Difference between monetary and fiscal policy essay

Difference between monetary and fiscal policy essay Describe the difference between monetary and fiscal policy in the UK and explain how such policies can be used to achieve different macroeconomic government objectives. The main and most obvious difference between monetary and fiscal policy is that monetary policy is set by the central bank and fiscal policy is implemented by the government. In the case of the UK, monetary policy is decided upon by the Bank of England which since 1997 has been independent from the government. It would be worth considering the two types of economic policy in more detail now before turning to look at how they can be used to help meet macroeconomic government objectives. Monetary policy is the attempt to control macroeconomic variables through the setting of interest rates. It is a rather blunt policy tool as its effects can be felt throughout the economy as a whole. By changing interest rates, the Bank of England is trying to influence the overall expenditure in the economy as well as controlling inflation. Reducing interest rates makes borrowing the more attractive alternative to saving which then leads to more spending in the economy. Lowering interest rates can also make assets such as property increase in value which also leads to more spending as homeowners extend mortgages and consume more. By cutting interest rates, it is hoped that this increased spending feeds through to output and then to employment. Increasing interest rates on the other hand, has the opposite effect by making saving more attractive than spending and therefore overall spending in the economy is reduced. Fiscal policy is controlled by central government. It can be defined as, â€Å"a governments program with respect to (1) the purchase of goods and services and spending on transfer payments, and (2) the amount and type of tax† (Samuelson and Nordhaus, 1998). It involved the government changing levels of taxation and spending in order to influence the level of aggregate demand (AD). The purpose of fiscal policy is to reduce inflation, stimulate economic growth and to stabilise this growth and avoid periods of ‘boom and bust which characterised the economy during the 1980s and early 1990s. If monetary policy is described as a blunt instrument then fiscal policy is a precision tool that can target particular sectors of the economy and population in order to achieve the desired economic changes. Both these different types of policy are working towards achieving different macroeconomic objectives. It would be worth looking at these in greater detail now. There are four major macroeconomic objectives that any economic policy should be working to achieve. These are full employment; price stability; sustainable economic growth and; keeping the Balance of Payments in equilibrium. These four different objectives compete with each other and all achieve different levels of importance depending on the priorities of the government. During the 1960s, the Balance of Payments took centre stage. This was before the global economy made operating with a deficit a viable and sustainable option. Nowadays most governments operate with a budget deficit and the balance of Payments is no longer seen as a top priority for the government. In 2007/2008 the UK government showed a deficit of  £38.7 billion which is around 2.7% of gross domestic product (GDP). The general government debt is around  £614.4 billion which is around 43.2% of GDP (ONS, 2008). In the 1960s such levels of debt would be unthinkable but now they are just part of a global reality. In order to implement social programs and fulfil spending promises, the government is forced to borrow from global institutions. This has become a global reality. These current times of economic uncertainty only increases the amount of borrowing by governments all over the world. Full employment enjoyed similar prominence in the period after the war until the 1980s. Full employment meant that more people were contributing to the economy both in terms of output and through taxation. It also meant that the government had to spend less on social programs. This full employment was aided by a largely industrial economy which started to decline in the 1980s. Thatcher wanted to restructure the economy to make it more efficient and move it away from its industrial base. Full employment is still an important objective and it is one that is gaining prevalence again but during this current recession it isnt a realistic prospect. The current rate of employment stands at 74.1% (ONS, 2009) which is a slight decrease on the previous year. However, as the recession deepens, it is expected that this number will fall even further. Perhaps the most two important objectives for the government at present are sustained economic growth and price stability by keeping inflation low. The government is trying to foster sustainable growth in the economy which means growth without inflation. However, the past year has seen the UK economy slip in to a recession, making any sort of growth impossible. During this recession the level of inflation has fallen but this has not translated into economic growth. It was hoped that that low inflation would mean that spending would increase. However, the current economic climate has seen prices fall so much that consumers are now waiting to see if prices fall even further before spending (Monaghan, 2009). This essay will now turn to look at how the use of monetary and fiscal policy can be used to achieve these macroeconomic objectives. Perhaps one of the most significant changes that the current government introduced was giving the Bank of England independence when it comes to setting interest rates. Before the government