Economic policies in the United States can have a great effect on the activities of organizations with both a local and international presence. Coca-Cola Company is one such organization; it is a number one producer of soft drinks all over the world with its headquarters located in Atlanta, United States. It also operates one of the biggest systems of distribution in more than two hundred countries globally, providing about 400 beverage products. The economic policies in the United States, as well as in other countries, affect the activities of this organization (Pendergrast, 2013).
What does the president and congress do to stimulate the economy?
During a recession, the president and congress have the responsibility to make an intervention that will stimulate the economy to grow. In recession periods, there is inadequate money that is circulating in the economy; the president and congress have to resort to pursuing expansionary fiscal policy. This entails increasing the level of government spending through borrowing and reducing the taxes thus increasing the aggregate demand. An increase in government spending means more money is directly injected into the economy using various means. Increasing the growth in infrastructure projects such as building dams and employing more teachers through a higher government budget are a number of ways that contribute to an increase in money circulation (Bianchi, 2012). This increases the rate of employment such that households get more money to spend, which stimulates growth. Cutting taxes during recession periods also increases the capacity of spending for the lower and middle-class consumers due to the extra money in their hands. This raises the demand in the economy because they have a higher purchasing power, resulting to economic growth. The president and congress, therefore, use increased government spending through borrowing and lower taxes to stimulate economic growth during recession (Bianchi, 2012).
What does the president and congress do to contract the economy?
The president and congress use discretionary fiscal policy to contract the economy during the inflation periods. There is too much money circulating in the economy during these periods. To reduce this money, the government increases the tax rates and reduces the level of government spending. Higher taxes reduce the amount of money in the hands of the consumers, which reduces their purchasing power. This ensures they are not able to spend more of their incomes to buy more products and services in the economy thus influencing the economic output negatively. By reducing government spending, and increasing taxes, there is less money in the economy, which reduces the rates of employment as well as the growth of other businesses (Taylor, 2010).
What does the Federal Reserve do to stimulate the economy?
The Federal Reserve role in stimulating economic growth involves expanding the supply of money during recession periods. This done using the monetary policy tools that involves reducing the interest rates. The Federal Reserve specifically targets the federal funds rate, which is the short-term interest rate used for interbank borrowing. A lower federal funds rate affects other short-term interest rates by lowering the costs of borrowing for businesses and households. This reduced cost allows accessibility to cheaper credit facilities such that businesses are able to retain and hire more workers as well as expand their businesses. Consumers also have more money at their disposal to spend on goods and services due to better financial conditions. The Federal Reserve reduction in short-term interest rates, therefore, increases the rate of production and employment spurring economic growth. This is the traditional policy used to stimulate the economy. However, when the interest rates fall to zero and cannot be reduced any further, the Federal Reserve then pursues quantitative leasing. In this case, it continues to buy financial assets such as Treasury bills and mortgage-backed securities to help in increasing the amount bank reserves. This causes the price of the financial assets to rise resulting to more wealth and stimulating more spending. Quantitative leasing also enhances a downward pressure on exchange rates, which increases the level of exports and reduces imports providing another way of stimulating economic growth (Litvack, McGee, & Grossman, 2012).
What does the Federal Reserve do to contract the economy?
To contract the economy, the Federal Reserve can still apply the monetary policy to influence the rate of inflation. It increases the target federal rate that raises the borrowing cost for firms and individuals, which negatively affect the consumption of goods and services as well as new investments by businesses and households. This reduction in spending slows down the rate of economic growth (Litvack, McGee, & Grossman, 2012).
What motivates policymakers to stimulate the economy or contract the economy?
Policymakers’ motivations for stimulating or contracting the economy are derived from the need to control the amount of money in the economy. In times of recession, they stimulate economic growth by increasing money supply increasing the level of economic activity and the creation of more jobs. During inflation, they remove the money that would be normally used for covering financial transactions between firms and households. This increases rates of unemployment but also reduces inflation by lowering the price of goods and services and wage demands. The policy makers’ reason for stimulating and contracting the economy is hence to ensure a balanced supply of money in the economy (Taylor, 2010).
Based on your research, what does the Federal Reserve say about its policy goals?
The goals of the Federal Reserve policies are to ensure there is the stability of prices and maximum rates of employment. These goals are pursued through the interest rate policy that varies the federal rate target. An increase or decrease in the rate affects the short-term interest rates of households and businesses. This in turn affects their spending habits and their rates of investments that increases or decreases prices and rates of employments. The role of the policies, therefore, involves finding the right balance that stabilizes prices and ensures full employment (Litvack, McGee, & Grossman, 2012).
What does the Federal Reserve say about the strength of the economy?
According to Federal Reserve, the strength of the economy is determined by the actual production of goods and services which is affected by the changes in the monetary policy. The Federal Reserve monetary policy helps in achieving a combination of output stabilization and inflation.
How does the strength of other economies outside of the U.S. affect your organization?
The strength of foreign economies to Coca-Cola Company affects the price of products or services that are exported and imported between Coca-Cola and the other countries. If the other economies are performing poorly economically as compared to U.S, it implies the strength of the dollar will be stronger compared to the other currencies. This causes the price of the products being exported to increase which reduces the demand of the products. The organization will obtain less revenue from their sales either due to lower sales volume or due to reduction of selling prices to maintain the demand. On the other hand, the organization’s imports from other economies with poor economic conditions will be cheaper. Therefore, the organization can reduce the effect of the exchange rates by importing more of products from these economies (Taylor, 2010).
Based on your research, recommend changes in your organization’s competitive strategies or supply chain
The fiscal and monetary policies have a huge impact on Coca-Cola competitive strategies and changes are necessary to match the policies being implemented. The government fiscal policies determine the amount of tax the organization will have to pay out of its profits. An increase in tax rates implies the organization will have less money to invest and hire more people. During these periods, the organization can increase the prices of their products to get more revenue. The fiscal policy requiring the reduction of tax rates will enable the firm to invest more and recruit more people The Federal Reserve expansionary monetary policy provides the organization a chance to obtain credit at low-interest rates, which they can use for expanding their operations. However, the organization can avoid borrowing at contracting monetary policy since the cost of credit is higher due to increased interest rates (Bianchi, 2012).
Bianchi, F. (2012). Evolving Monetary/Fiscal Policy Mix in the United States. American Economic Review, 102(3), 167-172.
Litvack, D., McGee, R. T., & Grossman, R. (2012). How Global Fiscal/Monetary Policies and Sovereign Credit Affect the U.S. Municipal Market. Municipal Finance Journal, 33(3), 57-71.
Pendergrast, M. (2013). For God, country, and Coca-Cola: The definitive history of the great American soft drink and the company that makes it. Basic Books.
Taylor, J. B. (2010). Reassessing discretionary fiscal policy. The Journal of Economic Perspectives, 21-36.