a) Policies

a) distinction between monetary and fiscal policy

f) use of AD/AS diagrams to illustrate demand-side policies

demand-side policies = policies aimed at shifting AD

• fiscal policy = the use of government expenditure and taxation to shift AD

  • set by the government → introduced in the government budget once a year

• monetary policy = the use of interest rates and the money supply to shift AD

  • set by the Bank of England Monetary Policy Committee eight times a year

expansionary demand-side policy = policy aimed at increasing AD

• decreasing the interest rate

• increasing quantitative easing

• increasing government expenditure

• decreasing taxation

contractionary demand-side policy = policy aimed at decreasing AD

• increasing the interest rate

• decreasing quantitative easing

• decreasing government expenditure

• increasing taxation