Essay Sample on Fostering Economic Growth: Assessing Implications of Monetary Policy

Introduction

Fostering economic growth requires a proper articulation of the issues impacting its growth and putting in place suitable measures to steer the growth of the economy. Assessing what is ailing the economy by the government is critical to putting forth robust monetary policies to save the economy from collapsing. The monetary policy employed can have an adverse or positive impact on the performance of business entities. Therefore, it is paramount for the management of the company to assess the effect of the monetary implementation on its financial performance to put the necessary countermeasures to improve profitability

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The Current U-3 and U-6 Unemployment

The economic news release by the U.S. Bureau of Labor Statistics showcases that the official unemployment rate (U-3) in January 2020 is 3.6%, which is an increase from 3.5% reported in December 2019 (The U.S. Bureau of Labor Statistics, 2020). The total unemployment rate (U-6) in January 2020 increased by 0.2% to 6.9% from 6.7% the previous month (The U.S. Bureau of Labor Statistics, 2020). The government is mixing both fiscal and monetary policies to stimulate the economy and, consequently lowering unemployment. The two significant policies in place are reducing the interest rate and cutting corporate taxes and boosting. Lowering the interest rate by the Reserve Bank of the U.S. allows banks to borrow at lower rates than before. The increased borrowing ensures that banks have more money to hire additional employees, purchasing more equipment for production, and expand operations. As a result, the hiring of the unemployed increases, lowering unemployment. Cutting the corporate tax reduces the total cost of doing business. The rise in the average corporate taxes increases unemployment because taxes have a direct impact on the profitability of a business (Zirgulis & Sarapovas, 2017). A situation where corporate taxes are high, companies can decide to boost their profitability by firing employees or raising prices of goods and services.

Lowering the interest rates by the reserve bank and cutting the corporate taxes by the government will directly impact General Mills' profitability. When the organization can afford more borrowings, it will be able to employ more workers, buy production tools, and increase operations. It means that the overall company production will improve. The improvement in output will increase sales revenue and, consequently its profitability.

Current Inflation Rate

The current inflation rate in the U.S. is 2.5%, which is an increase from 2.3% in the last period (The U.S. Bureau of Labor Statistics, 2020). The effective monetary policy appropriate for lowering inflation is raising the interest to make borrowing by firms and individuals expensive. By increasing interest rates, borrowing by General Mills will not be affordable. Thus, the company will not afford to expand its operations and increasing production. As a result, the firm will not have additional sales to boost its earnings.

The U.S. GDP Over the Last Four Quarters

The U.S. experienced a robust improvement in the GDP in the last financial year. The government of the U.S. uses expansionary measures to steer the GDP growth. The most crucial policy tool the federal government is using to stimulate the growth of the economy is the cutting interest in the short-term (Labonte, 2020). Reduced spending increases borrowing by firms and individuals. When General Mills access borrowing, it will be able to grow its operations and, consequently increasing revenue and earnings.

Five Years Trend of the Unemployment Rate, GDP Growth, and Inflation Rate

Over the last five years, there is a decline in the unemployment rate in the U.S. In the same period, the GDP growth improved and fluctuated in some years. The inflation rate experienced an increase lately compared with 2015. The monetary policies implemented and most likely to be in use in the future to facilitate the economic growth are cutting interest, raising interest, and reducing corporate tax. Lowering the interest rate will facilitate growth of General Mills both in size and operations and improve its earnings. Cutting of taxes will also improve its profitability. Raising of interest rates to deal with increasing inflation will lead to General Mills unable to access expensive loans and, consequently no growth in its earnings.

Strategies to Improve Performance and Maximize Profitability

The following strategies are appropriate for General Mills to improve its financial performance. Accessing cheap borrowing to increase its investment. By taking advantage of the affordable loans, the company will be able to introduce additional product lines and services and access new markets to increase the overall market coverage. New markets and production mean increased customer base and, consequently improved profitability. Secondly, when the reserve bank raises the interest rate to curb inflation, the company can lower its costs of production by looking for cheap labor or suppliers. General Mills will also improve its operational efficiency to boost performance. An increasing marketing campaign will help the firm reach new customers that will help increase its revenue generation. Hiking the prices of goods will help in raising sales revenue. However, the approach can drive the firm out of the market due to competitive pricing in the industry. Extensive research and development activities to improve customers' experience and promote creativity is a paramount approach to enhancing the financial performance of the entity.

Reference

Labonte, M. (2020). Monetary policy and the federal reserve: Current policy and issues for congress. Congressional research service, 18. Available at: https://fas.org/sgp/crs/misc/RL30354.pdf

The U.S. Bureau of Labor Statistics. (2020). Consumer price index. Available at: https://www.bls.gov/cpi/

The U.S. Bureau of Labor Statistics. (2020). Economic News Release. Available at: https://www.bls.gov/news.release/empsit.t15.htm

Zirgulis, A., & Sarapovas, T. (2017). Impact of corporate taxation on unemployment. Journal of Business Economics and Management, 18(3), 412-426. Available at: https://www.researchgate.net/publication/317635660_Impact_of_corporate_taxation_on_unemployment