Demand side policys

2.6 Macroeconomic objectives = Fiscal and monetry policy

What is fiscal policy

Fiscal policy is the use of government spending and taxation to influence the level of economic activity and achieve macroeconomic objectives.

• It can be… Expansionary or contractionry

What does Monetry policy use

• Intrest rates

• Quantative easing

• Exchange rates

What are two features of fiscal policy

• Automatic stabalisers

• Discresionry policy

What are automatic stabalisers

• Automatic reactions to changes in the economy

what is discresionry policy

• Deliberate changes in spending/tax at any given time

what are the types of Budget

• Structural budget = Long term fical stance for the whole economic cycle

• Cyclical Budjet = Short term

Whata re the two types of expendetures

• Capital = infrastructure

• Current = wages

What is an indirect tax

• A tax imposed on goods and services at each stage of production and sale

eg. VAT

what is a direct tax

• An tax imposed on the income of inderviduals or profits of a buisness

eg. income/copertation tax

What is a progressive tax structure

• where workers that earn more are taxed more as thie rincome increaces

What is an regressive tax system

• As total income decreaces Taxes decreace eg. VAT

what is the aim of goverments tax wise

• Governments aim to have vertical and horizontal

What are the UKs Fiscal rules

• Government can borrow and invest but cant borrow to fund current exprndeture

• In 2010 office for Budget responsibility set up

What is goverment spending

• Goverments can borrow money from the private sector through selling trersury bills or making deposits in UK banks

Definition of Monetary policy

• The use of money suply, Exchange rates and intrest rates to affect the AD in an economy

What are the aims of monetry policy

• Stable prices and economic growth

• decreace unemployment

What is the role of the monetary committee

The MPC - Monetry policy comittiee

• Sets intrest rates

• Aim to try keep inflation around 2%

what are the weaknesses of demand side policys

• Inflation

• Debt and deficits can increace

• Time lags

• Crowding out with gov borrowing

• Short term

What are the strengths of demand side policys

• Economic growth

• good in low confidence

• targetted support

• Monertary is quick

What do demand side policys depend on

• Size of change

• Effectiveness

• Multiplier effect

• degree of economy state

• MPI and MPC