18. Fiscal and monetary policy

What are the 2 types of fiscal policy?

Expansionary fiscal policy

Contractionary fiscal policy

What is the goal of expansionary fiscal policy?

To increase AD

What is the goal of contractionary fiscal policy?

To reduce AD

What are the 4 aims of expansionary fiscal policy?

Boost growth

Reduce unemployment

Increase inflation

Redistribute income

What are the 4 aims of contractionary fiscal policy?

Reduce inflation

Reduce budget deficit

Redistribute income

Reduce current account deficit

What are the 3 mechanisms of fiscal polict?

Income tax

Corporation tax

Government spending

What are the 6 issues of using expansionary fiscal policy?

Demand pull inflation

Current account deficit

Worsening of government finances

Crowding out effect

X-inefficiency

Time lags

What are the 3 mechanisms of monetary policy?

Exchange rates

Interest rates

Money supply

What are the 3 goals of expansionary monetary policy?

To increase inflation

To increase growth

To reduce unemployment

What are the 4 goals of contractionary monetary policy?

Reduce inflation

Prevent asset bubbles

Reduce excess debt

Reduce current account deficit