Monetary/ Fiscal/ Supply Side Polices

Question 1

What is a monetary policy?

Answer 1

The use of interest rates and changes to the money supply to achieve relevant economic objectives (controlled by the central bank)

Question 2

What is a Fiscal Policy?

Answer 2

Fiscal policy is managed by the government and involves using tax and public expenditure to influence the economy

Question 3

What are some examples of fiscal policies?

Answer 3

(public expenditure)
Healthcare spending 
Education spending 
Social security e.g., pension, benefits 
Infrastructure spending 

(Tax)
Corporation Tax
Income Tax
Value Added Tax

Question 4

What are the 2 types of Fiscal policies?

Answer 4

1. Expansionary

2. Contractionary

Question 5

What is an expansionary fiscal policy?

give an example

Answer 5

this is a fiscal policy that involves increasing public expenditure and decreasing tax

examples: in 2001, Madagasgar increased education spending (teacher spending and building school)

Question 6

what is a contractionary fiscal policy?

give an example

Answer 6

this is a fiscal policy that involves reducing public expenditure and increasing tax

examples:
1. in 1979, Margaret Thatcher increased VAT from 8% to 15%

2. in 2015, in the UK, benefits spending was reduced to try to ensure that only people who needed it received it.

Question 7

what are the ways in which fiscal policies work?

Answer 7

1. Discretionary fiscal policy: this occurs when a government uses their ability to make decisions, in order to chose the best policy to make changes, they are actively intervening
2. Automatic stabilisers: these occur when tax and public expenditure change without government intervention, in order to keep the economy stable,
   e. g., during the 2008 financial crisis, many people lost their jobs meaning that unemployment in the UK increased, meaning that more people were entitled to claim job seekers allowance, meaning that the government had to spend more money in the form of benefits.

Question 8

what are the 2 demand side policies?

Answer 8

fiscal policy

monetary policy

Question 9

what are the aims of demand side policies?

Answer 9

to increase Aggregate demand, e.g., a reduction in income tax will lead to more disposable income therefore increases Aggregate demand. (this is an example of a fiscal policy)

Question 10

what are the 2 types of supply side policies?

give examples for each

Answer 10

1. Interventionist Policy: This is when the Gov increases its intervention in the economy. e.g., the government can intervene by increasing infrastructure spending through roads for businesses in order to maximise supply (this reduces cost of production for the business). Therefore, there can be an increase in the SRAS which leads to economic growth
2. Market based policy: when the government decreases its intervention in the economy e.g., the government can reduce fuel tax in order to reduce fuel costs which can shift the SRAS Curve to the right leading to economic growth.