2.8 What are the main macroeconomic policy instruments?

Wednesday, May 22, 2013


What students need to learn:

Content
Students should be able to:
Additional Guidance Notes
Demand-side policies
Understand the practical application of monetary and fiscal policy, for example inflation targeting; the role of the Bank of England’s Monetary Policy Committee; the impact of budget deficits on aggregate demand.
A diagrammatic treatment is required, using AD/AS analysis. Students require knowledge of how the Bank of England’s
Monetary Policy Committee in the UK operates; the factors it takes into consideration when making its decisions; the problems in determining the magnitude of the effects of these policies.
Supply-side policies
Identify measures that are used to increase the productivity of factors, such as education and training; measures to increase incentives, such as changing the levels of benefits; cutting the costs of bureaucracy in firms.
A diagrammatic treatment is required, using AD/AS analysis. The difficulty in operating supply-side policies without an impact on aggregate demand is a useful tool for evaluation. Students need to know the problems in determining the magnitude of the effects of these policies.
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