Demand Side

Macroeconomic demand-side policies

1 Demand-side policies:

• the distinction between fiscal and monetary policy

• the distinction between reflationary and deflationary policies.

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2 Fiscal policy instruments:

• government spending 

• taxation

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3 Monetary policy instruments:

• interest rates

• asset purchases to increase money supply (quantitative easing)

• changes in lending criteria

• reserve asset (liquidity) requirements.

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d) The role of central banks in the conduct of monetary policy:

• implementation of monetary policy

• achieving an inflation target

• as banker to the government

• as banker to the banks – lender of last resort.

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e) Strengths and weaknesses of different demand-side policies.