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define market based policy
designed to remove anything that prevents the free market system working efficiently
define interventionist policy
policies designed to correct market failure
what are some examples of market based policies
cut corporation tax
de-regulation
reduce trade union power
privatisation
reduce welfare benefits
what are examples of interventionist policies
infrastucture spending
healthcare and education spending
what is a monetary policy
influence ad through interest rate, money supply and quantitative easing
central banking
what are interest rates
reward for saving money or the price of borrowing money
what is an expansionary / reflationary monetary policy
lowering interest rate, increase money supply, use of quantitative easing
what is a contractionary/ deflationary monetary policy
increase interest rate, decrease money supply , stopping quantitative easing
what are the benefits of monetary policy
increase AD
cheaper than fiscal
politically independent
easy to change
can help with cost push inflation
what are the limitations of monetary policy
time lags
meeting inflation target is difficult
depends on external factors
what are the objectives of public expenditure
overcoming market failure and improving efficiency
redstribute income and wealth
macro-economic management
what are automatic stabilisers
some forms of government expenditure and tax revenues change automatically
what is fiscal policy
use of government spending and taxation to influence AD
what is expansionary fiscal policy
reduce tax ,increase gov spending and borrowing
what is contractionary fiscal policy
increase tax , decrease gov spending and borrowing
what are the benefits of fiscal policy
impacts are wide reaching
targets specific industries or regions
what are the limitations of fiscal policy
gov finance can be a constraint
time lags
unintended impacts on incentives
what are the benefits of public spending
spending on education,infrastructure and healthcare can increase productivity
an injection to the economy
greater income inequality
correcting market failure
what are the drawbacks of public spending
low productivity
crowding out
impact on government finances
what is crowding out
when extra government spending leads to lower private sector spending
what is a structural fiscal deficit
an estimate of how large the deficit would be when economy is at normal level
what is a cyclical deficit
occurs because gov spending and revenue fluctuate. during recession spending will be high but revenue will be low
what are the cyclical causes of fiscal deficit
gdp / position in trade cycles
what are the structural causes of fiscal deficit
demographic pressure
discretionary fiscal policy
high levels of tax avoidance/ evasion
high levels of income and wealth inequality
what is financial crowding out
when gov spending is financed by borrowing. reduce incentive and ability for private sector to invest
what is resource crowding out
lack of resources for private sector
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