Question
1. Conduct research on the web regarding a recent U.S. Federal Reserve expansionary monetary policy action. The article I am using is: Congressional Research Service.
1. Conduct research on the web regarding a recent U.S. Federal Reserve expansionary monetary policy action.
The article I am using is: Congressional Research Service. Federal Reserve: Recent Actions in Respnse to COVID-19 March 31, 2020.
2. Describe how the article you read for this post related to the U.S. Federal Reserve and monetary policy.
The Fed has taken steps to jump start the economy by reducing interest rates and to provide assets to financial markets giving access to neededfunding. March 3, the Fed reduced the federal funds rate from a range of 1.5%-1.75 % to a range of 1%-1.25% to stimulate economic activity. March 15, it reduced the range to 0%-0.25%. This is referred to as the "zero lower bound" meaning that the Fed's monetary policy tool has been exhausted at this point, and cannot be used to provide additional stimulus. This is only the second time this interest rate has ever hit the zero lower bound, the first time was in 2008, during the recession.
March 15, the Fed made public it is reducing reserve requirement to zero. The Fed encouragedbanks (uninsured depository institutions) to borrow from the Fed's discount window to meet their liquidity needs.
March 23, Fed announced increasing purchases of Treasury securities and mortgage backed securities, including commercial, issued by government agencies or government sponsored enterprises to "the amounts needed to support smooth market functioning and effective transmission of monetary policty, These would be done at the rate of up to $125 billion daily during the week of March 23.
https://crsreports.congress.gov/product/pdf/IN/IN11259
3. Choose a company that you would like to apply this policy to, and describe the company, its primary markets, and its business model (how it makes money)
Ford Motor Comany. Ford is a multinational automaker. Its main goals are design, manufacture, marketing, financing and servicing of Ford and Lincoln branded cars, trucks, sports utility vehicles, and electric vehicles. There are more than 70 manufacturing plants worldwide and an excess of 10,000 independently owned dealerships.
www.cleverism.com/ford-motor-company
4. What macroeconomic and microeconomic results could occur as a result of this policy?
Macroeconomic: Providing stimulus to the economy by low interest rates and providingassets to financial markets will support the production of products and services. The Gross Domestic Product will prove to be at at high level indicating an acceptable standard of living. Aiding in the evaluation of consumers spendable income.
Microeconomic: Unemployment will be at a low level causing wages to remain constant due to competition among employers.
5. How would this policy affect you as a business manager for the company you chose, in your decision making related to economies of scale?
As a manager at the Ford manufacturing plant, responsible for providing vehicles to the market, I would take advantage of the low interest rates and purchase innovated equipment. The equipment price would be offset after 12 monts of service by filing tax claims of depreciation, increased manufacturing output revenue, waste reduction, and workforce labor reduction.
Maufacturers have seen a shortage of materials and with an increase in the money supply materials may experience inflationary prices. To minimize this effect the low interest loans could be used for sourcing negotiations to purchase and expedite large quantities of materials from suppliers.
6. How would this policy affect you as a business manager for the company you chose, in your decision making related to your business market opportunities?
As a manager, I would do everything possible to build supply and satisfy demand getting vehicles to market. Due to the unprecedented situation with Covid 19 Ford has experienced delays causing backorders at the dealerships. The new high speed equipment would be used to get the supply built back up at the dealerships to meet demand. This would increase consumer confidence, discourage consumers substituting for other brands, and create new sales.
References:
https://crsreports.congress.gov/product/pdf/IN/IN11259
Greenlaw, S. A., & Shapiro, D. (2017, October 11). Chapters 27-28, 30. In E. Dodge, C. Gamez, A. Jauregui, D. Keenan, C. Richardson, R. Sonenshine, D. MacDonald, & A. Moledina (Eds.),Principles of Economics (2nd ed.). Openstax.https://openstax.org/details/books/principles-economics-2e
- How would this policy affect you as a business manager in your decision making related to other areas related to the pursuit of the company's economic self-interest?
- How could this policy affect the company's ability to pursue:
- Strategic partnerships?
- Competitive pricing strategies?
- High-risk ventures?
- Talent acquisition?
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