was dictating both monetary policy and fiscal policy. The Monetary Policy Committee (MPC) is now tasked with maintaining price stability and also supporting the government in meeting its objectives for growth and employment (Budd, 1998). The government still sets the goals of monetary policy but it is up to the Bank of England to decide how best to achieve this through. The independence of the central bank is considered important for a number of reasons. Firstly, politicians are not experts when it comes to monetary policymaking. Secondly, central banks are more likely to have the interest of the country at heart rather than politicians who may be motivated by implementing populist policies for the sake of winning votes. Thirdly, politicians are unlikely to want to keep to monetary policies when t hey have adverse affects like high unemployment, although this wasnt the case with Thatcher. The final argument for having an independent central bank is that countries that have them tend to have lower levels of inflation (Alensina and Gatti, 1995). This essay will now look at how the MPC goes about meeting its objective of maintaining price stability. The present recession has forced the committee to consider radical solutions to the unique problems that the economy is facing. For the past year, the bank has cut interest rates on six consecutive occasions to the current record low of 0.5%. It was hoped that cutting interest rates to this level would stimulate spending in the economy and that this would translate to economic growth and would keep inflation at the. However, this has not happened because the banks have stopped lending the money usually required to facilitate the spending. This has forced the Bank of England to consider other options. One such measure introduced in the past month was quantitative easing. This idea is the equivalent of printing up large amounts of money, in the case of the UK it is estimated to be about  £75 billion, and throwing it out of a helicopter so that the people below could pick it up and spend it (Elliot, 2009). This is a rather simplistic view of what the Bank of England is trying to achieve. This  £75 billion will be used to buy government bonds and corporate debt over the next three months. By exchanging these bonds for cash that the bank has printed, it is hoped that this will increase the flow of money in the economy. With more cash, banks should start lending once again to other banks, businesses, and customers. This will increase spending in the economy which will lead to economic growth. However, the success of this measure rests on whether customers still want to borrow. The popular conception amongst the public is that we are in this position because we borrowed way above our means. It remains to be seen if once credit is made available again b y banks whether people will take it up again. If they dont, then the banks will be awash with money that will be doing nothing and this will not lead to economic growth but rather to inflation. The Bank of England has to achieve a fine balance. It has to provide enough money to banks to encourage them to lend again at competitive rates but it also has to make sure that there isnt a surplus of money that will send inflation out of control (Kollewe, 2009). Beyond cutting interest rates and printing there is little more that monetary policy can offer to delivering macroeconomic objectives. This essay will now look at how fiscal policy delivers macroeconomic objectives. Fiscal policy can be more fine tuned to target particular sectors of the economy and the population. It does not take the rather blanket approach taken by monetary policy. Perhaps the most effective fiscal policy to achieving macroeconomic objectives is through borrowing and taxation. For example, the government recently cut the lower starting rate of income tax. This encourages people on lower incomes to work more hours because they will be able to keep more of what they earn. This they can either spend or save, based on the level of inflation that is determined by monetary policy. Another measure introduced last year by the government was the 2.5% reduction of the rate of VAT. This was introduced at the end of last year as a way of boosting spending, especially in the run up to the busy Christmas period. However, this has not had the desired effect on household spending which is at its lowest level since 1991 (ONS, 2009). It could be argued that fiscal policy is not as much use as monetary policy to meeting macroeconomic objectives at the present time. The government is trying to stimulate spending in the economy by borrowing more money in order to fund tax cuts and increased spending in social programs. However, the effect of this may be that people are realising that they may face a higher tax burden in the future because of this increased spending and so are saving more in anticipation of this. The government is presently pumping money into sectors of the economy that provide large numbers of jobs. For example, it has just stated that it is prepared to make up to  £2.3 billion available to car manufacturers. The Business Minister, Ian Pearson, stated that this level of investment was necessary to, â€Å"ensuring the industry comes out of the current downturn with the skills and technology needed to be competitive in the global automotive market†. However, the success of this initiative again rests with the consumer. Will they want to borrow to finance things such as cars in the future? The car industry may be facing a downturn that will not recover after the recession. Because the economy is at present shrinking it means that the government is not getting as much income from tax revenues because less people are in work and those working arent getting as