Policies For Business Cycles

Question 1

What is the free floating system

Answer 1

Exchange rates automatically determined by demand and supply

Question 2

What is the Managed floating system

Answer 2

Central banks intervene to stabilize

Question 3

What are 3 government policies to intervene for business cycles

Answer 3

Fiscal policy
Monetary policy
New economic paradigm

Question 4

Discuss the fiscal policy

Answer 4

Use of tax and spending to achieve objectives
Through national budget
By Maynard Keynes

Question 5

When should the fiscal policy be used

Answer 5

Economic recession: expansionary policy, reduce tax

Economic expansion: restrictive policy, increase tax

Question 6

Discuss the monetary policy

Answer 6

Measure by SARB to influence money supply and interest
Eg, change interest
By Milton Friedman

Question 7

When should monetary policy be used

Answer 7

Recession: expansionary policy, increase money supply
Expansion: restrictive policy, decrease money supply

Question 8

Discuss the new economic paradigm

Answer 8

Demand side policy: influence aggregate demand by curbing inflation
Supply side policy: influence aggregate supply by reducing production costs