Week 6 ECON 230
The Federal Reserve bank conducts monetary policy as part of its mission to ensure maximum employment, stable prices of products and services, and finally, using an effective monetary policy to manage or control long-term interest rates. This way, The Federal Reserve Bank provides an environment that makes long-term economic growth possible and ensures the employment rate is at its maximum (federalreserveeducation, n.d.). The federal reserve bank affects inflation and employment by conducting the monetary policy. It does this through policy tools influencing credit cost and availability in a country's economy (federalreserve, n.d.). Inflation affects companies and businesses. Therefore, during periods of inflation, there is a rise in prices across the board. This means that companies experience a rise in costs of raw materials, employees, rent, gasoline, and even general utilities. In addition, there is also a rise in interest rates which in turn costs a company's cost of capital to increase (Nelson, 2022). In that case, The Federal Reserve Bank plays an important role when coming up with its policies since it affects inflation and interest rates which directly influence a company's economic growth.
Fiscal policy can be defined as a way of influencing the economy through government spending and taxation (Horton & El-Ganainy, 2020). It is usually used with the monetary policy put in place by the federal reserve bank to guide a country's economy and realize its economic target. (Kuligowski, 2022). Therefore, fiscal policy affects a company in that it can encourage investments, provide job opportunities, and make possible long-term economic growth. In addition, fiscal policy influences the demand by consumers, the cost of running a business, decisions made on investment, and finally, the ability to compete.
References
federalreserve. (n.d.). The fed - how does the federal reserve affect inflation and employment? Board of Governors of the Federal Reserve System. Retrieved July 14, 2022, from https://www.federalreserve.gov/faqs/money_12856.htm
federalreserveeducation. (n.d.). Monetary policy basics. Federalreserveeducation.Org. Retrieved July 14, 2022, from https://www.federalreserveeducation.org/about-the-fed/structure-and-functions/monetary-policy
Horton, M., & El-Ganainy, A. (2020, February 24). Finance & development. Finance & Development | F&D. Retrieved July 14, 2022, from https://www.imf.org/external/pubs/ft/fandd/basics/fiscpol.htm
Kuligowski, K. (2022, June 29). What is fiscal policy? Business News Daily. Retrieved July 14, 2022, from https://www.businessnewsdaily.com/3484-fiscal-policy.html
Nelson, F. (2022, April 15). Effects of inflation on business: The good and the bad. Oracle NetSuite. Retrieved July 14, 2022, from https://www.netsuite.com/portal/resource/articles/business-strategy/inflation-effect-on-business.shtml
The Federal Reserve and Fiscal policy not only effects companies, but it does trickle down and effects the communities. As it begins to effect major companies, then prices tend to rise and that is when the communities feel the impact. This is where inflation comes in and as interest rates rise so does everything else.