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Fiscal, monetary and supply side policies

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    What evaluation points could you argue for fiscal, monetary and supply side policies?
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    (Original post by Blyts-_)
    What evaluation points could you argue for fiscal, monetary and supply side policies?
    Time lag - google it
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    Time lag as the above said as well as
    FISCAL
    costly to government
    time
    MONETARY
    can work against government policies/goals
    time
    SUPPLYSIDE
    takes a looong time to work (google time lag for details)
    also costly



    that's very brief but expand with application and talk about extent etc and you'll be fine
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    Contrasting macroeconomic objectives...

    eg. Increased G -> widens budget deficit (G>T), increased AD -> demand pull inflation (may rise above 2% target.
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    (Original post by Blyts-_)
    What evaluation points could you argue for fiscal, monetary and supply side policies?
    With Fiscal you're normally thinking about Inv/Cons crowding out and 2nd round effects

    Monetary Policy normally liquidity trap issues or time lags.
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    (Original post by Zürich)
    With Fiscal you're normally thinking about Inv/Cons crowding out and 2nd round effects

    Monetary Policy normally liquidity trap issues or time lags.
    Yeah, crowding out (fiscal) and liquidity traps (monetary) - although the latter isn't on the syllabus, it is useful for evaluation
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    (Original post by Blyts-_)
    What evaluation points could you argue for fiscal, monetary and supply side policies?

    Fiscal :

    Increase Government spending = Increase already huge budget deficit
    Higher tax, may actually reduce government intake after optimal has been reached (Lorenze curve)
    Crowding out effect
    Increase in AD, may be inflationary (under neo-classical assumption)
    Opportunity cost - expensive
    Time lags

    Monetary :

    Again low interest rate (potential for Inflation)
    Deflation renders interest rate changes ineffective as there can only be a positive real rate of interest.
    Liquidity trap (after recession) interest rates may be low but saving rates are high
    High interest rates (Hot money influx) leads to stronger exchange rate (Bad for exports)
    Dependent on consumer/business/bank confidence

    Supply-Side :

    Investment projects funded by government are expensive
    Would only really be useful if a country is operating nearer its productive potential (PPF)
    Opportunity costs
    Time lags

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Updated: April 13, 2014
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