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Title: Policys; Monetary, Fiscal, Supply Side and Exchange Rates
Description: What is the policy? When is it used? How is it used? Pros/Cons
Description: What is the policy? When is it used? How is it used? Pros/Cons
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Policy
What is it?
When is it used?
How is it used?
Pros and cons
Fiscal
The government
changes the rates of
taxes and changes
the amount of
spending to
influence AD and
economic activity
...
-To keep inflation
low
...
-Expansionary, increasing AD =
increasing, government spending,
cut taxes, increase consumer
spending
- worsen the government
budget deficit
- increase government
borrowing
...
-Deflationary, decreasing AD = cut
government spending, increases
taxes, reduced consumer spending
Monetary
Supply
Side
Exchange
Rate
Changing interest
rates to influence
the levels of
consumer spending
and AD
...
Increase the
productivity and
efficiency of the
economy
...
Altering exchange
rate to change AD
and improve BofP
...
-If they expect lower
growth and a fall in
the inflation rate,
they will tend to cut
interest rates
...
The
Government could
use this policy to
lower the prices
which avoids
inflation
...
Cut interest
rates; encourage spending
...
1
...
2
...
3
...
4
...
- home owners could not
afford their mortgage
-Lagging in the economic
cycle
-Liquidity Trap; a cut in
interest rates fail to
stimulate economic activity
...
+improved economic
growth by increasing AS
...
+stimulates the economy
-exports or imports would
be effected, job losses
...
Title: Policys; Monetary, Fiscal, Supply Side and Exchange Rates
Description: What is the policy? When is it used? How is it used? Pros/Cons
Description: What is the policy? When is it used? How is it used? Pros/Cons