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    Ryno Bredenkamp
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    Fiscal and monetary policy are the two main policy tools used by governments to influence economic activity. Fiscal policy involves varying government spending and taxation levels to impact aggregate demand. It can be expansionary to boost demand during recessions. Monetary policy involves controlling interest rates and the money supply through tools like quantitative easing. Lower interest rates through an expansionary monetary policy can boost aggregate demand when unemployment rises. However, both policies have limitations and risks like increasing inflation or public spending crowding out private spending. Exchange rates also impact international trade and are influenced by economic factors.

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    Fiscal policies as part of IGCSE Economics.

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    FISCAL POLICIES

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    Fiscal and monetary policy are the two main policy tools used by governments to influence economic activity. Fiscal policy involves varying government spending and taxation levels to impact aggregate demand. It can be expansionary to boost demand during recessions. Monetary policy involves controlling interest rates and the money supply through tools like quantitative easing. Lower interest rates through an expansionary monetary policy can boost aggregate demand when unemployment rises. However, both policies have limitations and risks like increasing inflation or public spending crowding out private spending. Exchange rates also impact international trade and are influenced by economic factors.

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    15 views13 pages

    Fiscal Policies

    Uploaded by

    Ryno Bredenkamp
    Fiscal and monetary policy are the two main policy tools used by governments to influence economic activity. Fiscal policy involves varying government spending and taxation levels to impact aggregate demand. It can be expansionary to boost demand during recessions. Monetary policy involves controlling interest rates and the money supply through tools like quantitative easing. Lower interest rates through an expansionary monetary policy can boost aggregate demand when unemployment rises. However, both policies have limitations and risks like increasing inflation or public spending crowding out private spending. Exchange rates also impact international trade and are influenced by economic factors.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pptx, pdf, or txt
    of 13

    FISCAL POLICY

    FISCAL POLICY
    Policies that aim to vary the overall level of
    public expenditure and/or taxation in an
    economy to manage the aggregate demand and
    influence the level of economic activity
    FISCAL POLICY
    DEFLATIONARY/
    EXPANSIONARY
    CONTRACTIONARY
    POLICIES/REFLATIONARY
    POLICIES
    PROBLEMS WITH FISCAL
    POLICIES
    • CUMBERSOME TO USE
    • INCREASE IN PUBLIC SPENDING DROWNS OUT
    PRIVATE SPENDING
    • INCREASING TAXES REDUCES INCENTIVE TO
    WORK OR CREATE ENTERPRISE
    • EXPANSIONARY FISCAL POLICY CREATES
    EXPECTATIONS OF INFLATION
    MONETARY POLICY
    Policies monitoring changes in money supply
    and interest rates. Changes in exchange rate
    influences international trade and transactions!

    THE MAIN MONETARY POLICY TOOLS:


    1. MINIMUM LENDING RATE (PRIME LENDING)
    2. INTEREST RATE
    3. MONEY SUPPLY
    EXPANSIONARY POLICIES
    “LOOSE” POLICY – CUTTING
    INTEREST RATES, BOOST
    AGGREGATE DEMAND
    USED WHEN UNEMPLOYMENT RISES
    AND THERE ARE SIGNS OF
    RECESSION
    QUANTITATIVE EASING
    PRINTING MORE NOTES OR COINS, BUYING
    UP GOVERNMENT AND CORPORATE BONDS.
    QUANTITATIVE EASING BOOSTS MONEY
    SUPPLY AND AGGREGATE DEMAND!
    CONTRACTIONARY POLICIES
    CUTTING INTEREST RATES
    INCREASED INTEREST >>>
    EXPENSIVE BORROWING
    >>> RESTRICTED SPEND
    AND/OR MONEY SUPPLY
    HOWEVER
    WHEN THE ECONOMY IS
    FALLING AGGREGATE
    DEMAND MAY RAISE
    “OVERHEATING” OR
    UNEMPLOYMENT AND HURT
    ECONOMIC GROWTH!
    INFLATION IS RISING
    • “EXCHANGE RATE IS THE RATE AT WHICH ONE CURRENCY CAN BE EXCHANGED WITH
    ANOTHER”

    EXCHANGE RATE
    POLICIES
    USD/EUR HISTORY
    EFFECT OF EXCHANGE RATE
    CHANGES
    • A FALL IN THE VALUE OF ONE CURRENCY AGAINST ANOTHER MEANS THAT THE
    ONE CURRENCY WILL HAVE TO USE MORE TO PURCHASE THE OTHER

    https://tradingeconomics.com/euro-area/currency
    WHAT CAUSES CHANGES IN
    EXCHANGE?

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