affect the level of aggregate in an economy. monetary or fiscal.
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MONETARY POLICY
interest base rates set by BofE- influenced by the inflation-affects cost of borrowing/confidence/exchange rate. quantitive easing-BofE buys assets in exchange for money, more lending by banks, increasing C and I and increasing inflation
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EVALUATION OF MANIPULATING INTEREST RATES
influences exchange rates-trade-BOP. take up to 2 YEARS to have full effect. only a base rate-banks DONT HAVE TO FOLLOW. ineffective if the confidence is so low. in the LR can discourage investment and decrease LRAS. WHERE economys operating on LRAS
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EVALUATION OF QUANTITIVE EASING
very RISKy- could lead to HYPERINFLATION. not meant to be permanent- countries become too dependent and less efficient
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FISCAL POLICY
influencing the level of Government spending and Taxation in an economy to influence AD.
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EXPANSIONARY FISCAL
increasing G or reducing T. should be used during recession/high unemp/low growth. less T, higher C, incentives to work.. higher G, higher AD, investment into education- LRAS shift. positive multiplier. inflation. injection
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CONTRACTIONARY FISCAL
decreasing G or increasing T. should be used during boom/high growth/inflation. decreased G, decreased AD. increased T, less C, less AD. improvement in budget deficit. deflation/disinflation. leakage
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EVALUATION OF FISCAL POLICY
TIME LAGS. depends on SIZE OF MULTIPLIER. in the LR is a SSP. OPPORTUNITY COST to the government. tax is REGRESSIVE. BUDGET DEFICIT. WHERE economy is operating on LRAS
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POLICIES USED IN GREAT DEPRESSION
CONTRACTIONARY FISCAL- to balance budget, decreased G increased T, negative effects as worsened depression. CONTRACTIONARY MONETARY- high interest led to a decrease in AD, negative effects
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POLICIES USED IN GFC
EXPANSIONARY MONETARY- record low interest and qe, lowered unemployment and higher growth. USA had more EXPANSIONARY FISCAL than UK- increased G by more and reduced T more, led to more speedy recovery as UK prioritised reducing debt
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SSPs
government policies aimed at increasing the productive potential of an economy and shifting LRAS/PPF to the right.
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MARKET BASED SSPs
policies designed to remove anything that prevents the free market from working efficiently. DEREGULATON- increases competition between firms, improving efficiency, AS increases. IMPROVING INCENTIVES- reduce corp tax, reward for working, AS increases
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INTERVENTIONIST SSPs
policies designed to correct market failure. FM under provides EDUCATION, TRAINING, HEALTHCARE, INFRASTRUCTURE. all of these increase LRAS
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EVALUATION OF SSPS
able to increase output with NO INFLATION. although they are very LONG TERM and incur a TIME LAG. OPPORTUNITY COST to government. inefficient if economy is at SPARE CAPACITY.
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POSSIBLE OBJECTIVE CONFLICTS
GROWTH vs SUSTAINABILITY. GROWTH vs INFLATION. GROWTH vs BOP. GROWTH vs INEQUALITY. INFLATION vs UNEMPLOYMENT.
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SHORT RUN PHILLIPS CURVE
trade off between inflation and unemployment. decreased unemployment, firms attract workers w higher wages, inflation. natural unemployment when rate of inflation equals 0.
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Other cards in this set
Card 2
Front
MONETARY POLICY
Back
interest base rates set by BofE- influenced by the inflation-affects cost of borrowing/confidence/exchange rate. quantitive easing-BofE buys assets in exchange for money, more lending by banks, increasing C and I and increasing inflation
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