2.6.4c

Question 1

Conflict between expansionary and contraction fiscal/monetary policy

Answer 1

• Expansionary policies increase AD, lead to increase output, employment and economic growth
• but will lead to increased inflation worsen the balance of payment as some of the increased demand for goods and services will be met by imports.
  -On the other hand, deflationary policies will decrease AD to improve inflation but will decrease employment and economic growth.

Question 2

How do interest rates affect the value of the pound

Answer 2

• increase interest rates raise value of the pound so exports fall and imports rise worsening the BOP

Question 3

Obvious impacts of rising interest rates

Answer 3

• inflation is lowered
• continuously high rates damage long term investment and so long term growth falls

Question 4

How do interest rates affect distribution of wealth-

Answer 4

• high interest rates benefit savers and lenders, tending to be older people as they are more likely to have savings.
• Low interest rates tend to increase income inequality, as the richest people hold a larger proportion of their wealth in non-money assets, such as stocks, shares and belongings and so aren’t affected much by interest rates,
• middle and working class people have their savings in the bank

Question 5

Supply side policy

Answer 5

• Supply side policies intend to increase aggregate supply, and therefore improve long term economic growth.
• They are also able to decrease long term inflation but may increase it in the short term if they encourage investment as this will increase AD.

Question 6

How do supply side conflict income equality

Answer 6

policies which decrease trade union power, reduce wages, lower benefits, change taxation etc. may increase income equality as these will negatively affect the poorest in the country.

Question 7

Fiscal deficit vs income equality

Answer 7

• In order to reduce fiscal deficit, gov introduces austerity measures
• affect income equality as the poor are the ones who use the government services most and so will be worst affected.
• reduced AD so short term econ growth falls and higher unemployment