Macroeconomic Policies

Question 1

Monetary Policy

Answer 1

Control of money supply and interest rates by central bank

Question 2

Goals of monetary policy (4)

Answer 2

Low and stable rate of inflation
Low unemployment
Reduce business cycle fluctuations
Stable economic environment for long term growth

Question 3

Expansionary monetary

Answer 3

Decrease interest rates
Decrease Exchange rates
Decrease reserve ratio

Question 4

Contractionary monetary

Answer 4

Increase interest rates
Increase exchange rates
Increase reserve ratio

Question 5

Effectiveness of monetary policy

Answer 5

Limited scope for reducing interest rates
Low confidence
Easily reversable short term lags

Question 6

Monetary policy in finding low rate of inflation

Answer 6

Leads to low growth - high interest rates

Question 7

Monetary policy and unemployment

Answer 7

Increased IR = Increased unemployment as AD is boosted

Question 8

Fiscal Policy (3)

Answer 8

Direct and indirect taxation
Privatisation - SUPPLY SIDE
Sale of government assets
GOVERNMENT SPENDING

Question 9

Goals of fiscal policy

Answer 9

Low and stable inflation
Low unemployment
Reduce business cycle fluctuations
Promote environment for long-term growth
Equitable distribution of income

Question 10

Expansionary fiscal

Answer 10

Low taxation
Privatisation = increased competition

Question 11

Strength of fiscal policy

Answer 11

Targeting of specific economic sectors

Question 12

Constraints of Fiscal Policy

Answer 12

Political pressure
Time lags - slow process of implementing policy
Sustainable debt

Question 13

Goal of supply side policies (5)

Answer 13

Increase productive capacity - LRAS out
Competition and efficiency increase
Reduce labour costs and unemployment through labour market flexibility
Reduce inflation to improve international competitiveness
Reduce cost of investing in innovation

Question 14

Market-based policies

Answer 14

Encourage competition - deregulisation + privatisation
Labour market - reduce benefits + abolish minimum wages
Incentive-related - personal income tax cuts + cuts in business tax

Question 15

Interventionist policies (3)

Answer 15

Education
Quality + access to healthcare
Research

Question 16

Supply-side effects of fiscal policies

Answer 16

Lower income tax = incentive to work increases
High spending on training + education = labour productivity increases long term

Question 17

Demand-side effects of supply-side policies (2)

Answer 17

Government spending = increased AD
Improving infrastructure = employment = greater disposable income

Question 18

Constraints of supply-side policy (3)

Answer 18

Increased income inequality
Environmental degradation
Risk of reducing government revenue