policies by maather

• Market-based supply policy


  Reduce the role of the government in the economy
• Lotax reforms


  1. Lower income tax

  2. Lower corporation tax
• Lower income tax


  People will be more encouraged to work, keeping in mind that they can keep more of their income
• Lower corporation tax


  Businesses can earn more from their profit, they might be able to invest more
• Labor market reform


  1. Reduction in benefits (welfare payment)

  2. Reduction in minimum wages and Union power
• Reduction in benefits (welfare payment)


  Forces people to find work
• Reduction in minimum wages and Union power


  Drives up the cost of production for businesses, reduces long run costs of production for businesses, boosts productivity
• Competition policy


  • Firms need to reduce their long run cost due to the competitive market
• Supply side policies


  • Privatization
  • Deregulation
  • Trade liberalization
• Supply side policy


  Policies designed to increase the productive capacity of the economy, shifting LRAS to the right
• If supply side policies are successful


  All 4 macro objectives will be improved
• Increase in LRAS


  Increases economic growth rate, reduces unemployment, reduces long term rate of inflation, makes exports more competitive
• The main goal of supply side policies is to increase the LRAS
• Interventionist supply side policy

  More role for the government
• Interventionist supply side policy


  1. Government spending on education and training to boost skills of the workforce, improve the productivity of labor

  2. Government spending on infrastructure to build or upgrade transportation, reducing long run costs for businesses
• Government subsidies


  To firms to promote investment in capital
• Contractionary monetary policy aims to reduce inflation if it is too high
• Contractionary monetary policy


  Increases interest rates, reduces money supply, strengthens exchange rate
• Contractionary monetary policy can have negative impacts such as choking the economy with less demand and investment, and a negative impact on living standards
• Expansionary monetary policy aims to boost AD from inflation if inflation rate is below target
• Expansionary monetary policy


  Cuts in interest rates, increases money supply, weakens exchange rate
• Expansionary monetary policy can have risks such as demand-pull inflation and low saving (high spending)
• Monetary policy changes to interest rate, money supply and exchange rate by the central bank to influence AD
• Automatic stabilisers


  Fiscal policy tools to influence GDP and counter fluctuations in the economic cycle
• Automatic stabilisers


  1. Progressive income tax system

  2. Welfare benefits
• Automatic stabilisers


  Slow consumption and AD during a boom, preventing the economy from overheating, and support consumption and AD during a recession, preventing a large drop in GDP
• Fiscal policy


  Government control of spending and taxes to influence the economy
• Expansionary fiscal policy


  Increase government spending, cut taxes
• Expansionary fiscal policy


  Boosts AD, can lead to economic growth
• Contractionary fiscal policy


  Reduce government spending, increase taxes
• Contractionary fiscal policy


  Reduces AD, can cool down an overheating economy
• Multiplier effect


  Concept that explains how an initial increase in spending leads to a larger increase in national income
• To achieve government objectives, a combination of supply side, fiscal and monetary policies is usually best
• Lortax reforms


  • Lower income tax
  • Lower corporation tax
• Lower corporation tax


  Firms may be able to earn more from their profit, they might be able to invest more
• Labor market reform


  • Reduction in benefits (welfare payment)
  • Reduction in minimum wages
  • Reduction in Union power
• Reduction in benefits (welfare payment)


  Will force people to find work
• Reduction in minimum wages and Union power


  Will drive up the cost of production for businesses, reduce long run costs of production for businesses, and boost productivity
• Supply side policies


  • Competitive policy
  • Privatization
  • Deregulation
  • Trade liberalization
• Supply side policies


  Policies designed to increase the productive capacity of the economy, shifting LRAS to the right