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    Policies What They Are How To Reduce

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    Afisya Iesya
    Fiscal and monetary policies can be used to influence aggregate demand and control inflation or deflation. Fiscal policy involves adjusting government spending and tax rates, while monetary policy involves adjusting interest rates. During inflation, governments use contractionary fiscal policy by decreasing spending or increasing taxes, and tightening monetary policy by raising interest rates, both of which reduce aggregate demand. During deflation, expansionary fiscal policy by increasing spending or decreasing taxes, and loose monetary policy by lowering interest rates, increase aggregate demand. Supply-side policies aim to improve the efficiency of markets.

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    Policies What They Are How To Reduce

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    Afisya Iesya
    31 views3 pages
    Fiscal and monetary policies can be used to influence aggregate demand and control inflation or deflation. Fiscal policy involves adjusting government spending and tax rates, while monetary policy involves adjusting interest rates. During inflation, governments use contractionary fiscal policy by decreasing spending or increasing taxes, and tightening monetary policy by raising interest rates, both of which reduce aggregate demand. During deflation, expansionary fiscal policy by increasing spending or decreasing taxes, and loose monetary policy by lowering interest rates, increase aggregate demand. Supply-side policies aim to improve the efficiency of markets.

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    This is the outline for Economics Chapter 5

    Original Title

    (Afisya)Chap 5

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    Fiscal and monetary policies can be used to influence aggregate demand and control inflation or deflation. Fiscal policy involves adjusting government spending and tax rates, while monetary policy involves adjusting interest rates. During inflation, governments use contractionary fiscal policy by decreasing spending or increasing taxes, and tightening monetary policy by raising interest rates, both of which reduce aggregate demand. During deflation, expansionary fiscal policy by increasing spending or decreasing taxes, and loose monetary policy by lowering interest rates, increase aggregate demand. Supply-side policies aim to improve the efficiency of markets.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    31 views3 pages

    Policies What They Are How To Reduce

    Uploaded by

    Afisya Iesya
    Fiscal and monetary policies can be used to influence aggregate demand and control inflation or deflation. Fiscal policy involves adjusting government spending and tax rates, while monetary policy involves adjusting interest rates. During inflation, governments use contractionary fiscal policy by decreasing spending or increasing taxes, and tightening monetary policy by raising interest rates, both of which reduce aggregate demand. During deflation, expansionary fiscal policy by increasing spending or decreasing taxes, and loose monetary policy by lowering interest rates, increase aggregate demand. Supply-side policies aim to improve the efficiency of markets.

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    of 3

    Inflation and Deflation

    Macroeconomic policies

    1.Objectives:

    Low stable rate inflation


    ………………………………....
    Sustainable economic growth
    ………………………………….
    Full employment
    ………………………………….
    Equilibrium BOP
    ………………………………….
    Avoid extreme fluctuation
    …………………………………..
    Redistribution income wealth
    …………………………………..

    2.What is the type of macroeconomic policies?


    Fiscal policy-monetary policy-exchange rate policy-supply-side policy
    …………………………………………………………………………………..

    3.Fiscal Policy & Monetary Policy (or Demand-Side Policy)


    3a.What is fiscal policy?
    The use of public revenue and/or public expenditure to influence the level of aggregate demand
    in an economy.

    Policies to reduce demand

    Policies What they are How to reduce

    Fiscal - Fiscal policy​ is the Controlling ​aggregate


    means by which a demand​ is important if
    government adjusts inflation is to be controlled. If
    its ​spending levels the government believes that
    and ​tax rates​ to AD is too high, it may
    monitor and influence choose to ‘tighten fiscal
    a nation's economy policy’ by reducing its own
    spending​ on public and merit
    Inflation: Contractionary - A decrease in goods or welfare payments
    government
    expenditures and/or It can choose to raise direct
    an increase in taxes taxes, leading to a reduction
    the causes the in real disposable income
    government budget
    deficit to decrease or The consequence may be
    its budget surplus to that demand and output are
    increase lower which has a negative
    effect on jobs and real
    economic growth in the
    short-term

    Deflation: Expansionary - An increase in - Fiscal policy through


    government increase in public expenditure
    expenditures and/or and reduction in taxes tends
    decrease in taxes that to raise national income,
    cause that causes the employment, output, and
    government’s budget prices. An increase in public
    deficit to increase and expenditure during deflation
    budget surplus to increases the aggregate
    decrease demand for goods and
    services and leads to a large
    increase in income via the
    multiplier process, while a
    reduction in taxes has the
    effect of raising disposable
    income thereby increasing
    consumption and investment
    expenditures of the people.

    The government should


    increase its expenditure
    through deficit budgeting and
    reduction in taxes. The public
    expenditure includes
    expenditure on such public
    works as roads, canals,
    dams, parks, schools,
    hospitals and other buildings,
    etc. and on such relief
    measures as unemployment
    insurance, pensions, etc.
    Expenditure on public works
    creates demand for the
    products of private
    construction industries and
    helps in reviving them while
    expenditure on relief
    measures stimulates the
    demand for consumer goods
    industries. Reduction in such
    taxes as corporate profits tax,
    income tax, and excise taxes
    tends to leave more income
    for spending and investment.

    “Tightening of monetary - Involves the central


    policy” bank introducing a
    period of higher
    interest rates to
    reduce consumer and
    investment spending
    - Higher interest rates
    may cause the
    exchange rate to
    appreciate in value
    bringing about a fall in
    the cost of imported
    goods and services
    and also a fall in
    demand for exports
    - Useful approach to
    adopt when the
    inflation has been
    caused by
    demand-pull factors

    Supply side Define:a policy designed to


    enable market to work
    efficiently

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