Polices to increase growth/living standards

• Macroeconomic objective


  Strong, sustained and sustainable growth
• Policies to boost economic growth


  1. Expansionary demand-side policies

  2. Expansionary fiscal policy

  3. Expansionary monetary policy

  4. Supply-side policies

  5. Interventionist supply-side policies

  6. Market-based supply-side policies
• Economy has low aggregate demand/in recession


  Need to increase short-run growth via boost of aggregate demand
• Expansionary demand-side policies


  Shift aggregate demand to the right, increase short-run growth from Y1 to Y2
• Expansionary demand-side policies


  Potential conflict of objectives - may lead to demand-pull inflation
• Size of output gap

  Determines risk of demand-pull inflation from expansionary demand-side policies
• Expansionary demand-side policies


  May worsen current account deficit by increasing imports
• Expansionary fiscal policies


  Potential to worsen government finances, increase budget deficits and national debt
• Expansionary policies


  Depend on strong consumer and business confidence, which may be low in recession
• Expansionary policies


  May have significant time lags, limiting immediate effectiveness
• Economy at/near full employment

  Need supply-side policies to boost long-run growth/potential output
• Supply-side policies


  • Interventionist (government spending, subsidies)
  • Market-based (tax reforms, labor market reforms, competition policies)
• Successful supply-side policies


  Shift long-run aggregate supply to the right, boost potential growth from YFV1 to YFV2
• Supply-side policies not guaranteed to work, may have unintended effects
• Interventionist supply-side policies can be costly and damage productive potential
• Supply-side policies often have significant time lags before impacting productive potential
• Market-based supply-side policies can have negative stakeholder impacts (e.g. on workers, environment)
• Objective for economic growth


  Strong, sustained (continuously high rates) and sustainable (without significant inflation or environmental damage)