Question

If a firm wants to build a new factory, where does it get the funds to...

If a firm wants to build a new factory, where does it get the funds to build it? Given the effects of coronavirus in the US economy explain what the government should do to support the economy?

Homework Answers

Answer #1

They can arrange funds by using reserves that firms generally keep for repairing or replacing capital or they raise new debt through loans, bond debt, or sale of other assets or by going public (IPO).

Apart from that, the government provides a lot of benefit to certain industies and certain areas which depends on the country. There are also investers looking for start-ups or other projects to fund, so they can be approached as well.

Coronavirus has caused the world economies to head into recession and it is further accelerated by countries like USA, INDIA, JAPAN, etc going into recession.

During a time of recession, people have very less money to spend so to increase cash in hand the government generally using either the fiscal or monetary policie to bring the economy out of it.The fiscal policies are the policies relating to the government's spending and taxation through which its manages the economy while monetary polices are the policies of the central bank to do the same.

Fiscal policies -

in times of recession when the cash flow has to be increased, the government will increase government spending and decrease the taxes. increase in spending will put money in the hands of people which will trickle down to others. decrease in taxes will mean that people will have more income than before as they will have to give less to the government and thus this will increase their spending.

Monetary policies -

these are steps taken by the central bank to make sure that the public has enough cash in hand so that the keeping spending it. It does this by making loans cheapers and decrease the percentage of cash that bank have to keep wth themselves and the cental bank as reserves for emergencies. cheapers loans encourages people to take loans and invest it . less percentage of reserves means banks have more money to lend out and hence make more mnoey thorugh the process of money creation.

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