Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics U10 > Overview of Macroeconomic Policy > Flashcards

Overview of Macroeconomic Policy Flashcards

1
Q

What is the main objective of demand-side policies?

A

Main objective is to eliminate or reduce short-term economic fluctuations (recessionary gaps and inflationary gaps) and thereby achieve a low unemployment (cyclical) rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the 2 types of demand-side policies?

A
  1. Fiscal Policy
    - manipulations by the government of its own expenditures and taxes to influence the level of aggregate demand
  2. Monetary Policy
    - carried out by the central bank, which aims at changing interest rates to influence the I and C components of aggregate demand
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

How does a government respond to a recessionary gap using demand-side policies?

A
  1. Expansionary Fiscal Policy
    - increase government spending
    - decreased taxes
  2. Expansionary monetary policy
    - increase money supply, thereby decreasing interest rates
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How does a government respond to a inflationary gap using demand-side policies?

A
  1. Contractionary Fiscal Policy
    - reduces government spending
    - increases taxes
  2. Contractionary Monetary Policy
    - decrease money supply, thereby increasing interest rates
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the main objective of supply-side policies?

A

Main objective is to promote long-term economic growth and hence increase potential output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the two types of supply-side policies?

A
  1. Interventionists

2. Market-oriented

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are interventionist supply-side policies?

A

Based on government intervention in the economy

  • investment in capital and R&D
  • investment in infrastructure
  • industrial policies
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are market-oriented supply-side policies?

A

based on institutional changes in the economy intended to develop free, competitive markets

  • policies to encourage competition
  • labour market reform policies
  • incentive-related policies
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the 2 advantages of fiscal policies?

A
  1. Pulling an economy out of deep recession

2. Direct impact on aggregate demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the 5 disadvantages of fiscal policies?

A
  1. Time lag
    - recognizing problem
    - discussing appropriate policy
    - policy affecting economy
  2. Political constraints
  3. Crowding out
    - if government is running on budget deficit, it will have to borrow, which increases interest rates and thereby lowers investment by private firms
  4. Tax cuts not effect as it would lead to even more savings
  5. Cannot fine-tune economy as government spending is only one aspect of GDP
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the 4 advantages of monetary policies?

A
  1. Relatively quick implementation
    - no political discussion required
  2. No political constraints
  3. No crowding out
  4. Ability to adjust interest rates incrementally
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the 3 disadvantages of monetary policies?

A
  1. Time lags
    - recognizing problem
  2. Ineffectiveness in recession
    - banks’ fear of defaulters and consumers may not be enthusiastic about borrowing money
  3. Conflict between government objectives
    - low interest rate may lower exchange rates resulting in higher import costs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the advantages to interventionist supply-side policies?

A

Reduces unemployment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the 2 disadvantages to interventionist supply-side policies?

A
  1. Opportunity costs of government spending

2. Negative effects on government budget

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the advantage of market-oriented supply-side policies?

A

Reduces unemployment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the 3 disadvantages of market-oriented supply-side policies?

A
  1. Increase worker insecurity due to reducing labour union power and eliminating minimum wage
  2. Lead to unequal income distribution
  3. Greater poverty due to loss of worker protection
17
Q

What is the solution for frictional/seasonal unemployment?

A
  1. Interventionist supply-side policies
    - provide information between job seekers and employers through creation of job centres and agencies
    - provide information on job availability
18
Q

What is the solution to structural unemployment caused by changes to demand for labour skills or change in geographical location?

A

Interventionist supply-side policies:

  • training programs
  • grants and low interest loans to young workers seeking training
  • government hiring and training of workers
  • provision of subsidies to workers to help relocate
  • tax incentives to firms to relocate
19
Q

What is the solution to structural unemployment caused by labor market rigidities?

A

Market-based supply-side policies

  • reducing power of labour unions
  • reducing unemployment benefits
  • reducing labour protection
  • reducing or eliminating the minimum wage
20
Q

What is the solution to cyclical unemployment?

A

Expansionary fiscal policy or expansionary monetary policy

Economics U10 (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions