Monetary policies and fiscal policies of aircraft industry - Policy Essay Example
Monetary policies and fiscal policies of aircraft industry
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MONETARY POLICIES AFFECTING AIRCRAFT INDUSTRY
These are set of tools or instruments by which the authorities and economic practitioners of airbus industry use to regulate aggregate expenditure in the economy by influencing liquidity and the availability of credit in the country.
Open market operations are one of the policies and it involves the sale and purchase of government securities to finance the excess of public expenditure over public revenue. Discount rate tries to regulate the amount of money airbus industry can get from central bank in form of loan. When discount rate is higher, it discourages borrowing and when it’s low it makes aircraft industry to borrow more.
Lending ceiling is set to limit the amount of money that can be borrowed by airbus industry and can not go beyond the limit. The interest rate charged on borrowed funds is set and should not go too high or too low to enable aircraft company finances its deficit through borrowed funds. (Agell, Calmfors, 1996)
FISCAL POLICIES THAT AFFECT AIRBUS INDUSTRY
This is government policy in respect to spending and taxation. The government uses its powers to influence total spending of airbus industry by financing part of the industries expenditure. The revenue generated is taxed a certain percentage set by the government in order to finance its budget.
If the government wants to expand the income of airbus industry, it will do so by increasing its spending and reducing the taxes. Also due to inflationary pressure, there will be need to contract income by decreasing government spending and increasing taxes.
HOW THESE FACTORS HAVE AFFECTED EMPLOYMENT RATES
It helps to achieve high or full employment where by there will be a substantial number of natives and immigrants who will be employed by the aircraft industry and earn their living from there. The employed people will be paid their salaries for the work done and government ensures that they are paid their dues in time and the right amount.
HOW THEY HAVE AFFECTED GROWTH OF INDUSTRY
The aircraft industry has been able to be in continuous progress on yearly basis. This makes the investment sector to be conducive. The industry will be able to come up with new ideas and invent good quality aero planes and the industry will be able to progress well and become more profitable even in future.
HOW THESE POLICIES HAVE AFFECTED THE PRICES OF PRODUCTS
These policies strive to contain prices at stable levels that do not attract inflationary situations. The cost of production is kept lower that the selling price of the output is low to increase demand and reduce the chances of the industry making loss. (Turnovsky, 1996)
Agell J; Clamors L; Johnson (1996); Fiscal policy at a time when monetary policy is tangled to the mast; The European Economic Review, Volume 40, pp1413-1440, Elsevier.
The Central Bank has a significant role of regulating the activities of other banks in the economy by regulating interest rates and putting up borrowing ceilings.
Turnovsky J(1996); Fiscal Policy, growth and Macro-economic performance in an open and small economy; International Economics, volume 40 number 1, Feb 1996, pp 41-66(26), Elsevier
Monetary and fiscal policies always affect businesses more so small businesses like the automotive industry. High taxes lead to an increase of prices of raw materials that compels them to charge higher for their services. There is thus competition among the firms in the same industry who try to lower their service rates at the expense of profits.