which would decrease the revenue and profits a company makes (The Investopedia Team, 2022, para. 10). For large companies like McDonald’s, they would have to cut back their hiring, refrain from rolling out new products, and reduce their marketing and advertising budgets (The Investopedia Team, 2022, para. 10).

References

Chen, J. (2022). Default. Retrieved from 19 April 2022, from https://www.investopedia.com/terms/d/default2.asp#toc-sovereign-default.

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

Gross, D. B., & Souleles, N. S. (2002). Do liquidity constraints and interest rates matter for consumer behavior? Evidence from credit card data. The Quarterly journal of economics, 117(1), 149-185.

Hayes, A. (2021). Negative Interest Rate Policy (NIRP) Definition. Retrieved 19 April 2022, from https://www.investopedia.com/terms/n/negative-interest-rate-policy-nirp.asp#:~:text=A%20negative%20interest%20rate%20policy%20(NIRP)%20is%20an%20unconventional%20monetary,lower%20bound%20of%20zero%20percent.

Hiner, J. (2021). Accommodation and Food Services in the US: US Industry (NAICS) Report 72, IBISWorld. 1-45.

Ilori, A. E., Paez-Farrell, J., & Thoenissen, C. (2022). Fiscal policy shocks and international spillovers. European Economic Review, 141, 1-26.

Kenton, W. (2022). Debt-to-GDP Ratio. Retrieved 19 April 2022, from https://www.investopedia.com/terms/d/debtgdpratio.asp.

Kobayashi, A., & Bremer, M. (2022). Lessons from mergers and acquisitions of regional banks in Japan: What does the stock market think?. Journal of the Japanese and International Economies, 64, 1-16.

Monetary Policy Report - February 2022. (2022). Retrieved 19 April 2022, from

https://www.federalreserve.gov/monetarypolicy/2022-02-mpr-summary.htm

Sakuragawa, M., & Sakuragawa, Y. (2020). Government fiscal projection and debt sustainability. Japan and the World Economy, 54, 1-9.

The Investopedia Team. (2022). The Impact of Recessions on Businesses. Retrieved 19 April 2022, from https://www.investopedia.com/articles/economics/08/recession-affecting-business.asp.