LS12 - Demand Side Policies

Question 1

Demand side policies definition

Answer 1

Changes to government spending and taxation in order to influence AD
- expansionary to boost AD and contractionary to reduce AD

Question 2

Reasons for expansionary fiscal policy

Answer 2

• boost economic growth
• reduce unemployment (cyclical) so labour is a derived demand
• increase demand pull inflation
• redistribute income

Question 3

Reasons for contractionary fiscal policy

Answer 3

• reduce inflation
• reduce budget deficit
• redistribute income
• reduce current account deficit

Question 4

Why is altering inflation only a reason for fiscal policy in theory?

Answer 4

Because it is the central banks job to control inflation, not the governments.

Question 5

Examples of expansionary fiscal policies

Answer 5

• reduction in income tax
• reduction in corporation tax
• incease in government spending

Question 6

Monetary policy

Answer 6

Changes to interest rates, the money supply and the exchange rate by the central bank in order to influence AD.