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Economics > Macro- policies > Flashcards

Macro- policies Flashcards

1
Q

what are the macro objectives?

A
  • sustainable economic growth
  • price stability
  • low unemployment
  • reduce inequality
  • sustainable current account and debt
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2
Q

what is a fiscal debt?

A

when govt spends more than receives in tax revenue

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3
Q

what is monetary policy?

A

controlled by central bank:

  • controls interest rates
  • QE
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4
Q

what are the impacts of changing interest rate?

A
  • housing market- mortgages cheaper- existing mortgage owners pay less interest so spend elsewhere
  • increase consumption- less saving
  • increase govt spending
  • currency depreciates
  • business investment
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5
Q

what is QE?

A
  • central bank creates new money
  • use it to buy bonds
  • by selling bonds to central banks or commercial banks now more money to spend elsewhere. New money injected into economy
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6
Q

what are the issues with QE?

A
  • increase money supply=inflation= more money chasing same prices so prices rise
  • financial institutions can hoard money
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7
Q

how is fiscal policy used in macro?

A

redistributing income and wealth through transfer payments

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8
Q

what is fiscal policy?

A
  • use of govt spending/taxation
  • contractionary/tight/ deflationary- decrease GS/ increase taxation
  • expansionary/loose/inflationary- Increase GS/ decrease T
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9
Q

what is fiscal policy used for?

A
  • promoting growth, employment
  • tackle government fiscal position- deficit/debt
  • there are supply side implications
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10
Q

how does fiscal policy impact AD/AS?

A

decrease govt spending and or increase tax:
- Decrease G- G is a component of AD
- increase tax- decrease disposable Y for consumers, decrease profit for firms, C and I fall
- AD shifts left
increase in GS/ decrease in T:
- increase G- component of AD
- decrease T- increase disposable Y, increase profits, C and I increase
- AD shifts right

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11
Q

how does fiscal policy link to the circular flow?

A

decrease G/ increase T:
- increase T rates, increase MPT, MPW so 1/MPW falls
- more taxation (more withdrawals) less GS (less injections)- smaller economy
Increase G/ decrease T:
- decrease T rates, MPT fall, MPW fall so 1MPW increase
- lower taxation (less withdrawals) increase GS (more injections) = larger economy

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12
Q

how can you evaluate fiscal policy?

A
  • taxes are unpopular- govts run risk of being deselected and taxes can be avoided
  • lower GS can lead to a loss in quality of public services- damage govt rep
  • depends on scale and speed of changes in tax or spending
  • fiscal changes have time lags
  • depends on which taxes are changed
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13
Q

what is supply side policy?

A
  • a variety of policies
  • interventionist- investment in infrastructure, incentives to work min wage laws, investment in education
  • market based- privatisation, deregulation, improve flexibility of mkt, cuts in corporation taxes
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14
Q

what is supply side policy used for?

A
  • promoting growth, employment

- can reduce inflationary pressure

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15
Q

how does supply side impact AD/AS?

A

implementation of any supply side policy:

  • increase efficiency, productivity and increase productive potential
  • LRAS shift right, lower inflation, increased employment
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16
Q

how does supply side link to the circular flow?

A
  • SSP can come from govt or private sector
  • increase on G or an increase in I
  • both increase injections so size of the economy gets bigger- exact increase depends on the size of the multiplier
17
Q

how do you evaluate supply side policy?

A
  • most SSPs have a big time lag
  • they only increase potential output- need appropriate increases in AD to see actual growth occur
  • opp cost for any investment
  • will not work in a recession- caused by lack of demand
  • can be counter-productive
18
Q

how do you evaluate monetary policy?

A
  • if interest rates increase, saving increase in short run but might lead to increased I in longer term
  • increased r is good for savers (older gen) but bad for borrowers (younger and middle gen)- increase inequality/wealth
  • depends on size and speed of changes in r- larger or frequent changes can undermine consumer/business confidence in the economy
19
Q

what are the conflicts between objectives?

A
  • agreement on the best target
  • high economic growth= rising prices resources= conflicts price stability
  • decrease inequality by raising tax on rich= disincentives workers
  • reduce unemployment by spending on training=bigger deficit- more employment=more tax in future
  • economic growth in cities=inequality
  • economic growth at expense of environment- more invest in green tech after growth
20
Q

what does the Philip’s curve show?

A

that there is a tradeoff for policy makers between unemployment and inflation (both can’t be low)

Economics (6 decks)

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