Analysis of Economic Policies, Forecasting & Finance - BUS 535

This assignment delves into various aspects of economics, starting with an analysis of the lags associated with monetary and fiscal policies, emphasizing their importance in policymaking. It explores how accurate economic forecasting can aid in stabilizing the economy, discussing regression and Logit-Probit models. The concept of time consistency in economic policy is examined, highlighting its role in crisis management. A recent article on monetary policy is reviewed, focusing on its impact on household well-being and the need for equitable distribution. Furthermore, the assignment discusses the roles of debt and equity finance from both business and investor perspectives, and concludes with an analysis of moral hazard in the context of financial crisis management, emphasizing the importance of protecting resources and employee interests.

Running head: Economics
ECONOMICS
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Economics
Table of Contents
Question 1: Lags in monetary and fiscal policy and importance of these variable in policy
making........................................................................................................................................3
Question 2: Importance of accurate forecasting on stabilisation of economy...........................3
Question 3: Time Consistency of economic policy and contribution in managing crisis..........4
Question 4: Recent article on monetary policy..........................................................................4
Question 5: Role of debt finance and equity finance from the business side, and the financial
Investor’s (saver’s) side.............................................................................................................5
Question 6: Moral hazard and financial crisis management......................................................5
Reference list..............................................................................................................................7

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Question 1: Lags in monetary and fiscal policy and importance of these variable in
policy making
Fiscal policy is having longer inside lag.
Monetary policy is having longer outside lag. This is because when the federal
government is increasing the money supply within the economy then the immediate counter
effects that is bought within the economy is reduction in the interest rate and that is
immediately increasing the level of investment. Now many firms do plan their investment
activities in advance and it generally takes up to six months to reflect the changes in money
supply on the real GDP (Bianchi & Ilut, 2017).
When a policy in the form of regulation of industry is taken by the government then
the regulatory lag that are mostly seen within the industry is more or less endogenous in
nature.
In developing policy recommendations, consideration of both inside and outside lags
are extremely important. This is because, fiscal policy is having longer inside lags that
actually takes up more time to incorporate the changes in the fiscal activities like bringing in
investment and other tax structures it will take time to implement within economy and
government should give that time to the economy to adjust.
Question 2: Importance of accurate forecasting on stabilisation of economy
More accurate economic forecasting will help the policymakers in stabilizing the
economy because of the fact that through the accurate economic forecasting the policymakers
will be able to identify the gaps that are being present within a current policy. In order to
stabilize the economy it is important to predict the future economic recessions and future
economic inflations that are going to have severe impact on the economy in the long run.

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Two ways economists try to forecast the economic activities is through using
Regression model and Logit-Probit model. The regression is going to forecast the economic
activities using the coefficients of variations. Through the use of coefficient of variation is
mainly going to bring in high level of prediction that will minimize the standard error. On the
other hand, use of Logit-Probit model is mainly going to help the study in using logistics
regression that are going to have impact on probability factors that are going help the
development of model.
Question 3: Time Consistency of economic policy and contribution in managing crisis
Time inconsistency within the economic policy is the mismatch among the time
frames that are mainly required to implement a particular policy. Through the time
inconsistency framework the economy is mainly going to face dilemma and the decisions that
are going to be taken by the policymaker is going to take.
On the other hand, through the utilisation of time consistency, economies will be
better able to manage the crisis. Time inconsistency of the employees will not only increase
the overall efficiency but will also help in increasing the management crisis. Now in most of
the period of policy implementation it has been seen that most of economic variables do not
get enough time to implement the polices.
On the other hand, through the incorporation of better policy making strategies will
definitely include the development of management crisis. This is important in the sense that
though the minimization of time taking the effectiveness of the policy will increase if the
economy is using correct forecasting of economic stabilization.
Question 4: Recent article on monetary policy
The recent article that the study is considering claims the fact that people are living a
better life with the monetary policies that has been taken by Federal government. One of the

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major impacts and the light the article has shed is the reach of the policy. It is not well
distributed and equally adjusted among the whole economy (Federal Reserve Board issues
Report on the Economic Well-Being of U.S. Households, 2019). The main impact of the
monetary policy that is falling on the household is that they are being able to increase their
standard of living that are going to bring in high impact.
In order to increase the smooth flow of the financial variables, the government need to
indulge the smooth movement of inflation rate through flexible exchange rate. In spite of
having high benefit for the development of economic sustainability, the majority of the
people claimed that benefit is not coming mainly due to diversity in the race of people. Most
of the white men are living a better life compared to Hispanic group of people. In order to
increase the development of resources and capital the economy is mainly looking to
incorporate minimization of racial discrimination.
Question 5: Role of debt finance and equity finance from the business side, and the
financial Investor’s (saver’s) side
Taking the business perspectives, the role of debt financing is going to increase the
production level as through the incorporation of debt financing, the business side will be able
to increase their revenues and making efficient level of investment. Debt financing will
definitely indulge in the improvement of resource distribution. Now from the investors’ side,
the debt finance and equity finance will make sure that the profitability of stakeholders are
intact in nature.
On the other hand, through the debt financing opportunities, the economy will use the
option of mortgages that will smooth out the loanable functions of the money that will
improve the crowding out effect of the economy (Hommes, Massaro & Salle, 2019). On the
other hand, through the development better accessibility of resources, it will be easy to

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identify the development of better level of business. Through the effective identification of
resources and debt financing policies both the business side and investor will help them to
include the level of smoothness of financial flow.
Question 6: Moral hazard and financial crisis management
When a firm is protected by any government in the midst of the crisis period, many
economists claim that the firm’s creditor is to be protected. On the other hand, it is important
for the government to protect the development of resources that will save the moral hazard.
On the other hand, through the incorporation of better protection the financial crisis will be
highly managed by saving the interest of employees (Nakata, 2016).

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Reference list
Bianchi, F., & Ilut, C. (2017). Monetary/fiscal policy mix and agents' beliefs. Review of
economic Dynamics, 26, 113-139.
Federal Reserve Board issues Report on the Economic Well-Being of U.S. Households.
(2019). Board of Governors of the Federal Reserve System. Retrieved 29 May 2019,
from https://www.federalreserve.gov/newsevents/pressreleases/other20190523b.htm
Hommes, C., Massaro, D., & Salle, I. (2019). Monetary and Fiscal Policy Design at the Zero
Lower Bound: Evidence from the Lab. Economic Inquiry, 57(2), 1120-1140.
Nakata, T. (2016). Optimal fiscal and monetary policy with occasionally binding zero bound
constraints. Journal of Economic Dynamics and control, 73, 220-240.
Sims, C. A. (2016, August). Fiscal policy, monetary policy and central bank independence.
In Kansas Citi Fed Jackson Hole Conference.
Williams, J. C. (2016). Monetary policy in a low R-star world. FRBSF Economic Letter, 23,
1-23.