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DEMAND SIDE POLICIES - Coggle Diagram

- - - - lower base of interest rate - reduce cost of borrowing and lead to increase in in consumption and investment
      - increase supply of money - lower its price
      - shift in AD to the right
        iinflationary pressure as average prive level rise
        increase in real output - increase in national income, economic growth, decrease unemployment
  - - - buying or selling of gov securities (bond) in open market by central bank
      - reduce money supply : sell more bond
        reducing money that commercial banks have to lend
        fall in supply, cost of borrowing increase and interest rate, the price of money increase
    - - base rate, discount rate or refinancing rate
      - rate of interest which central bank charges n loan and advances to commercial banks
      - contractionary : rase minimum lending rate
        banks and financial institutions increase lending rates and interest paid to people who save
        discourage consumers and business from borrowing and encourage saving
        reduce consumption and investment, redusing AD
    - - larger minimum reverse requirement, smaller money multiplier
      - to reduce money supply : increase minimum reserve requirement
        reduce ability of banks to create credit so reduce money supply
    - - Introduction of new money
        
        form of expansionary
      - process
        
        central bank inject new money directly by purchasing assets from commercial banks and financial institutions with newlu created electronic cash
      - effects
        
        lower interest rates - reduce debt, increase consumer and business confidence
        
        lower interest rate - exchange rate fall, export less expensive and import expensive, increase in (X-M)
        
        increase reserves of commercial banks - increase liquidity and ecourage to lend more to households and firms, increasing consumption and investment
- - - - greater investment : lower corporate taxes
      - increase gov spending
      - greater consumption : lower income taxes