Demand Side Policies

Question 1

What are the 2 types of demand side policies and who controls each one

Answer 1

Govt controls Fiscal policy
Central Bank controls monetary policy

Question 2

Name the 2 components of each demand side policy

Answer 2

Fiscal:
-govt spending
-tax rates

Monetary:
-interest rates
-money supply

Question 3

What are the main purpose of demand side policies

Answer 3

Affect aggregate demand

Question 4

In the context of demand side policies,
What does contractionary and expansionary mean

Answer 4

Contractionary- leads to a decrease in AD
Expansionary- leads to an increase in AD

Question 5

Give examples of contractionary fiscal and monetary policies

Answer 5

Contractionary fiscal:
-decrease govt spending
-increase income/corporation tax rates

Contractionary monetary:
-increase interest rates
-reduce money supply (selling govt bonds)

Question 6

Give examples of expansionary fiscal and monetary policies

Answer 6

Expansionary fiscal:
-increase govt spending
-decrease income/corporation tax rates

Expansionary monetary:
-decrease tax rate
-increase money supply (buying govt bonds)