ECO 372 ECO/372 ECO372 Week 4 Individual Assignment International Economics Paper

International Economics Paper Instructions:

Select an organization that both U.S. and international presences. Write a 1,050- to 1,400-word paper in which you answer address the following:

What does the president and congress do to stimulate the economy? What does the president and congress do to contract the economy?

What does the Federal Reserve do to stimulate the economy? What does the Federal Reserve do to contract the economy?

What motivates policymakers to stimulate the economy or contract the economy?

Based on your research, what does the Federal Reserve say about its policy goals?

What does the Federal Reserve say about the strength of the economy?

How does the strength of other economies outside of the U.S. affect your organization?

Based on your research, recommend changes in your organization’s competitive strategies or supply chain.

Use a minimum of 3 peer reviewed sources not including your textbook. Click the Assignment Files tab to submit your assignment.

International Economics Paper

Hercillia C. Henderson

ECO/372

October 21, 2015

Professor Watson Ragin

The Role of the President and Congress in Stimulating and Contracting the Economy

Both the President of the United States and the United States’ Congress are capable of enacting policies that may have the effect of either stimulating or contracting the economy. The President is able to stimulate the economy in a variety of ways. One is to propose a Congressional budget that includes increases in spending for the purpose of creating a stimulus, or proposing tax cuts that likewise are intended to have a stimulus effect. The President may also issue executive orders in certain areas that have the effect of creating a stimulus or contracting the economy. These might include appointing like-minded people to the Federal Reserve Board, adjusting certain tax rates by means of changes in revenue collection policy, adjustments to trade policy, and the like. Congress possesses similar powers in that Congress may appropriate spending for purposes of a imposing a stimulus package, adjusting rates of taxation for the purpose of generating economic growth, adjusting trade policy, such as lowering tariffs, for a similar purpose, and creating public works programs. Budgets and legislation that are proposed by the President must ultimately be approved by Congress, although the executive branch of the federal government, i.e. the Presidency, possesses considerable discretionary powers with regards to executive orders, and regulatory enforcement.

The Role of the Federal Reserve in Stimulating and Contracting the Economy

The Federal Reserve likewise possesses numerous powers that may have the effect of stimulating or contracting the economy. The Federal Reserve’s primary function is to control the issuing of currency in the form of the actual money supply, and to control the availability of credit by means of setting interest rates. The Federal Reserve was created by the federal government in the early twentieth century for the purpose maintaining stability within the framework of the national banking system, and to prevent inflation, unemployment, recessions, depressions, and the economic dislocations associated with the so-called “boom and bust” cycle, or the business cycle (Timberlake, 2008).

The Motivations of Policy-Makers in Stimulating and Contracting the Economy

Policy-makers will likely have multiple goals with regards to the stimulation and contraction of the economy. The primary purpose of economic policy in this regard is the maintenance of economic stability. Many such policies, or at least the institutional framework for the execution of such policies, were created during the early part of the twentieth century in the United States for a variety of reasons. First, the Federal Reserve was created in part to curb the excesses and abuses that accompanied monetary policy during previous times. A major function of the Federal Reserve is to prevent runaway inflation, currency devaluation, and the like, but to also correct for imbalances in the economy that lead to, for instance, the overextension of credit. Likewise, a variety of institutional policy-making frameworks were established during the course of the era of the Great Depression, a time when the stock market had collapsed and unemployment was rampant. In order to correct for the instability that accompanies the social and economic dislocations that were associated with high unemployment rates, the United States federal government created a variety of public works programs that had the effect of putting citizens that had experienced job loss back to work. It was during this period that the economic theories of John Maynard Keynes became influential. Keynes’ core economic works such as General Theory argued in favor a greater government involvement in the economy in order to reduce instability, correct for the business cycle, maintain high rates of inflation, and control unemployment (Pecchi & Piga, 2010).

