Economics 18
- 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
- Monetary Policy
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