Last Cram Flashcards
Fiscal policy examples
Shift ad inwards
Expansionary fiscal policy would be seen as an increase in GS (or reduction in taxes)
Government expenditure is an injection to the circular flow here, reinforced by the multiplier effect
Must consider:
State of economy (at or below full employment )
The effect on the bop : some AD contribute to imports - likely in the sr to be an increase in ca deficit on the BOP
Monetary policy examples
Changing interest rate: higher interest rate =less investment and hosieholds less expenditure.
Though high interest rates (relative to world) causes exchange rate to rise - less competitive U.K. Goods
Can be used during times of high inflationary pressure when economy is close to full employment. Ad goes left
Banks Setting an interest rate that does not attain to inflation
Must send an open letter to the monetary policy committee
Supply side policies
Ad to the right
Education and training (human capital investment - improves productivity
Promotion of competition (subsidies) prevent privatisation. Because dominance in the market= lower output= higher prices.
Unemployment benefits
Incentive effects - too high progressive taxes may discourage additional effort/labour
Conflicts
Fiscal policy vs interest rate
Intention : rise expenditure to improve infrastructure / subsidies education.
Outcome: higher borrowing = higher interest rates = lower international competitiveness because exchange rate rate is pushed up
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Must be coordinated:
Difficult to do, given the way the bank of England is conducted to act independently of the government
Macro economic objectives
Price stability
Full employment
Economic growth
Balance of payments stability
Balance of payments
A set of accounts showing the transactions conducted between residents of a country and the rest of the world
Current account
Bop: transactions of goods and services
