For a company to be impacted by the Federal Budget the company must be
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For a company to be impacted by the Federal Budget the company must be an institution which relies on the financial stability of the entire economy. In short all corporations will be affected one way or another by the federal budget. What is the federal budget and how does it impact the financial administration of the firm? The federal budget is the budget of the federal government. Though the government does not have total control over tax revenues and certain expenditure as a participant in the economy, the government makes purchases of goods and services and collects taxes and makes payment to the households. In order to collect taxes or purchase goods and services the federal government comes out with the budget. This budget is then approved by the Congress and applied to better the economy.
The federal government budget can affect the overall economy through the following:
Fiscal policy: - this refers to the government taxing and spending behavior. How does this affect the financial administration of the firms? If the tax policy is changed and consumers tax rate increases or the percentage of tax that investors pay on their profit increases then the financial administration of that firm will be affected in helping consumers make future investment.
Discretionary Policy: - this policy refers to changes in taxes or spending that is the result of conscious changes in government policy. Because of taxes and expenditure often go up and down in response to change in the economy this policy is used to stabilize the economy. For example if the economy goes into recession, the number of unemployment which results in the increase of unemployment insurance (payment made by government). The impact of this policy in the firm financial administration can be felt through the consumer will not have purchasing power.
Monetary Policy: - this policy refers to the behavior of the Federal Reserve regarding the nation money supply. This happens by increasing or reducing reserve available to banks. If the discount rate is high then the cost to borrow will be high in time like that banks will call in some of their loan to balance the reserved ratio. The higher the discounted rate, the higher the cost of borrowing and the less borrowing bank will want to do.
When we look at the overall impact that the Federal budget have towards financial administration we have no choice but to agree that its impact could be measured in several ways. If we take inflation which is an increase in the overall price level or when many prices increase simultaneously the prices to purchase for example a stock share for grain could go up. This rise in price per stock could be imposed by a dry season whereby reducing supply and purchasing up the price of this particular product. So it will affect the firms financial administration in negotiating the price or minimizing the panic that is set by price inflation of this particular product. If we take interest rate, interest is the fee that a borrower pays to a lender for the use of his or her funds. The interest rate is the annual interest payment on a loan expressed as a percentage of the loan. So the demand for money depends on the interest rate. The higher the interest rate, the higher the opportunity cost (more interest foregone) from holding money, and less money people will want to hold. How this impact the financial administration is very clear increase in interest rate could affect the borrower ability to borrow or to purchase any type of product. It can also impose financial difficulties for firms who do extend services such as mortgage loans, car loans and so on. If we take debt (national debt) what we are talking about is the total of all accumulated federal deficit minus surpluses over time, or the total amount owned by the federal government. The current federal debt is a little over $5 trillion US dollar. The burden of the debt falls both on the government the household and firms. How it can affect the financial administrator is if a family wants to borrow money either to send their kid to college or purchase a house they have to pay interest on these loans. This could also be said for
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Economy, Macroeconomics, Public finance, Fiscal policy, United States fiscal cliff, Macroeconomic policy, Monetary policy, Inflation, United States federal budget, Government budget balance, Government debt, Recession
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