The Federal Reserve and Its Policy Goals

The Federal Reserve maintains multiple key objectives with regards to its role in the formulation of economic policy. The most important of these is the determination of monetary policy. The Federal Reserve assumes a primary role in the supply of actual currency that will be available in the economy. In other words, the Federal Reserve determines how much money will actually be printed. This is an immensely important power that the Federal Reserve holds because the Federal Reserve is capable of determining how rampant inflation will be in the wider economy. If the Federal Reserve Board decides that inflation rates are too high, the Board may seek to implement a reduction in the volume of currency that is available in the economy. Likewise, if inflation rates are exceedingly low, but the economy is in the state of a recession, then the Federal Reserve may seek to increase the money supply in order to stimulate the economy (Timberlake, 2008).

The Federal Reserve is also responsible for the setting of interest rates, and this is an important power because interest rates determine in part the availability of credit. Low interest rates will reduce the cost of credit and have the effect of stimulating the economy and generating economic growth. However, too low interest rates can have the effect of creating an excessive volume of debt within the economy, and widespread default on debt leading to various kinds of economic dislocations. This was a major contributing factor to the so-called “Great Recession” of 2008.Too high interest rates can have the effect of stifling economic growth in a variety of ways, such as imposing barriers to business development and job creation. The mission of the Federal Reserve is to attempt to maintain a balance between these various concerns (Timberlake, 2008).

The Federal Reserve and the Strength of the U.S. Economy

The Federal Reserve estimates the overall strength of the U.S. economy in a variety of ways. These include such leading indicators of general economic health such as unemployment rates, interest rates, inflation rates, and rates of economic growth. Each of these is a vital concern with regards to the economic health of the nation. For example, a key function of the Federal Reserve is to maintain low unemployment rates. This is a particularly important issue as unemployment rates not only impact the livelihood and well-being of citizens but also impact the general level of social and political stability. Inflation rates are likewise a vitally important concern because currency values impact the general cost of living for consumers and subsequently exercise significant impact on the economic well-being of citizens as well. Interest rates are heavily intertwined with business development, job creation, unemployment rates, the cost of living, and consumer debt, and therefore impact the economy in a wide variety of essential areas. Economic growth is likewise essential to maintaining high rates of employment, reducing poverty, and maintaining social stability (Timberlake, 2008).

The Organizational of Impact of the International Economy

The status of the economy in various nations around the world and on an international level is likely to impact my own organization in a variety of ways with regards to competitive strategies and supply chains. The status of foreign markets affects the firm’s business strategies in a wide variety of ways. For example, a high currency exchange rate or an unstable currency in a particular nation provides a powerful disincentive to being a foreign investor in that particular nation. Likewise, a generally unstable economic environment within a particular country will be an impediment to foreign investment within that particular country. Economic instability may result from a variety of factors including civil unrest, political instability, high rates of inflation, unstable currency, natural disasters, or taxes, regulations, and trade policies that are impediments to business development and growth.

Organizational Changes in Competitive Strategies and Supply Chains

It is necessary for the firm to alter its competitive strategies and supply chain operations on a periodic basis in order to counter challenges that are posed by various economic conditions that arise in the United States, in other nations, and on an international level. For example, it may be necessary to shift the focus of foreign investments away from regions where economic instability has emerged, or where an economic downturn has taken place. Likewise, various forms of instability may have a disruptive effect on the adequate maintenance of supply chains, and supply chain routes may have to be adjusted periodically in order to effectively address such challenges as well (Blanchard, 2010).

References

Blanchard, D. (2010). Supply chain management best practices (2nd. Edition). New York: John Wiley & Sons,

Pecchi, L. & Piga, G. (2010). Revisiting Keynes. Boston: MIT Press.

Timberlake, R. H. (2008). Federal Reserve system. In Henderson, D.R. (ed.). Concise encyclopedia of economics (2nd ed.). Indianapolis: Library of Economics and Liberty.