Expansionary Monetary Policy monetary policy setting that intends to increase the level of

liquidity/money supply in the economy and which could also result in a relatively higher inflation
path for the economy. Examples are the lowering of policy interest rates and the reduction in
reserve requirements. Expansionary monetary policy tends to encourage economic activity as
more funds are made available for lending by banks. This, in turn, increases aggregate demand
which could eventually fuel inflation pressures in the domestic economy.

Central banks use a number of tools to shape monetary policy. Open market operations directly
affect the money supply through buying short-term government bonds (to expand money
supply) or selling them (to contract it). Benchmark interest rates, such as the LIBOR and
the Fed funds rate, affect the demand for money by raising or lowering the cost to borrowin
essence, money's price. When borrowing is cheap, firms will take on more debt to invest in
hiring and expansion; consumers will make larger, long-term purchases with cheap credit; and
savers will have more incentive to invest their money in stocks or other assets, rather than earn
very littleand perhaps lose money in real termsthrough savings accounts. Policy makers
also manage risk in the banking system by mandating the reserves that banks must keep on
hand. Higher reserve requirements put a damper on lending and rein in inflation.

How Consumer Spending And Economic Growth Is Linked

Investment Investing requires a decrease in spending so that more money is available for
investments.
Innovation Technology can radically alter the economic landscape. When more output is
able to be generated from the same amount of input, productivity increases.
Increased Specialization The division of labor means that more efficiency occurs when
workers specialize. This increase in efficiency means greater output will be generated.
Increased Input The more workers or machines an economy has, the more output is
created.
GDP = C + I + G + NX
C = Consumer spending
I = Business investments
G = Government spending
NX = Net exports

While its unlikely it will replace GDP as a national indicator, it does prove a point that economic
growth can come from more than just spending.
Weve already established that consumer spending accounts for a part of GDP, albeit a smaller
role than investment, which translates into
Monetary Policies

Variations in the nation's monetary policies, independent of changes induced by political

pressures, are an important influence in business cycles as well. Use of fiscal policyincreased
government spending and/or tax cutsis the most common way of boosting aggregate
demand, causing an economic expansion. The Central Bank, in the case of the United States,
the Federal Reserve Bank, has two legislated goalsprice stability and full employment. Its role
in monetary policy is a key to managing business cycles and has an important impact on
consumer and investor confidence as well.

How, then, does a company strike the right balance between being early or late? Listening
to economists, politicians, and media to get a sense of what is happening is useful. The best
route, however, is to avoid trying to predict the upturn. Instead, listen to your customers and
know your own response-time requirements.

GDP GNP

Stands for Gross Domestic Product Gross

National
Product

Definition An estimated value of the total worth of a countrys An estimated

production and services, within its boundary, by its value of the
nationals and foreigners, calculated over the course on total worth of
one year. production
and services,
by citizens of
a country, on
its land or on
foreign land,
calculated
over the
course on
one year.

Formula for GDP = consumption + investment + (government GNP = GDP

Calculation spending) + (exports imports). + NR (Net
income inflow
from assets
abroad or
Net Income
Receipts) -
 GDP GNP

NP (Net
payment
outflow to
foreign
assets).

Uses Business, Economic Forecasting. Business,

Economic
Forecasting.

Application (Context in To see the strength of a countrys local economy. To see how
which these terms are the nationals
used) of a country
are doing
economically.

Layman Usage Total value of products & Services produced within the Total value of
territorial boundary of a country. Goods and
Services
produced by
all nationals
of a country
(whether
within or
outside the
country).

Therefore, such financial institution made an exceptional strategic planning on

how to maximize their resources to be able to surpass the budgeted level of Assets

under Management.

A factor responsible for influencing economic growth: Flexibility- Having a flexible

business plan allows for development times that span the entire cycle and includes

various recession-resistant funding structures.