Discussions 1 check list

 

Here is a checklist for you to consider as you construct responses for Discussion Question 1.1:

 

>> Quality: Did you identify (2) workplace policies? (2 pts)

 

>> Relevance: Did you evaluate and justify with more examples? (1 pts)

 

>> Quality: Did you discuss federal policy impacts? (2 pts)

 

>> Relevance: Did you justify your response? (1 pts)

 

>> Word Count/Grammar: Is your post written in academic language and not slang or jargon? (1 pts)

 

>> Word Count/Grammar: Is your post longer than 250 words? (1 pts)

 

>> Participation: Did you provide substantive responses to at least one other post? (2 pts)

 

 

 

Discussion 1

 

“What is Policy?”  Based on the lecture, address the following:

 

1. From the readings and first e-Activity, provide two (2) examples of a local, state, federal, or workplace policy. Evaluate whether or not the policy is deemed appropriate or in need of a revision. Justify your response with examples.
2. From the e-Activities, discuss how federal policy impacts state policy that impacts family policy. Justify your response with examples.

 

 

 

 

 

Discussion 2 checklist

 

Here is a checklist for you to consider as you construct responses for Discussion Question 1.2:

 

>> Quality: Did you identify (2) state workplace policies? (2 pts)

 

>> Relevance: Did you justify with more examples? (1 pts)

 

>> Quality: Did you discuss (2) state policy family impacts? (2 pts)

 

>> Relevance: Did you justify your response? (1 pts)

 

>> Word Count/Grammar: Is your post written in academic language and not slang or jargon? (1 pts)

 

>> Word Count/Grammar: Is your post longer than 250 words? (1 pts)

 

>> Participation: Did you provide substantive responses to at least one other post? (2 pts)

 

 

 

Discussion 2

 

“The Court System and Voting”  Please respond to the following:

 

From the e-Activities:

 

1. Discuss two (2) current state policies that may be influencing workplace policies. Justify your response with examples.
2. Discuss two (2) current state policies that may be influencing family policies. Justify your response with examples

3. ANSWER

4. NAME OF STUDENT:

              COURSE CODE:

              COURSE TITLE:

   INSTRUCTORS NAME:

    

   The developed world in general has experienced a very different economic cycle in past decade. There were several examples of mis-reading the signs of economy by federal reserve and government in general

   Government and people in general aspire for growth even after their economy has peaked out and intrest rates are low, This is very difficult to manage for the developed countries, The demand for money is low because of the investment climate,

   Firstly let me give you a glance at intrest rates, In under-developed african countries intrest rates are usually around 20% PA. in Developing countries like india the intrest rates are 10% PA. In china it is 5% and Japan almost close to 0%. This difference is because there is no demand for money in developed countries

   Most of the growth happened due to credit easing and giving credit to people who would temporarily be able to pay it but in long term would not.

   1. The federal reserve cannot to do too much to help economy, The intrest rates are already very low, so further reduction would not be helpful
   2. The reserve ration requirement can be decreased but already major banks in US were bankrupt not too long ago so it would not be a recommendation

   Federal reserve must concentrate on making economy healthy than aspiring for growth, This is very tricky because everyone demands growth but GDP depression has already happened in some countries so keeping economy healthy is most vital

   Federal reserve can raise intrest rates and increase cash reserve requirements for banks to help them become strong first

   Then Federal reserve has more leverages to help the economy, It is quite predictable that from here Economy cannot grow much but if fed can control fall in GDP, they are already doing quite a good job

   One principal instrument used, has been the Bank Rate or Discount Rate i.e., the rate at which RBI lends to the banking system. Through changes in it, the RBI affects the short-term interest rates in the money market, and through it the long-term rates, and through it the level of economic activity in the economy. It also influences the international capital movements: higher rates attract capital inflows and vice versa.

    

   Another important instrument is the open market operations. These operations involve the sale or purchase of government securities. This influence the volume of cash reserves with commercial banks and thus influence the volume of loans and advances they can make to the industrial and commercial sectors. RBI had not used this weapon for many years.

