Macroeconomics_Unit5_IP

Macroeconomics_Unit5_IP - form of giving out a loan (such...

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For simplicity, I will offer 3 methods which encourages firms to grow (not particularly geared towards Hong Kong or  Singapore, as these methods are used worldwise these day). Also, I use both fiscal (by government) and monetary  (by central banks) policies.  1. Expansionary monetary policy (i.e. reduce interest)  Central banks may reduce interest rate by reducing the overnight loan rate. Interest rate goes down => firms can  borrow at a lower rate => firms are more willing to invest (in machines, land, etc), and firms pay less interest on  debt => firms grow.  2. Expansionary fiscal policy - increase government spending  Government may increase spending and target these funding towards certain firms. Such increases may be in the 
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Unformatted text preview: form of giving out a loan (such as bailout) or giving out a big contract to the firm(s). Say if the governments of HK and Singapore want to encourage growth in the financial sector, they may give some government funds for these firms to invest (firms have more business => hire more workers => growth). 3. Expansionary fiscal policy - cut taxes. For similarly ideas to the previous policy, the government may reduce corporate tax rate. Then firms will have more profit => hire more worker and more investments => growth. Again, this idea is used by government all around the world, certainly HK and Singapore....
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This note was uploaded on 02/17/2012 for the course ITCO 101 taught by Professor Gugenhiem during the Spring '12 term at AIU Online.

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