6. macroeconomic objectives and policies Flashcards
demand side
fiscal
monetary
problems with monetary policy
liquidity trap
discourage investment
2 years to have full effect
quantitative easing
-government buys assets in exchange for money in order to increase money supply
-asset prices rise due to rise in demand which has positive wealth affect
-cost of borrowing then falls as asset value rises yield falls
-increased money supply means more investment and consumption
QE issues
-hyper inflation
-no guarantee that higher asset prices leads to increased consumption
-banks and economy can become dependent
interventionalist supply side
-gov spending on education/training
-gov spending on infrastructure
-subsidies to firms to promote investment
market based supply side
-tax reform (lower income and cooperation tax)
-labour market reform (reduce benefits, min wages and trade union power)
-competition policy (privatisation, deregulation and trade liberalisation)
cons of supply side policies
-costs
-time lag
-may not work
policies to reduce inflation- demand pull
contractionary monetary/fiscal
policies to reduce inflation- cost push
-implement/reduce inflation target
-reduce VAT/subsidies for firms
-strengthen exchange rate by interviewing in markets
policies to reduce inflation- demand pull EVAL
-conflict of objectives
-impact on investment?
-strong exchange rate and current account deficit
how to reduce unemployment- cyclical
expansionary fiscal/monetary
how to reduce unemployment- real wage
-reduce minimum wage
-reduce strength of trade unions
how to reduce unemployment- structural (interventionalist)
-government spending on education/training
-subsidies for in work training
-government spending on infrastructure
-grants on low cost housing
how to reduce unemployment- structural (market based)
-reduce benefits
-deregulate hiring/firing laws
