Implementation of Fiscal Policy
Recall that fiscal policy refers to all the methods used by a government to influence the economy through tax rates and government expenditures. For example, a government may decide to reduce taxes. These moves should, in theory, stimulate the economy…
Tools of Fiscal Policy
The tools that governments use ton influence the economy can be divided into spending and revenue tools. Spending tools refer to the overall government spending while revenue tools refer to taxes collected by the government. Government Spending Tools Capital Expenditure…
Roles and Objectives of Fiscal Policy
Roles and Objectives of Fiscal Policies Fiscal policy affects the following three aspects of an economy. Fiscal Policy and Aggregate Demand The primary goal of fiscal policy is to control tehe economy of a given country by influencing the aggregate…
Macaulay Duration
Definition Macaulay duration was introduced in the previous learning objective. It provides an understanding of the bond’s sensitivity to interest rate fluctuations. At its core, Macaulay duration is the weighted average time until a bond’s cash flows are received. It…
Relationship among a Bond’s Holding Period, Macaulay Duration, and Investment Horizon
Holding Period Return (Horizon Yield) This represents the total return an investor anticipates from holding a bond over a specific duration. It’s influenced by the coupon payments received and any change in the bond’s price due to interest rate movements….
Sources of Return from Investing in a Fixed-rate Bond
Sources of Return Investors in fixed-rate bonds achieve returns through the following: Discount bonds feature a coupon rate below the current market rate, while premium bonds have a coupon rate above the market rate. Over time, the book value of…
Compare Monetary and Fiscal Policy
Fiscal Policy Fiscal policy refers to government decisions on taxation and spending. These decisions affect a number of factors in the economy, including: Governments’ actions have a huge impact on any economybecause of two major reasons: Compare monetary and fiscal…
Economic Indicators over the Business Cycle
As we will discuss below, the use of resources necessary for the production of goods and services fluctuates during a business cycle. Fluctuations in Workforce and Company Costs Recovery In this phase, activity levels start to increase, closing the gap…
Credit Cycles
Credit cycles describe the changing availability and pricing of credit. They describe the growth in the private sector credit, i.e., its availability and usage of loans. Credit cycles are tied to the real economy. When the economy is strong, lenders…
Business Cycle and Its Phases
What Is the Business Cycle? The business cycle refers to the recurring pattern of expansion and contraction in economic activity over time. Economies naturally move through periods of growth, slowing activity, recession, and recovery as production, employment, inflation, and consumer…
