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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