Economics 18

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  • Created by: Gabrielle
  • Created on: 30-12-13 14:16
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  • Policy Tools
    • Monetary Policy
      • Set of actions taken by the central bank in order to affect the money supply
      • Uses Interest Rates
      • Selling/buying bonds
      • Lending to commercial banks on a short-term basis to influence money supply
      • The minimum amount of reserves a banks must hold can be changed
    • Fiscal Policy
      • Influencing the level of economic activity though manipulation of government income and expenditure
      • Expenditure = C + I + G + (X-M)
      • Multiplier effect
        • Additional shifts in aggregate demand when expansionary fiscal policy increases income and  increases consumer spending
      • Marginal propensity to consume
        • The fraction of extra income that a household consumes rather than saves
      • Increases in government purchases shifts in the AD curve to the right
    • Supply Side
      • Aims to increase efficiency and capacity
      • e.g. training, education, deregulation, tax law changes, welfare reforms


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