topic 13

• Rate of interest


  The cost of borrowing money for borrowers and the reward of saving money for savers
• Monetary policy


  The use of base interest rate, the money supply, and other monetary variables to change the level of aggregate demand in the economy and therefore influence the performance of the national economy
• Fiscal policy


  The use of Government spending and government taxation to influence the level of AMD in the economy
• Supply side policies


  Measures used by the government to change the total level of aggregate supply in the economy by increasing efficiency and productivity of the economy
• Supply side policies


  • Privatisation
  • Deregulation
  • Reduction in corporation tax
  • Reducing income tax
  • Trade union reforms
  • Increase of the minimum wage
  • Increased spending on education
• Using supply side policies to reduce unemployment


  1. Increase aggregate supply in the economy

  2. More output is created in the economy

  3. More workers required to produce increased output

  4. Decreased unemployment as more jobs created
• Using supply side policies to reduce inflation

  1. Increase aggregate supply in the economy

  2. More output is created in the economy

  3. Supply curve shifts right

  4. Equilibrium price decreases

  5. Reduced pressures on prices and inflation
• Using supply side policies to increase economic growth

  1. Increase aggregate supply in the economy

  2. More output is created in the economy

  3. Increased efficiency and ability to make more use of resources

  4. Increased economic growth as more output produced
• Using supply side policies to reduce the current account deficit

  1. Increase aggregate supply in the economy

  2. More output is created in the economy

  3. More UK products bought by UK consumers, fewer imports

  4. UK products more competitive abroad, more exports sold