    

   Another device to influence money supply is the Cash Reserve Ratio (CRR). A higher ratio means that the amount of cash available for creating credit is reduced and vice-versa. RBI is empowered to vary the cash reserve requirement between 3 to 15 per cent of net demand and time liabilities to influence the. Volume of cash with the commercial banking system and thus influence their volume of credit.

    

   1. B)

   1) Interest rate channel

    

   2) Credit channel

    

   3) Exchange rate channel

    

   4) Wealth channel:

    

   Interest rate channel: An expansion of the money supply by the central bank feeds through to a reduction of short-term market rates through this channel. As a result, the real interest rate and capital costs decline, raising investment. Additionally, consumers save less and opt for current consumption over future consumption. This, in turn, causes demand to strengthen. However, this stepped-up demand may cause prices and wages to rise if goods and labor markets are fully utilized.

    

   Exchange rate channel: Expansionary monetary policy affects exchange rates because deposits denominated in domestic currency become less attractive than deposits denominated in foreign currencies when interest rates are cut. As a consequence, the value of deposits denominated in domestic currency declines relative to that of foreign currency-denominated deposits and the currency depreciates. This depreciation makes domestic goods cheaper than imported goods, causing demand for domestic goods to expand and aggregate output to augment. This channel does not operate if a country has a fixed exchange rate; conversely, the more open an economy is, the stronger this channel is. Exchange rate fluctuations may also influence aggregate demand by affecting the balance sheets of banks and companies whose balance sheets include a large share of foreign currency-denominated debt. Interest rate reductions that entail a depreciation of the national currency raise the debt of domestic banks and companies which have foreign currency-denominated debt contracts. Since assets are typically denominated in domestic currency and therefore do not increase in value, net worth declines automatically. If balance sheets deteriorate, the risk that some borrowers cannot pay back their loans in due course may increase so much that banks will not grant loans to these borrowers. As a result, borrowers would be forced to cut back on planned expenditures.

   Basic Keynesian theory suggests that the effect of a change in fiscal policy on real GDP is more than one-for-one. For instance, since government spending is one component of GDP, an increase in government purchases, by putting idle resources to work, boosts income one-for-one when the money is initially spent. In addition to that, though, since consumption is a function of current after-tax income in this framework, households also increase their consumption in line with their higher incomes, multiplying the effect of the initial government spending on GDP. The �multiplier effect� of government spending on GDP is thus greater than one.

   This simple framework also predicts that the multiplier effect of a tax cut on GDP will be less than that for government spending. This is because a change in government spending affects GDP one-for-one, while part of a tax cut will be saved and will, at least initially, translate into a less than one-for-one increase in GDP.

   Clearly, these results hinge on many underlying assumptions. One is that households are not assessing their future income when deciding how much to consume. Instead, they are assumed to spend a lot as long as their current income is high. However, households may be concerned about the impact of fiscal measures on their future tax bills. Households may not decide to consume as much if they expect taxes to rise and their future after-tax income to be lower. Moreover, this framework assumes that investment and net exports are insensitive to the change in fiscal policy. However, the response of investment will clearly depend on the behavior of interest rates, which in turn will depend on monetary policy. If monetary policy changes in response to fiscal policy, investment would be affected.

   Large-scale econometric models often used in policymaking institutions make adjustments for household behavior and investment (see, for instance, Elmendorf and Reifschneider 2002). Nonetheless, the relative size of their fiscal multipliers is in line with this simple framework�s predictions. For instance, earlier this year, Christina Romer, the chair of the Council of Economic Advisers, and Jared Bernstein, an advisor to Vice President Biden, estimated that the effects of permanently increasing government purchases by 1% of GDP would be to raise output by 1.5% two years after. At the same time, their model predicts that a tax cut of 1% of GDP would increase output by only 1% two years down the road.

   In a recent paper, Cogan et al. (2009) challenged the Romer/Bernstein estimates using an alternative New Keynesian model in which households and firms are more forward-looking than in typical large-scale econometric models. Using this model, the authors argue that a 1% increase in government spending would produce a mere 0.5% rise in output two years later.

