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Policies to help - Coggle Diagram
Policies to help
Demand Deficient UE
Expansionary Fiscal Policy
Increase in G causes AD to shift
Deducing taxes encourages expenditure
Limitation
Crowding out effect
Govt expenditure leads to borrowing, interest for money increases, COB rises, I drops
Size of multiplier
How much will it increase the AD?
Economic Outlook
A pessimistic outlook discourages C and I, has limited effect
Past outlooks
If a govt has been in a recession for a long time, an added amt of G will not have any use as it has proven to be ineffective in the past
Monetary Policy on Interest Rates
Reduce Interest Rates, C and I increases
More workers needed to increase output, reduce DD UE
Limitation
Interest Elasticity of C and I
Change may not be as significant if confidence is low
Nature of economy
Small open economy like SG, drop in interest rates, rate of return lower, short term funds leave
Monetary Policy on Exchange Rates
Depreciate currency (make it less) will increase exports as the price is cheaper
Imports will slow as they seem more expensive now
X-M increases, AD increased
Limitation
Price elasticity of G&S or X and M
Inelastic X and M, PED<1, X-M may not improve
Affects other parts
FOP rise, need to then increase price of finished goods, (counter effect)
Structural UE (SS)
Training workers, Upskilling
Stay relevant in work landscape, can find jobs
Limitation
Time Lag
Government Funding
Frictional UE
Improve Information Flow