Fiscal and Monetary Policy

The United States federal government uses four monetary policy tools. They include the
reserve requirement, open market operations, discount rate, and the interest of reserves. The
discount rate is the financial tool likely to influence the sale of smartphones in the United States.
Expansionary monetary policy increases the supply of money in the economy. On the other hand,
contractionary monetary policy decreases the supply of money in the economy (Gravelle and
Hungerford, 2012). Expansionary monetary policy will increase the sale of smartphones in the
economy, and more money is at the buyers’ disposal.
M1 money supply incorporates liquid cash such as checkable deposits and the traveler’s
check. M2 money supply includes cash that is less liquid, such as time deposits and money
market funds. An increase in the M1 money supply will increase the money at the hand of
customers, increasing the sales of smartphones.
When there is a high-interest rate and inflation, the prices of smartphones are likely to go
high. That implies that affordability is questionable. Exceptionally few people will be able to
afford and purchase smartphones even if they have the desire. There will be a decline in sales in
the process, and only a few people with high incomes will afford the phones.
The expansionary fiscal policy takes place when the act of congress is effective in
reducing the tax rates and increasing the spending of the government. The action results in
shifting the demand curve to the right (Gravelle and Hungerford, 2012). The contractionary
fiscal policy moves the demand to the left due to an increase in the taxes by congress, and the
government spending has been cut. Expansionary fiscal policy has the most significant influence
on the sale of smartphones in the United States. That is because cutting taxes will affect the price
of smartphones.

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References

Gravelle, J. & Hungerford, T. (2012). Can Contractionary Fiscal Policy be Expansionary? CRS
Report for Congress.