Policies Flashcards
What is fiscal policy?
It’s the use of government spending, taxation and the budget position to achieve macro objectives.
Is fiscal policy supply side or demand side?
Demand side
Why use the expansionary fiscal policy?
- Boost growth
- Reduce unemployment
- Increase inflation
- Redistribute income
Why use a contractionary fiscal policy?
- Reduce inflation
- Reduce budget deficit/ National debt
- Redistribute income
- Reduce current account deficit
What are Fiscal policy examples?
- 2020 budget deficit, 15% GDP
- 2022 budget deficit, 5.7% GDP
What are the negatives of using Fiscal policy?
- Demand pull inflation
- Current account deficit
- Worsening of government finances ( higher national debts) - tax + interest rates increase
What is monetary policy?
Changes of interest rates, money supply and the exchange rate to influence AD and achieve macro objectives.
Why use the expansionary monetary policy?
- Increase inflation
- Increase growth
- Reduce unemployment
Why use the contractionary monetary policy?
- Reduce inflation
- Precent asset/credit bubbles
- Reduce excess debt
- Reduce current account deficit
What are examples of monetary policy?
- 2008-2009, Bank rate 5.75%-0.5%(Expansionary)
- 2009-2020, £895bn spent on QE
- 2021-2023, Bank rate 0.1%-4% (Contractionary)
What are the negatives of monetary policy?
- Demand pull inflation
- Current account deficit
- Time lag (18 months)
- Decreased growth, increased unemployment
What is supply side policy?
They’re designed to increase the productive potential (Incentives, efficiency and productivity) of an economy shifting LRAS to the right.
What are examples of supply side policies?
- 2020-2023, £3.6bn spent on apprenticeships
- Tax free allowance, £12,570
