key policies Flashcards
what is supply side improvement
measures taken to improve the efficiency and compeititveness of markets whilst lowering costs
what are interventionist supply side policies
the governmnent spending on education and training schemes
the government spending on RandD
government spending on infrastructure
government spending on subsidies to promote business investment
what are the free market supply side policies
deregulation of markets
privatisation of certain industries (rail and energy)
reduction in corporation tax and income tax
reducing the red tape regulation
lowering minimum wage
lowering the power of workers union
what are some drawbacks of supply side policies
they have a long time lag - building of infrastructure and new training may take many years
they can cost a lot of money
they can increase inequality - reducing minimum wage doesn’t always promote people to work harder
potential government failure
supply side policies are useless in recession but good in boom
what is monetary policy
the use of interest rates, exchange rate and money supply to influence AD and affect inflation
expansionary monetary supply
reducing interest rates, reducing the cost of borrowing, shifting AD to the right. however more people will take their money out of UK banks
the money supply
explain the transition mechanism
1) the BofE increases bank rate
2) the LIBOR increases and the commercial rate
increases
3) there is a fall in consumption as saving is more
attractive. there is hot money flows
4) there is a fall in investment
5) there is a higher exchange rate
6) AD falls
Inflation falls
explain how monetary policy uses money supply
the money supply is altered through quantitative easing. this is where the BofE create money electronically to buy up government thus increasing their price and reducing their yield. this increases the money in circulation as more people increase their spending on company stocks and bonds
what is public sector crowding out
when the economy is at full capacity additional government spending takes away scarce resources from the private sector
what is sovereign debt
sovereign debt is when the UK may take loan from another country but outside countries charge the UKs deficit struggles with higher interest rates
what are automatic stabilizers
when an economy enters a recession automatic stabilizers reduce income tax and increase welfare spending
when an economy enters a boom automatic stabilizers increase income tax and reduce welfare spending
what is the phillips curve
