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DEMAND-SIDE POLICIES - Coggle Diagram
DEMAND-SIDE POLICIES
EVALUATION (FISCAL)
POLITICAL AGENDAS AND FISCAL POLICY
Example George Bush's promise for "no new taxes"
he was eventually pressured into accepting increased taxes to pay off national debt
destroyed his political power as he did not keep his promise
TIME LAGS AND FISCAL POLICY
Example; due to the relationship between fiscal policy and politics, it faces obstacles of legislation
it takes time for fiscal policies to be implemented as many political parties share different perspectives and may not agree
*compromises have to be made, which might affect the effectiveness of implementing such a policy
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MONETARY POLICY
Expansionary
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EXAMPLES
increasing IR during pandemic (USA)
The federal reserve decreased IR from 1.25% to 0.25%
eval: can lead to inflation in the long run if firms become overconfident
Contractionary
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EXAMPLES
1970 stagflation in America
IR increased from 5% to 13% to combat the high inflation
eval: caused the pre-existing issues of unemployment and low economic growth to worsen
eval: changing interest rates might not be effective because confidence was already low- no one would want to borrow anyway
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EVALUATION (MONETARY)
NO TIME LAG, NO GOVT NEEDED
Not affected by political agendas as IR is managed by central banks
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