   In this framework, household and firm decisions to spend, invest, and produce are heavily influenced by their expectations of the future. Households anticipate that higher budget deficits will ultimately be financed with higher taxes, and they consume less as a result. Higher government spending thus crowds out consumption. Moreover, Cogan and his coauthors assume that, as the economy recovers following the increase in government spending, monetary policy becomes more restrictive, choking off investment. In contrast, Romer and Bernstein assume that the Federal Reserve keeps the federal funds rate constant, thus mitigating the adverse effect on investment. The crowding out of consumption and investment is relatively strong in the New Keynesian framework, offsetting much of the stimulatory impact of higher government spending.

   In other words, the effects of fiscal policy on real GDP are quite sensitive to underlying modeling assumptions regarding the behavior of households, firms, and monetary policy. This creates fertile ground for good empirical work.

   Earlier this year, Congress passed a $787 billion fiscal stimulus package spread over 10 years. Of that total, $584 billion are spent in 2009 and 2010, with 19% of the funds allocated toward increases in government spending, 33.4% in transfers to the states, and 47.6% toward tax cuts. The findings from the three empirical studies, particularly those of Romer and Romer and Mountford and Uhlig, suggest that the fiscal stimulus package will boost growth substantially over the next two years, partly because it includes sizeable tax cuts that can be implemented quickly and that have significant effects on output.

   Nevertheless, the uncertainty regarding those estimates remains high. Several economists remain skeptical that fiscal multipliers�whether from spending or taxes�are very large (see, for instance, Barro 2009). Moreover historical relationships may prove much less reliable during this downturn. Faced with a large decline in wealth and tight credit availability, households may very well respond differently to tax cuts today than they have in the past

   Economists try to discern where the economy is located and more importantly where it is heading in order to deal with possibly adverse future economic events. When the economy is at or is heading in an undesirable direction, economists may apply fiscal or monetary policy tools to change the course of the economy.

   In general, a business cycle describes changes in the demand-side of the economy as measured by GDP, where:

   GDP = C + I + G + NX

   Over time, GDP does not remain constant and will change for many reasons, economic and non-economic. Economic reasons include changes in government policies such as taxes and interest rates. The non-economic reasons are too many to even consider listing, but include factors such as war, drought, natural and man-made disasters.

   Top of Form Bottom of Form

   Using Figure 7-1 as a guide, the horizontal axis measures time, while the vertical axis yields the real GDP growth rate. As the graph shows, we begin with an increasing growth rate of real GDP during an economic expansion. Eventually, growth approaches and then reaches a peak. Why are peaks reached, or why doesn’t economic growth continue to increase indefinitely? The answer is prolonged periods of economic growth (or short periods of very intensive economic growth) are eventually accompanied by rising inflation rates (or the threat of higher inflation). The higher prices (inflation) bring forth counter cyclical policies used to dampen inflationary pressures.

   	Business Cycle Overview
   	Percentage of time that the US Economy is in a recession	Average length of the recession
   Before – 1945	40%	21 months
   After – 1945	17%	11 months
   Since 1980	10%

    

   The defining part of the business cycle is a recession. Without a recession, the economy doesn’t really experience a business cycle, just a period of a prolonged economic expansion. Between 1992 and 2000, the U.S. economy did not see a recession and set the record for the longest period of economic expansion without a recession. There were changes in real GDP growth during this time period, GDP even decreased in the first quarter of 2003, but no recession. The table above shows how the business cycle evolved in the 20th century.

   Prior to 1945, periods of recession were almost as common as days when the economy was growing. As we will discuss in Unit 9, until the Great Depression of the 1930s, economic policy makers generally did little to counteract the forces that drove the business cycle, choosing instead to allow the economy to take its own course. The result was long (typically almost 2 years) and frequent recessions that we usually much more severe than modern-day recessions.

   Modern economic thought is characterized by the use of both fiscal and monetary policies to counteract and smooth out the business cycle. As the table shows, economists have had success in using these policies to make the dealings of U.S. firms, as well as the life of Americans who work and save in financial markets less turbulent. To better understand the use of fiscal and monetary policies, take another look at the GDP equation:

   GDP = C + I + G + NX

   GDP is the sum of consumption + investment + government spending + net exports (exports – imports).

