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What are the pros and cons of these macro policies?

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Why bother with a post grad course - waste of time? 17-10-2016
    • Thread Starter

    Supply side policy


    Monetary policy
    Interest rate targeting can control inflation
    Central banks can implement policy fairly quickly
    Central banks are independent and so have no political agenda

    Risk of hyperinflation from inflation rate targeting
    effects often have a time lag
    monetary tools are general but affect the whole country (may sacrifice the wellbeing of individuals)

    Fiscal policy
    short time lag- a tax or subsidy has a fairly immediate effect
    direct spending to specific purposes i.e giving subsidies to exporters to increase AD
    can help re-distribute incomes (rich will be progressively taxed more)

    subsidies may be spent on imports reducing AD
    can be politically motivated
    dependent on the other components of AD- i.e if consumer expenditure falls because of increased interest rates, taxation will have little effect
    dependent on the extent to which it is implemented- if taxes are greatly increased then it is likely to have a large effect if not then the effect is likely to be low

    Supply side policies
    increase productive possibility in an economy (AS), resulting in long run economic growth
    can reduce inflation (if AS increases to an extent to which AD is no longer in the vertical area)
    dependent on extent to which it is implemented
    only effects AS

    be aware that all the different sectors within policies (i.e education and increased health care within supply side) will have different pros and cons, but they are mostly obvious.. good luck
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