Mechanisms for monetary & fiscal policies + Demand side instruments (1 Viewer)

[timmay05]

We have an inclass extended response on day 1 back. We have been given the question and have been told to address all 6 bullet points listed below in our 35 minute response.

1 of the bullet points I don't understand: Briefly explain the mechanisms involved in the implementation of monetary and fiscal policies.

What does it mean by mechanisms?
For monetary policy is it just domestic market operations, and manipulation of the cash market that I have to explain?
For fiscal policies do I just speak about the budget briefly - what it is and how it acts to implement fiscal policy?

The second bullet I don't know the answer to. It is: Why are monetary and fiscal policies seen as demand side instruments?

I think it would help if I could find a good definition of Demand side economics first but I haven't been able to.

Any help would be greatly appreciated, or some pointers in the right direction (please not just a whole website as friends have been giving me as I still can't find stuff if I have it all in front of me - unless of course you include keywords as well)

Sorry about the length!
Thanks!

 

[timmay05]

Also - if it speaks of mechanisms involved in the implementation of monetary policy does that mean the transmission mechanism?

 

[Demandred]

Ok, for the second question, these two policies simply stimulate demand because they increase Y (income), you're probably sensible enough to know how fiscal and monetary policy works.

Well I guess you could differentiate between supply side and demand side economics. Supply side economics believes that economic growth is caused by firms, that is, make economic conditions suitable for investment. This usually involves regressionist policies to reduce labour costs - cuting the wage index, reduce pensions, basically anything to reduce Y. With Y down, costs are down, thus, its expected that firms begin to invest and re-establish production centres, thus increasing growth. Problem with this is that investment does not always happen when these regressionist policies are introduced. Demand side simply does the opposite to supply side, stimulate Y rather than smash it, with increase in Y, investment occurs.

Hope it helps. I will get back to you on question 1.

 

[Demandred]

I think your basically suppose to talk about how fiscal and monetary policy work for question 1.