Some policy questions.. (1 Viewer)

[Eagles]

1. Why are monetary and fiscal policies seen as demand-side instruments?

(no idea, but I'm thinking that this has something to do with the circular flow of income)

2. Outline the current use of monetary and fiscal policies by the Federal Government?

monetary is still midly expansionary although the cash rate rose 2 times (to 2.75% ???) and the fiscal policy from the last budget is also expansionary, due to the tax cuts and the baby bonuses of $600 (which most are used to buy electrical goods according to SMH)..

I don't think thats enough though, any help is appreciated

 

[grimreaper]

1. Because it effects the demand side of the economy i.e in simple terms increasing interest rates will decrease consumer demand and investment in an economy, while decreasing interest rates will increase consumer demand and investment

2. I believe that the main aim of monetary policy recently has been to keep inflation between in the target band of 2-3 % in the long run i.e. everytime there were heavy inflationary pressures the RBA would raise interest rates and vice versa. Fiscal policy was mildly expansionary as you said, but it has also been used for things such as increasing savings in the economy through compulsary superannuation, etc.

You'll need to expand on all that stuff and add more of course

 

[Eagles]

Why are monetary and fiscal policies seen as demand-side instruments?

Because it effects the demand side of the economy i.e in simple terms increasing interest rates will decrease consumer demand and investment in an economy, while decreasing interest rates will increase consumer demand and investment

not sure that answers the question, b/c it seems to be only rephrasing it..

anyway, is this demand side thing refering to consumers demanding more stuff? or Firms investing more and demanding more things like labor??

thanks for your reply

 

[grimreaper]

Originally posted by Eagles
not sure that answers the question, b/c it seems to be only rephrasing it..

anyway, is this demand side thing refering to consumers demanding more stuff? or Firms investing more and demanding more things like labor??

thanks for your reply

Yeah thats pretty much what is meant by "demand side." However, remember that often labour related issues are supply side...