much. Welfare spending has had to increase to make sure that the standard of living does not fall in the UK. Those who have lost their jobs as a result of the recession have to be provided for by the state. All of this contributes to a much larger deficit which doesnt fit in with meeting macroeconomic objectives. With the global economic situation seemingly changing on an almost daily basis, it is hard to judge just how effective monetary and fiscal policies are in meeting macroeconomic objectives. It is also hard to judge which is the most effective way of delivering these objectives. This essay would argue that both policies are fairly weak at the moment. In order for monetary policy to work, it requires people to have the confidence to spend knowing that money is always going to be available to them. This could be just a person buying goods in the high street or a business buying services from another business. It would seem that UK consumers are willing to hold on to large quantities of money, even though the central bank has lowered interest rates to such an extent that it makes saving a very unattractive option. Consumer confidence is low, and when it is low people tend to hold on to their money rather than borrowing more. It remains to see just how effective this quantitative easing wi ll be. In many ways it seems that fiscal policy is working against monetary policy at present in achieving macroeconomic objectives. While on the surface it seems logical for the government to be borrowing big in order to fund tax cuts and create jobs, many people see this borrowing as storing up problems for the future because all this borrowed money will have to be repaid at some point. This means that people are saving more instead of spending which the government wants us to do to meet the objective of growth in the economy. In a growing, sustainable economy, both monetary and fiscal policy should serve to benefit each other and they should work for each other in achieving macroeconomic objectives. In a receding economy such as is being witnessed in the UK, there needs to be a delicate balance struck between the two. It would seem that this balance has yet to be achieved and at present they are fighting against each other. Bibliography and References: Alensina, A. and Gatti, R. (1995). How independent should central banks be?, The American Economic Review, 85(2), 196-200. Budd, A. (1998). The Role and Operations of the Bank of England Monetary Policy Committee, The Economic Journal, 108(451), 1783-1794. Dunkley, J. (2009). UK given approval for  £2.3bn auto bail-out, The Telegraph, 28 Feb. Elliot, L. (2009). Quantitative Easing, The Guardian, 8 January. Monaghan, A. (2009). UK inflation falls to lowest in lowest in almost 50 years, The Telegraph, 17 Feb. Kollewe, J. (2009). Bank of England cuts rates to 0.5% and starts quantitative easing, The Guardian, 5 March. Moore, E. and Warwick-Ching, L. (2009). Rate cut brings more misery to savers, The Financial Times, 5 March. Office for National Statistics (ONS) (2008). UK Government Debt and Deficit [online] Available from: http://www.statistics.gov.uk/cci/nugget.asp?ID=277 [Date accessed: 10 March 2009] Office for National Statistics (ONS) (2009). Employment [online] Available from: http://www.statistics.gov.uk/cci/nugget.asp?ID=12 [Date accessed: 10 March 2009]

Driving Age

Most people don’t like the driving age at 21, a lot of them are teens. A lot of the teens feel that the government is taking away part of there freedom. If teens at 18 are able to vote and, go into the military shouldn’t they be able to drive, at 18 to? In some states the driving age is 16, I think it should be raised to 18 because most, Motor vehicle crashes are the leading cause of death among 15- to 20-year-olds. I think it would be better, to get your driving license at 18 because if the teen as a job, the parents would have to drive the teen to work and back. If the teen is able to drive it would be a burden lifted off of the parent. The parent would not have to drive the teen everywhere and the parent is free to do what he/she wants to do without having to drive the teen every place. Rising the driving age can save money, gas, and lives. Of course there would have to be certain hardship exemptions. It could not be allowed to become something, just began seeking just to gain a license. And just wanting a job shouldn't qualify one for an exemption. If someone under 18 wants to work, they would have to seek something within walking/biking distance or along public transportation lines. Only about one third of teens work paid jobs during the summer, so it isn't hard to imagine those wanting to work could do so without having to drive. The primary industries affected by increasing the driving age to 18 are the automotive manufacturers, auto insurance, gas and driving education companies. This basically covers the largest firms within the auto industry. The automotive manufacturers would only see a delay in purchases by a factor of three years and only for the first three years that the driving age was raised to 18. The auto insurance companies would hopefully gain revenues by not having to pay out insurance claims due to car accidents created by the 15 – 18 old teens. Gasoline companies would see a reduction in their revenues with the reduction of gasoline usage. Driving schools would see the most significant impact. Short term they would lose business for the first 3 years. If we didn’t lower the driving age from 21 to 18, there would be more accidents from other teen, that are 16-20. Also if the driving age was 18, a lot more people wouldn’t find the need to drive without a license. They wouldn’t need as much money for insurance and gas. I think that the driving license should stay 18 instead of 21.

