Monetary and Fiscal policy Micro/Macro effects

Question 1

Name 3 Macro effects on expansionary monetary policy

Answer 1

1. Higher Growth (SR Growth)
2. Lower Cyclical unemployment
3. Higher Inflation (Positive AD)
4. Trade/ CA deficit

Question 2

Explain why Trade/CA deficit is a negative effect

Answer 2

Due to wages rising in the economy and the economy recovering in the economic cycle, there will be a higher level of import expenditure.

Question 3

Evaluate the Trade/CA deficit being negative

Answer 3

If interest rates are cut then this leads to a lower rate, which could lead to hot money outflows. Thus a stringer pound, leading to potentially a CA deficit

Question 4

How can we evaluate a weakening of the pound to improve the CA position

Answer 4

J curve & Marshall lener condition

Question 5

Name 3 Micro Effects on expansionary monetary policy

Answer 5

1. Impact on savers
2. House Prices (Increase)
3. Fixed Costs & Profitability lower for firms
4. Impact on Indebtness on households

Question 6

Whet’s the impact on indebtedness on households

Answer 6

If loans are variable then this will see the cost of borrowing reduce therefore this may cause, households to have higher levels of disposable income, which could improve welfare.

Question 7

What’s the impact on Savers and rising house prices on these savers?

Answer 7

Savers will see a lower return on their savings. Thus also due to rising house prices, this could reduce the chances for first time buyers accumulating wealth.

Question 8

Name 3 Micro effects on contractionary monetary policy.

Answer 8

1. Impact on savers (positive)
2. House prices (fall less demand)
3. Firms costs and profitability decrease
4. Negative impact on Indebtedness Households

Question 9

Name 3 Macro effects on contractionary monetary policy

Answer 9

1. Growth (negative)
2. Cyclical Unemployment increased
3. Inflation controlled (lowered)
4. Improve trade/CA position
   5.Reduce systemic Risk
   6.Reduce Asset bubbles

Question 10

Name 3 Micro effects of Expansionary Fiscal Policy

Answer 10

1. Crowding out
2. Solve Market Failures (Allocative efficiency)
3. Public services Impact
4. X-Inefficiency
5. Profits for firms will increase

Question 11

Name 3 Macro effects of Expansionary Fiscal Policy

Answer 11

1. Growth (Increase AD)
2. Lower Unemployment
3. Inflation (Demand-pull?)
4. Trade CA Position (sucking in of imports?)
5. Gov.Finances, worsen higher national debt

Question 12

Name 3 Micro effects of contractionary Fiscal policy

Answer 12

1. Crowding Out (less chance due to less GS)
2. Lower X-inefficiency
3. Public services Impact, lower transfer payments, lower opening on the supply side, education, etc.
4. Income inequality raising taxes burden individuals with high MPC

Question 13

Name 3 Macro effects on contractionary fiscal policy

Answer 13

1. Improved gov finances
2. Lower Inflation
3. Trade(Expenditure reducing policy)
4. Growth (Lower AD)
5. Cyclical Unemployment could increase
6. Reduce capacity constraints

Question 14

How are Gov. finances improved with contractionary fiscal policy.

Answer 14

Due to increased confidence in Gov. finances. Leading to better credit ratings increasing bond prices and reducing the yield for the government. Reduces the Government public sector net cash requirement and allows for ‘Fiscal headroom’ to occur flexible fiscal policy