For decades, the US monetary and fiscal policies have been consistent; however, these trends changed after the 2008 financial crisis. Currently the US Federal Reserve fiscal and monetary trends are as a result of a recovery process that has been in place for the last seven years. The financial crush saw the economy hold on to a regressive nature with reduced expenditures that were a consequence of declining funds as well as credit in circulation. The effects of this tendencies was reflective in the performances of some US based companies with reduced profit margins, reduced sales and declining stock prices. From the above statement, it can be argued that both fiscal as well as monetary policies ca n affect the supply as well as the demand of a product. By using Apple Inc. as a case study this paper studies how the moves of the Federal reserves in reference to monetary and fiscal policies affected the company’s performance in the last three years.
Current Monetary and Fiscal Policy Trends
The current monetary as well as fiscal policy are because of the changes resulting from the 2008 financial crisis. Prior to the first sign of a financial crisis in the 1930s, classical economist has suggested that economic down turns would be corrected by either market forces or minimal government intervention (Bordo, Goldin, & White, 1998). After the changes during this period, several economists were forced to change their view giving more significance to policy involvement. According to Hetzel, (2012), both the monetary as well as fiscal policies have been the main tools that have been employed to promote optimal economic efficiency or recovery major on the basis of maximizing employment and expenditures while stabilizing inflation. The 2008 meltdown was another occurrence that destabilized the US economy and the two policies were used to their full efficiency by the Federal Reserve. As at December of 2008, during the height of the financial crisis the Federal Reserve lowered its credit as well as tax rates to what was famously known as the ‘zero lower bound’. The rates credit rates were dropped to 0.25% and later 0% a value that was only changed in 2015. A similar system was adopted with the fiscal policy with increased government expenditure in a move to increase the money in circulation.
The Effects of the Policies Applied by the Federal Reserve on demand and supply
As explained by Coates (2014), the policies adopted by the US have been the primary reason the country’s economy has recovered from the 2008 recession. As at the end of 2008 the fiscal year report indicated an increase in deficit to $455 million dollars, subsequently the following year the number rose to $1.2 trillion dollars. This was part of a costly bailout and stimulus package strategy aimed at prompting high public expenditure, reduce unemployment as well as balance inflation. The above mentioned factors were placed to increase the supply of goods with more companies operating and increasing demand of this commodities form clients who would have substantial financial backing. For instance, the federal reserve move of increasing monetary supply by reducing credit interest would make money available to the public increasing expenditure due to increased demand. The ‘zero lower bound’ is a clear show of how government intervention affected the US citizens expenditure patterns. As a consequence of the above mentioned moves by the Federal reserve the US economy was affected as shown in the table below
|United States Economy Data||2011||2012||2013||2014||2015|
|Money (annual variation in %)||7.4||8.6||6.8||6.2||5.9|
|Inflation Rate (CPI, annual variation in %)||3.1||2.1||1.5||1.6||0.1|
|Stock Market (annual variation in %)||5.5||7.3||26.5||7.5||-2.2|
|USA – GDP per capita (U.S. Dollars)||49,725||51,384||52,608||54,375||55,868|
Source focus Economics
From the above data, it is clear that the policies applied during 2008 had mixed results;however, with the changes seen since 2010 with the increase in regulations such as the Budget Control Act (2010), American Taxpayer Relief Act (2012), and Affordable Care Act (2011) had a positive on the overall economy of the country economy is evident. From the above table the unemployment rates are have been on a constant reduction indicating a 0.5% fall per year over the last three years. Inflation on the other hand, has had a similar movement after increasing to 11% in 2009 and 2010. The last three years have seen a reduction in money supply plus an increase in interest rates to 0.5% this reducing inflationary tendencies in the country. Though the government increased its expenditure in 2009 the move due to bailout to reduce unemployment most employers cut down their staff in order to retain sustainable profit rates; however, the overall stabilization of the economy has seen the same companies increase their staff due to increased customer confidence in reference to the market.
The changes highlighted in the table above similarly highlighted a strong stock market shift. The 2008 financial crisis saw the reduction in securities considering companies were making losses; nonetheless, with increase consumer confidence and higher profits the stock market has been strong. One of the companies that has seen this raise in stock market action is Apple Inc. which has benefited from consumer confidence launching new products such as the new IPad, IMac and more famously the IPhone 6 as well as the IPhone 7 making high profits in return over the last three years.
|Annual Financials for Apple Inc.||2013||2014||2015|
|Sales/Revenue (billion dollars)||170.87||183.24||231.28|
|Gross Income(billion dollars)||63.63||70.69||89.03|
|Market capitalization (million dollars)||71,534||643,120||583,613|
From the above chart, the company’sperformance has been growing over the last three years. The company sales over the last three years has seen a 60.41 billion growth in sales over the last three years. Consequently, this was backed by an increase in profits by 25.4 billion jump in profits and stock market cap increase of 512,079 million dollars.
It can be argued that the stabilization of the market factors such as decrease in unemployment, inflation and growth in consumer confidence derived from GDP growth is the reason Apple is going through a positive financial period. A reduction in inflation directly relates to an increase in monetary value of a commodity; subsequently a reduction in unemployment relates to an increase in public expenditure these factors would suggest apple product fetch a high price in the market and there would be an increase in customers. Though other factors such as increase in taste and preference, technological change as well as market forces are similarly to influence Apple Inc. financial stance both fiscal as well as monetary policies have played a significant role in seeing the company grow. On the other hand, the fiscal and monetary policies in 2015 suggest a lower stock market yield for Apple Inc.
Bordo, M. D., Goldin, C. D., & White, E. N. (1998). The defining moment: The Great Depression and the American economy in the twentieth century. Chicago: University of Chicago Press.
Coates, D. (2014). America in the shadow of empires.New York, NY : Palgrave Macmillan,
Hetzel, R. L. (2012). Monetary policy in the 20082009 recession: A reprint from the “Economic Quarterly”.Darby, PA : Diane Publishing Co.