   This equation can be written in further detail as:

   GDP = C(Y – T) + I(r) + G + NX

   Y is equal to income and T represents taxes.

   (Y – T) gives us disposable income and thus consumption depends on the level of disposable income C(Y – T).

   r represents the interest rate and investment responds to changes in the interest rate.

   • As r increases, I will decrease.
   • As r decreases, I will increase.

   Fiscal Policy is represented by the executive and legislative branches of government and captures changes in taxes (T) and government spending (G). In the United States, the president and Congress make these decisions. As we can see from the equation, a decrease in T will increase disposable income (Y – T), increasing C and therefore increasing the growth rate of GDP. Government spending (G) directly affects GDP growth.

   If the economy is in a recession, a combination of tax cuts and increases in government spending can stimulate economic activity. For example, the U.S. economy saw its first recession in a decade in 2001. Taxes were reduced in 2001, 2002 and 2003 in combination with a 13% jump in government spending over those years. In part, due to the tremendous fiscal stimulus, by late 2003, real GDP growth was in the 7% (at an annual rate) range.

   Monetary Policy is conducted by the central bank of a country – in the United States this is the Federal Reserve Board. Details will be present later in the class, but the Federal Reserve can increase and decrease interest rates to change business investment (I) in the equation above. Changes in interest rates will also influence consumption, but our focus in this class will be the effect on investment.

   For example, in the year 2000, the federal funds interest rate was 6.5% and by the summer of 2003, the interest rate had fallen to 1%. Since the majority of interest rates key off the federal funds rate, interest rates fell across the board along with the federal funds interest rate. A critical contributor to the rapid economic growth seen as 2003 wrapped up was due to the economic stimulus provided by the Federal Reserve.

   Observers have concluded that economics is a somewhat imprecise field, especially when it comes to dealing with business cycles. Economic indicators such as GDP and the inflation rate are trailing indicators. They tell us a good deal about the economy, but importantly they tell us where the economy is at or has been, but not where it is going. For example, the latest quarterly GDP number informs us of economic growth in the past quarter. However, the statistic is not a reliable indicator of economic growth in the current or following calendar quarter. Although there is often a correlation between future GDP growth and past GDP growth, the relationship is easily disrupted and conditions can change rapidly. Economists need to be able to identify changes in the growth trend and to spot these variations by using leading indicatorssuch as changes in business inventories.

   Knowing current economic conditions is useful information for economists, but knowing where it is going is critical. As noted, economists use leading indicators to try to accurately predict future changes in GDP and the inflation rate. Interpreting the signals given by the leading indicators on what direction the economy is taking is often weakly understood by economists, sometimes the indicators give conflicting signals and the conclusions made are often controversial.

   The goal of this topic is to discover how economic policy makers interpret and react to business cycles. The two most important macroeconomic variables are the real growth rate of GDP and inflation (the unemployment rate is also crucial, but is closely tied to GDP growth). The goals of economic policymakers are simple:

   • To maintain real GDP growth at a relatively constant, positive level. For example, economists may desire 3.0% annual growth in GDP (1).
   • Compatible with the growth in real GDP, keep the unemployment rate at a level consistent with the full-employment level of unemployment. Remember, full-employment is not zero unemployment, but a level where all those in the labor force seeking work, can find a job fairly quickly.
   • Minimize the level of inflation and keep it there. Optimally, the economy will have a sustained low inflation rate, 3% or below for example.

   Taking the perspective of the Federal Reserve, ranking the above goals in order of importance yields:

   • Most important – minimize the inflation rate. The Federal Reserve will force economic growth to slow down or even fall into a recession if it sees inflation as too high. Evidence is given by the 1982 recession when the Federal Reserve raised interest rates until the economy tumbled and inflation was taken down. Economists recognize that once high rates of inflation are established, they are very difficult to reduce and should be avoided in the first place.
   • Once the inflation rate is tamed, the Federal Reserve will try to lower the unemployment rate to a level consistent with full employment – currently about 4% in the United States.
   • And once the economy is at full employment, the Federal Reserve will attempt to maintain real GDP growth at a rate equal to the economy’s supply side growth rate.