Policy

Question 1

Define fiscal policy

Answer 1

The use of government spending and taxation levels to influence the level of economic activity

Question 2

Define supply side policy

Answer 2

Policies designed to increase the productive capacity of the economy
Improve the quality, quantity of factors of production, improve the productive efficiency

Question 3

Define monetary policy

Answer 3

Use of interest rates and other monetary tools to influence the level of economic activity

Question 4

Expansionary fiscal policy

Answer 4

Increase welfare spending 
Increase capital spending eg infrastructure 
Reduce direct taxes income corporation 
Reduce indirect taxes  VAT 
Boost AD, lower unemployment

Question 5

Evaluative disadvantages to expansionary fiscal policy

Answer 5

Crowding out- less loanable funds for private sector- increase IR- reduce private sector investment
But in an era of globalisation high demand for gov bonds from emerging economies such as china so effect on IR likely minimal
Opportunity cost of spending and borrowing
Tax payers money better spent else where?
Cost of set servicing debt
But atm interest rates low not much of an issue

Question 6

Contractionary fiscal policy

Answer 6

Aim to reduce AD
Tax raises income corporate VAT
Lower government spending capital and current

Question 7

Evaluating Contractionary fiscal policy

Answer 7

Reduce effects of crowding out, reduce public debt, reduce opportunity cost of servicing debt
Lower GS could damage welfare and living standards
Tax raises produces dissincentives to work and discourages enterprise and migration of talented labour into the country