Guy Kawasaki Business Plan Example

Your Logo Name of your company Your Name Title Company Name Mailing address Email address Direct dial number Executive Summary The executive summary is the most important part of the business plan because if it doesn’t â€Å"wow† readers, they will stop—or at least â€Å"tune out†Ã¢â‚¬â€at this point. My suggested format is: * Paragraph 1: Explain what your company does in very simple but seductive terms. * Paragraph 2: Explain the â€Å"magic sauce† that your company has that provides a believable competitive advantage. * Paragraph 3: Explain your current status, milestones reached, and milestones soon to be achieved.Your plan is going to live or die, be read or be tossed, based on this section. It is 80% of what matters in a business plan. Note: You can read my blog post for more information. Problem/Opportunity The purpose of this section is to create an awareness that the problem you solve or opportunity you address is financially attractive. M ost entrepreneurs rely on consulting studies, but this is ineffective because everyone makes similar statements: â€Å"According to Jupiter, the market for avocado farming software will grow to $20 billion by 2015. †As a rule of thumb, the more citations you use, the less believable the opportunity. The better method is to catalyze fantasy so readers make their own market estimate. For example, if your product appeals to teenagers, you’d like the reader to be thinking, â€Å"My kids and all their friends would love this. The market will be huge. † Unfair Advantage This section has to answer the very simple question: â€Å"Why you? † In other words, what makes your company so special that you will succeed where others will fail? Each company can have a different answer to this question: * Leading-edge PhD research High visibility and powerful connections in the industry * Exclusive, perpetual intellectual property license I’ll also tell you what doe sn’t work: saying that you’re bright, energetic, hardworking people who really believe in what you’re doing. Entrepreneurship isn’t an elementary-school play where everyone gets positive feedback. In other words, think â€Å"Tiger entrepreneur† in the spirit of Amy Chua’s Tiger Mom. Frankly, you may not have an unfair advantage then what you should do is delay raising money and bootstrap your company until you can show that the â€Å"dogs are eating the food. If I had to pick the best unfair advantage, it would be that you’re already shipping, and customers are flocking to you. That cuts through all the bull shiitake. Sales and Marketing This section explains how you’re taking your product to market—particularly during the introduction phase. You must show an understanding of direct sales, channels, or freemium marketing to be credible. Also, you should make it obvious that the cost of acquisition of a customer is far l ess than the revenue you’ll reap from each customer. Specificity is everything here. Blowing smoke such as â€Å"we’ll use viral marketing† is an insult to the reader’s intelligence.Going viral is an outcome, not a strategy. A sophisticated reader will want to know your tactics at the ground-level—not a 50,000 foot view. So imagine yourself in the marketplace. You’ve got a knife in your teeth. How are you going to capture the market? Competition There are two goals for this section. First, to provide an overview of what competition your company faces. Readers truly want to know what you will be up against. Second, to build credibility by showing that you are aware of all the major competitors and understand how to do battle with them.Many entrepreneurs screw up this section by claiming there is no competition. Anyone whose money you’d want will conclude one of two things if you do this: you don’t know how to use a search engine or you’re going after a market that doesn’t exist. The best case for this section is that you create a chart that shows what you can do and your competition can’t and what you can’t do and your competition can. Finish off by showing tactical ways to defeat the competition. Business Model Explain exactly how you’re going to make money in this section. Will you be selling licenses? Boxes? Virtual goods?Advertising? There are a limited number of options here, and I wouldn’t try to invent a brand-new business model. You may not know how you will generate revenue. That’s okay. Take your best shot based on your marketing and sales strategy and what other successful companies have done. I would not, however, list a bunch of potential business models. Then it looks like you’re clueless and barfing out possibilities. Here’s a power tip: Ask women what they think of your business model. Women are much better judges of business mo dels than men because they are much better bull-shiitake detectors.Forecast In a few days, I’ll provide an Excel model that helps you create a five-year financial forecast for this section. You can find the Excel model in the same folder as this outline on my SkyDrive, or search for the post on my blog http://blog. guykawasaki. com. But the gist of this section of your business plan is to tell your story with numbers. The elements of this story include the opportunity, required