Strengths and Weaknesses of BP

Question 1

Lists of Strengths

Answer 1

• Target particular sectors
• Short impact lag

Question 1

List of Weaknesses

Answer 1

• Prone to political bias
• Implementation lag
• Subject to Financial constraints

Question 2

Targetting Particular Sectors: Strength

Answer 2

Budgetary policies can be used to target particular sectors of the economy, unlike monetary policy which is a more ‘blunt’ instrument.

Eg. The government has reduced company tax for smaller companies who are deemed to be most in need of a tax break and who will benefit the most from it.

Question 3

Short Impact Lag: Strength

Answer 3

Budgetary policy has a shorter impact lag than monetary policy. The time taken for the policy to effect the economy after it has been implemented is shorter.

Eg. The budget controls tax and government spending, so can stimulate the economy relatively quicker than changes to interest rates which can have a 3-year impact lag.

Question 4

Political Bias: Weakness

Answer 4

Particularly around election time, bad policy decisions can be made to attract votes or succumb to the vested interest of lobby groups.

E.g: A tax cut may be politically popular, but not economically suitable given the macroeconomic conditions.

Question 5

Implementation Lag: Weakness

Answer 5

Bills must pass through both houses of Parliament. This may prevent the government from addressing a problem quickly.

E.g. the current Housing Bill to increase the amount of affordable public housing has been held up in Parliament in 2023 due to disagreement between politicians.

Question 6

Subject to Financial Constraints: Weakness

Answer 6

The budget is subject to financial constraints due to government’s need/want to bring the budget back to surplus and reduce public debt.

There is a trade-off between, spending and stimulating economic growth and budget surpluses and reducing debt. In contractions/recessions, this is a limitation.