Economics milestone 3

Effects of FED's policies on Coca-Cola Company

The Federal reserve bank (FED) is mandated to coin money and regulate the dollar's value in the United States (Buchanan and Dorf, 2017). The FED performs its functions to promote the effective operation of the United States’ economy.

The FED's policies affect the growth of businesses in the economy. Some policies promote growth, while some cause stagnation. Fed policies influence the development of Coca-Cola company by controlling the interest rates, thus affecting credit availability. The FEDs increase and reduce the interest rates depending on the country's economic conditions. When the FEDs lower the interest rates, credit becomes more available, and there is an increase in money circulation in the economy (Bernanke, 2020). Availability of credit affects the level of economic activities in the country. It influences the demand for goods and services in the economy. When there is more money in circulation, the need for Coca-Cola products increases, enabling the company to make more sales and profit, thus promoting the economic growth of the company. The vice versa also applies. When the interest rates are high, there is less money in circulation, which reduces the demand for Coca-Cola products, resulting in fewer sales made by the company, thus reducing its economic growth.

In addition to controlling interest rates, the FED policies also involve using Open Market Operations and reserve requirements to influence the money available in the economy for spending (Tymoigne,2018). These policies directly or indirectly affect Coca-Cola's economic growth through the multiplier effect. When the FED sells government bonds and trust to the general public through Open Market operations, it reduces the amount of money available for spending, thus reducing demand for Coca-Cola products, which in turn reduces the company's economic growth. On the contrary, when the FED purchases government bonds from the public, it increases the amount of money available in the economy for spending, thus increasing the demand for Coca-Cola's products. This increases profitability and boosts the company's economic growth.

From the analysis of the impact of Federal Reserve Bank policies on Coca-Cola's economic growth, we can conclude that the policies influence the circulation of money in the economy, thus influencing the demand for Coca-Cola's products. The level of demand determines the number of sales and profitability of the company, thus impacting the economic growth of the company.

Effects of fiscal policies on the key markets of Coca-Cola Company

Fiscal policies are government policies on taxes, borrowing, and expenditure to influence economic activities in the country (Cowen and Tabarrok, 2021). The policies are classified as either expansionary or contractionary. Fiscal policies affect the investment and production markets of the Coca-Cola company. Taxation policies involve the rate at which companies and individuals are taxed. This directly impacts companies' investment and production market. An increase in corporate and individual tax would likely discourage investment and production (Mukherjee et al., 2017). A high corporate tax rate will affect the profitability of the Coca-Cola company since much of the revenue collected will go to taxation; this will leave the company with little funds to invest in the company's economic activities.

Consequently, high individual taxation reduces the amount of money consumers spend, thus reducing the demand for Coca-Cola's products. The company is forced to reduce production activities when there is a low market. On the contrary, when the corporate and individual tax is low, Coca-Cola will increase its investment activities, and the demand for its products will go up, thus boosting production.

Government spending is also among fiscal policies that affect the investment and production market of the Coca-Cola company. Government spending crowd out the private sector and influences production through demand (Nguyen and Trinh, 2018). An increase in government spending will likely reduce Coca-Cola's spending on investments, thus reducing the capital investments made by the company. On the other hand, an increase in government spending will likely increase the amount of money available for spending in the economy. This will increase the demand for Coca-Cola's products and encourage production. The vice versa is true. When the government applies contractionary fiscal policies and reduces government spending, Coca-Cola company will be encouraged to make capital investments to cover the opportunities arising due to lack of government expenditure. However, the decrease in government spending will reduce the amount of money available for spending, and that reduces demand for Coca-Cola's products, thus discouraging production.

Therefore, from our analysis, we can conclude that the expansionary and contractionary fiscal policies will negatively or positively affect the investment and production market of the Coca-Cola company.

References

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

Buchanan, N. H., & Dorf, M. C. (2017). Don't End or Audit the Fed: Central Bank Independence in an Age of Austerity. Cornell l. rev., 102, 1.

Cowen, T., & Tabarrok A. (2021). Modern Principles of economics: unabridged fifth edition. Cosimo, Inc.

Mukherjee, A., Singh, M., & Žaldokas, A. (2017). Do corporate taxes hinder innovation?. Journal of Financial Economics, 124(1), 195-221.

Nguyen, C. T., & Trinh, L. T. (2018). The impacts of public investment on private investment and economic growth: Evidence from Vietnam. Journal of Asian Business and Economic Studies.

Tymoigne, E. (2018). Government monetary and fiscal operations: generalizing the endogenous money approach. Cambridge Journal of Economics, 40(5), 1317-1332.