resources, and checkpoints. Honestly, no one is going to believe your numbers, and this is okay because it’s true of all pitches.What you need to communicate is an overall picture of the economics of your business, the trends in the market segment, and an understanding of your business. Team This is the infamous team section of the business plan. It’s the section that entrepreneurs think make or break the plan. Many experts would disagree with me, but it’s not the most important pa rt of the business-plan document. The Executive Summary is because if it’s not great, readers will not care, or perhaps even get to, the team section. Frankly, most team sections are weak—almost by definition.You are, after all, a young company seeking funding. If you truly had a proven team, you wouldn’t be seeking funding because you’d be using your own money or you could call up investors in prior companies who would fall all over themselves to fund you. So what you want to do is to have catalyzed fantasy with your PowerPoint, demo, and previous sections of the business plan to such a degree that the reader is thinking, â€Å"This is such a great idea that we can help build the team,† as opposed to â€Å"This is such a great team that surely they can do something great. †Then this section should demonstrate that you have at least two people who are dedicating their lives to making the company a success and that they have relevant experien ce. You and your co-founder are probably not famous, but hopefully you’ve worked for companies that the reader has heard of. You heard it here first: well-known corporate logos are a proxy for a good team. If not corporate logos, then college logos will suffice. If you can furnish neither, then we’re back to the best testimony of all: you are already shipping, and the dogs are eating the food.Have you noticed that I constantly come back to this? Real customers are the best â€Å"proof† of viability. Status and Milestones The purpose of this section is to â€Å"tie a bow on the present. † Another metaphor is that this section of the plan is the vanilla ice cream that goes on top of the warm apple pie. Reiterate all the progress you’ve made â€Å"without any outside funding,† how the customers are eating your stuff up, and how the trend is your friend.

Molecular Mass Calculations

The molecular mass of a molecule is the total mass of all the atoms making up the molecule. This example problem illustrates how to find the molecular mass of a compound or molecule. Molecular Mass Problem Find the molecular mass of table sugar (sucrose), which has a molecular formula C12H22O11. Solution To find the molecular mass, add the atomic masses of all of the atoms in the molecule. Find the atomic mass for each element by using the mass given in the Periodic Table.  Multiply the subscript (number of atoms) times the atomic mass of that element and add the masses of all of the elements in the molecule to get the molecular mass. For example, multiple the subscript 12 times the atomic mass of carbon (C). It helps to know the symbols for the elements  if you dont know them already. If you round off the atomic masses to four significant figures, you get: molecular mass C12H22O11 12(mass of C) 22(mass of H) 11(mass of O)molecular mass C12H22O11 12(12.01) 22(1.008) 11(16.00)molecular mass C12H22O11 342.30 Answer 342.30 Note that a sugar molecule is about 19 times heavier than a water molecule! When performing the calculation, watch your significant figures. Its common to work a problem correctly, yet get the wrong answer because its not reported using the correct number of digits. Close counts in real life, but its not helpful if youre working chemistry problems for a class. For more practice, download or print these worksheets: Formula or Molar Mass Worksheet (pdf)Formula or Molar  Mass Worksheet Answers (pdf) Note About Molecular Mass and Isotopes The molecular mass calculations made using the atomic masses on the periodic table apply for general calculations, but arent accurate when known isotopes of atoms are present in a compound. This is because the periodic table lists values that are a weighted average of the mass of all natural isotopes of each element. If you are performing calculations using a molecule that contains a specific isotope, use its mass value. This will be the sum of the masses of its protons and neutrons. For example, if all the hydrogen atoms in a molecule are replaced by deuterium, the mass for hydrogen would be 2.000, not 1.008. Problem Find the molecular mass of glucose, which has a molecular formula C6H12O6. Solution To find the molecular mass, add the atomic masses of all of the atoms in the molecule. Find the atomic mass for each element by using the mass given in the  Periodic Table. Multiply the subscript (number of atoms) times the  atomic mass  of that element and add the masses of all of the elements in the molecule to get the molecular mass. If we round off the atomic masses to four significant figures, we get: molecular mass C6H12O6   6(12.01) 12(1.008) 6(16.00) 180.16 Answer 180.16 For more practice, download or print these worksheets: Formula or Molar Mass Worksheet (pdf)Formula or Molas Mass Worksheet Answers (pdf)