Question

Macroeconomic Conditions and Company Performance: RE: Walmart, Neighborhood Market

 Assess how the current monetary policy and fiscal policy in the United States may impact Walmanr't Neighborhood Markets financial performance in the short term (six months to one year). Be specific and Justify your response.

Answer 1

Capital markets are influenced by fiscal policy in two ways:

• Government spending and tax policy will generate either a budget surplus or a deficit, which will in turn mean that the government sector will either contribute towards financing investment or "crowd out" private investment.
• Tax policy will affect the amount saved. Taxes on interest earned will decrease the incentive to save and create a wedge between the after-tax interest earned by savers and the interest rate paid by firms.

Effects of fiscal policy on business (Walmar't neighborhood)

If government adopts expansionary fiscal policy to boost economic growth it will increase its spending & reduce taxes. As a result money supply will increase in the economy. This will increase demand for goods & services. As demand increases production will also increase & company may need to hire more people. Walmart will get more business as people will have more money to spend at stores which results in higher profits. Walmart will find it easy to borrow money for the purpose of expansion of business to other regions. Due to the reduced taxes profit margins will increase as more money is saved.

If government adopts contractionary monetary policy by reducing its spending & increasing taxes it results in decreasing money supply in the economy. This will decrease demand for goods & services. If demand decreases definitely production will decrease. Walmart will get less business as people have less money to spend. This results in lower profits. As the tax rate increases profit margins will decline.

In another case if due to increased spending & reduction in taxes leads to crowding out effect then Walmart will find it difficult to borrow money for spending & investment.