Demand-side Policies

Question 1

What is the aim of demand side policy?

(brief understanding needed)

Answer 1

Demand-side policies involve the use of government spending and tax policies to influence the level of aggregate demand in the economy. During economic downturns, these policies aim to boost demand to counteract the effects of reduced private sector spending.

Question 2

What are the key instruments to monetary policy?

Answer 2

Key instruments of monetary policy include interest rates, asset purchases (quantitative easing), and intervention in currency markets

Question 3

What Is Quantitative Easing?

Answer 3

Quantitative easing (QE) is a form of monetary policy in which a central bank, like the U.S. Federal Reserve, purchases securities in the open market to reduce interest rates and increase the money supply.

Question 4

What are interest rates?

Answer 4

Interest rates is the incentive to save and the risk to borrow.

Question 5

What is a chain impact analysis of low interest rates?

Including evaluation

Answer 5

Monetary policy aimed for low and stable inflation (Macro objective)

Low interest rates = more of an incentive to spend than save = positive wealth effect = more disposable income = AD shifts to AD1 on diagram = MPC increase.

Ev: When consumption is too high = demand pull inflation = present on keynsian LRAS = people would eventually lose that influence to spend.

Question 6

What is the distinction between government budget (fiscal) deficit and surplus

Answer 6

Deficit: Can boost economic activity in the short term but may lead to higher debt and interest payments in the long term. Surplus: Can reduce debt and interest payments, providing more fiscal space for future needs, but may slow economic growth if achieved through austerity measures.

Question 7

What was the great depression?

Answer 7

Great Depression (1929-1939)
Context:

The Great Depression was a severe worldwide economic depression that took place during the 1930s.
The U.S. experienced a drastic fall in GDP and industrial production, leading to massive unemployment and deflation.

Question 8

What was the policy result for the great depression?

(brief understanding needed)

Answer 8

New Deal (1933-1939): Implemented by President Franklin D. Roosevelt, this series of programs and projects aimed to restore economic stability.
Examples:
Public Works Administration (PWA): Created jobs through large-scale public works projects.
Social Security Act (1935): Introduced unemployment benefits and pensions.
Keynesian Influence: Policies were influenced by John Maynard Keynes, who advocated for increased government spending to boost demand.
United Kingdom:

Initially followed a policy of austerity and balanced budgets.
Abandonment of the Gold Standard (1931): Allowed for more flexible monetary policy.
Public Works Programs: Some increase in public spending, but not as extensive as the New Deal.

Question 9

What was the global financial crisis?

Answer 9

Global Financial Crisis (2008)
Context:

Triggered by the collapse of the housing market in the U.S., leading to a banking crisis and severe global economic downturn.

Question 10

What was the policy result for the global financial crisis?

(brief understanding needed)

Answer 10

Policy Responses:

United States:

American Recovery and Reinvestment Act (2009): A $787 billion stimulus package aimed at creating jobs and spurring economic activity.
Examples:
Tax cuts and benefits for families and businesses.
Funding for infrastructure, education, and health.
Keynesian Influence: Emphasis on government spending to stimulate demand.
United Kingdom:

Bank Rescue Packages (2008): Nationalization and bailout of banks to stabilize the financial system.
Examples:
Government purchase of shares in banks.
Guarantees on bank debts.
Fiscal Stimulus (2009): Measures included VAT reduction and increased government spending on public services and infrastructure.
Keynesian Influence: Similar approach to the U.S. with increased government intervention.