Ch 17 - Demand Management (demand-side policies)

________: when banks buy bonds to lower the interest rates on savings and loans.

________: increasing taxes imposes problems on consumers.

________: involves the government changing the levels of taxations and government spending in order to influence aggregate demand and the level of economic activity.

________: involves cutting or raising interest rates.

________: expands monetary supply faster than usual or lowering short term interest rates.

is the total level of planned expenditure in an economy

• Stimulate economic growth during a period of recession

• Keep inflation low

• Stabilise economic growth

are policies that are intended to increase aggregate demand while contributing to deficits or drawing down budget surpluses.

• Involves increasing AD

• Government will increase spending and cut taxes

• Lower taxes increase government spending → more disposable income

• Will worsen the government budget, governments will need to increase borrowing

involves higher taxes and lower spending. This will reduce the growth of aggregate demand and could lead to lower growth or even negative economic growth

• Decreasing AD

• Governments will cut government spending and increase taxes

• Higher taxes → reduce consumer spending

• Improves government budget deficit

maintaining a steady rate of economic growth using fiscal policy

efforts to influence the level of aggregate demand (AD) in an economy. Main types: monetary and fiscal policy

expands monetary supply faster than usual or lowering short term interest rates

efforts to influence the level of aggregate demand (AD) in an economy

expands monetary supply faster than usual or lowering short term interest rates

occurs when the economy experiences rising prices due to higher costs of production and higher costs of raw material

occurs when aggregate demand grows faster than aggregate supply