Economics Unit 2: Monetary, Fiscal and Supply-Side Policies
- Created by: Liam Malone
- Created on: 13-05-15 20:44
View mindmap
- Unit 2: Policies
- Fiscal
- The policy of the government regarding tax and government expenditure
- Used to influence AD and AS
- Taxation
- Taxes that may be manipulated include: Income tax, VAT, NI contributions and excise duties
- 5 Types of Fiscal Policy
- Contractionary Fiscal Policy: Increasing levels of tax revenue relative to gov spending, appropriate during a boom in econ activity
- Demand-Side Fiscal Policy: Changes in the level or structure of gov spending or taxation aimed at influencing AD
- Discretionary Fiscal Policy: The deliberate manipulation of gov spendning and tax to influence the economy
- Expansionary Fiscal Policy: Increasing levels of gov spending relative to tax revenue, thus stimulating AD during a downturn in econ activity
- Supply-Side Fiscal Policy: Changes in the level or structure of gov spending and taxation designed to improve the supply side of the econ
- Entrepreneurship
- Capital Spending
- Research and Development
- Improvement in Human Capital
- Labour Market incentives
- Gov Spending
- Balanced Budget is where gov receipts equal gov spending in a financial year
- Budget Surplus is where gov receipts exceed gov spending
- Budget Deficit is where gov spending exceeds gov receipts
- Balanced Budget is where gov receipts equal gov spending in a financial year
- Supply-Side
- A range of measures designed to increase aggregate supply and hence the potential putput of the economy, though many improvement may come from the private sector
- Trade union reforms
- Trade Unions restrict the supply of workers which increases wages
- This increases costs, reduces efficiency and international competiveness
- Therefore reducing the power of trade unions can combat this
- This increases costs, reduces efficiency and international competiveness
- Trade Unions restrict the supply of workers which increases wages
- Income Tax Reform
- Lower rates of Income Tax provides a short-term boost to AD, as well improving incentives work work
- Education and Training
- Government provision of training can help tackle skill shortages, leading to a more productive, mobile and flexible work force
- The introduction of National Curriculum and frameworks, ensure overall education standards are improved
- Government provision of training can help tackle skill shortages, leading to a more productive, mobile and flexible work force
- Labour Market
- Improving the quality and quantity of the supply of labour
- Ensuring that the labour market is more flexible, reducing structural unemployment
- Toughening Competition
- Greater competition forces firms to become more efficient, thus reducing costs
- Stopping abuses of dominant market positions
- Encouraging Entrepreneurship
- Small businesses add to national output, employ people and are innovative
- Loan guarantees, advice and assistance to new businesses will encourage entrepreneur
- Small businesses add to national output, employ people and are innovative
- Privatisation
- Privately owned firms have more incentives to be efficient and competitive
- Monetary
- Controls the rate of interest
- Monetary Policy Committee (MPC)
- Target of 2% per annum
- The cost of borrowing or the reward for saving
- Real interest rate is the money rate of interest minus the rate of inflation
- Monetary Policy Committee (MPC)
- The higher the rate of interest
- Mortgage payments rise so less AD for housing
- Consumption decreases as borrowing is more expensive
- Less investment as loss profitable due to rate of return
- Lower AD
- Marginal propensity to save would rise as savings are more attractive
- Controlling the macroecon via changes in monetary variables such as the money supply or interest rates
- Exchange Rates
- Disadvantagof a Strong pound
- Slower economic growth
- Increase in the trade deficit
- Impact upon business confidence and capital investment
- Advantages of Strong Pound
- Interest rates may be lower
- Cheaper imports for consumers
- Lower Inflation
- Lower production costs for producers
- Disadvantagof a Strong pound
- Controls the rate of interest
- Fiscal
Similar Economics resources:
Teacher recommended
Comments
No comments have yet been made