Supply Side, Demand Side Policies

Question 0

National debt

Answer 0

Accumulation if all previous years’ budget deficits

Question 1

Fiscal policy

Answer 1

Government spending and taxation used to influence AD, raise rev, redistribute income and influence consumption patterns

Question 2

Interventionist supply side policies

Answer 2

Investment in:
human capital, new tech or infrastructure
& Industrial policy

Analysis: necessary, merit goods

Question 3

Disposable income

Answer 3

Income available after taxes

Influenced by indirect taxation

Question 4

Analysis of policies

Answer 4

Inequality gap
Inflationary?
GDP ( increased output?)
Boom/bust situation

Question 5

Supply side policies most effective

Answer 5

Near full capacity (Keynesian)

Question 6

Market based supply side policies

Answer 6

Deregulation, privatisation & more competition
Labour market reforms
Work & investment incentives

Analysis: SoL down for low income. Impacts on environment.

Question 7

Gov expenditure

Answer 7

Current (factor payments + goods)
Capital (investment on spending and spending assets)
Transfer (gov to individual payment, no output generated, distribution of wealth)

Question 8

Gov rev

Answer 8

Direct taxes
Indirect taxes
Sale of goods/ services (gov owned) & privatisation

Question 9

Pros of fiscal policy

Answer 9

Targetable
Direct impact on AD
Role in recession

Question 10

Weaknesses of fiscal policy

Answer 10

Time lags
Political influence (contraction army unpopular, budgets pre-approved
Inflexible
Budget deficits (interest rates & taxation increase in future)
Crowing out (public & private fight for finding, causes high interest rates, discourages investment)

Question 11

Fiscal and potential output

Answer 11

More recently used to achieve LT growth by increasing capacity

Question 12

Monetary policy

Answer 12

Interest rates, QE, and exchange rates

Equilibrium rates in money market, supply changes rate

Question 13

Role of Central bank

Answer 13

Gov banker
Regulates commercial banking system
Manages borrowing of bonds
Sets interest rates to achieve macro objectives
Supply of money
Gold & foreign reserves

Question 14

Strengths monetary

Answer 14

Independence of Central banks from politics
Incremental changes
Relative speed of change

Question 15

Weaknesses of monetary

Answer 15

Time lag?
Investment interest-in elastic 
One policy fits all (EU)
Ineffective against cost push
Low confidence (consumer/investor) fail to respond to low borrowing rates, might even pay off debts in recession