Government Policies

Matthias, James, Jain and Arisa

Monetary PolicyI loan capital

to the Commercial

Banks!

Central Bank

I want to make as

much money as possible!

Commercial Bank

LOANS

INTEREST

Households

Firms I want to invest!

INTEREST

DEPOSITS

LOANS

INTEREST5%

7%

4%

10%

8%

14%

2.5%

2%

3.5%

Fiscal Policy

Expansionary

Stimulus to Aggregate demand

Increase government spending

Decrease taxes

Contractionary

Drag on Aggregate Demand

Decrease government spending

Increase taxes

Supply Side Policy

Government attempts to increase productivity and shift AS to the right

Developed during 1980’s; monetarist/neoclassical era

Aim: to ‘liberate’ markets from forms of market ‘impurities’

Labour

increase labour mobility in terms of geography location, industry and ‘time between jobs’

by increasing employees in firms to accept jobs

Basic ideal: increase supply and quality of labour while developing mechanisms for efficient labour markets

Methods:

Alter labour laws

Reduce/abolish regional support schemes

Re-examine education and retraining schemes

Cut back social welfare unemployment benefits

Reduce union power

Abolish minimum wages

Decrease marginal tax rates of income

Capital

Aim: To increase the quality and the quantity of capital

Methods: -Tax breaks/deduction to firms

-Lower taxes on dividends

-Lower corporate profit taxes

Competition

Key factor to increase AS:

Competition Methods:

-Privasation of government-run business and deregulation of markets-Grant subsidies/tax reductions-Grant tax relief beneficial funding schemes for new firms-Reduce import tarrifs free trade/capital flows

Recent Trends:USA

Recent Trends: Germany

Sources

http://welkerswikinomics.wetpaint.com/page/Problems,+Criticisms,+and+Complications?t=anon

http://www.docstoc.com/docs/21451487/Pros-and-Cons-of-Fiscal-Policy-vs

http://www.youtube.com/watch?v=1qhJPqyJRo8

http://www.economicshelp.org/macroeconomics/economic-growth/supply-side-policies.html