We are aware that monetary policy is a demand side policy that central banks use to manipulate interest rates and the money supply so as to influence AD and inflation. It is important to realise that monetary policy is pro active due to the time lags experienced in the transmission mechanism and that the rule of ceteris paribus is often difficult to implement when considering the macro economy. There are a couple of relatively new tools that monetary policy has begun to rely more on since the start of the GR and it will be interesting to see how policies such as quantitative easing and forward guidance will transpire. It is essential that you have a sound understanding of the relationship between R and the Dm as well as the Sm. As always have your pens poised and happy reading.
It is not a course for debate that markets will not clear but rather how best to facilitate this clearing. It is erroneous to conclude that all demand-side enthusiasts are against all forms of supply-side policies and vice versa. In fact there is a consensus today that supply-side policies indeed increase the LRAS, however, it is in the choice of policy that the disagreements can be found. What do you favour; the policy based on free market and incentives such as lower taxes and privatisation or the interventionist type of policy such as government funding of education and re-training centres? You know the drill – pen and paper at the ready and start your engines!
It is not a question of whether fiscal policy is a tool used by government but rather by what degree is it used? The unprecedented GR has seen the UK Coalition Government use fiscal policy in a number of guises and, it could be argued to some success. This judgement in itself is normative and as the info graphic on the right, The Squeeze, shows your interpretation of ‘success’ is surely determined by how much your standard of living has been compromised. As you read through the articles be aware of the fp transmission mechanism and concentrate on developing your chains of analysis, diagrams and evaluations. There is a video included giving an explanation of the conciliatory AS curve as well.
are you better off? who is feeling the pinch the most? spending and the multiplier truth or bluster tim harford unintended consequences marginal tax rates tax and business vat increase institute of fiscal studies
We are all very familiar with the term ‘technological unemployment’ – the substitution of human labour for more efficient machines. This is an estimated sneak peek into the future. If you guys are really interested in reading the article it’s below but the table is what I wanted to show you. Choose your careers wisely!