Monetary Policy Definition:
– Monetary policy occurs when the government uses interest rates or money supply to change the level of aggregate demand (AD) and national income (GDP) in the economy.
– Interest rates is the monetary gain from lending money, and also the monetary cost of borrowing money.
– Money supply is the total amount of money circulating an economy, generally referring to cash and bank deposits/balances.

Monetary Policy Examples & Explanation:
Monetary policy is a type of demand-side policy, as it helps the government achieves its macroeconomic objectives by changing AD. A decrease in interest rates is a common response to a negative economic shock or downturn, for example during the 2008 Financial Crisis and the recent Coronavirus Epidemic. This is because a fall in interest rates leads to a lower cost to borrow for businesses and individuals. This incentivises them to increase their borrowing for investment or consumption, and as a result will increase AD, stimulating the economy. Although this works in theory, it can be hard to imagine a Hawaiian pizza place securing a loan to open up a second store during the pandemic. Another issue with lowering interest rates is they may not be able to be lowered even further (e.g. imagine if interest rates are already at 0.1% to start with). As a result, governments may implement quantitative easing which affects the money supply of the economy instead.

Monetary Policy Economics Notes with Diagrams

Want a closer look? Download these monetary policy notes.

There are considerations of having a negative or zero interest rates when the economy is depressed. UK small businesses are offered loans with zero interest during the pandemic, and this is mainly for them to meet their costs and survive. When interest rate turns negative, it means that banks charge depositors (lenders) and pay borrowers. This will incentivise savers in the economy to consume, and increase borrowing, but put more pressure on banks like in Japan.

Monetary Policy Video Explanation – EconPlusDal

The left video explains monetary policy, the right evaluates the advantages and disadvantages of the policy.

Monetary Policy Multiple Choice & Essay Questions (A-Level)

Want a closer look? Download these monetary policy multiple choice and essay questions.

Monetary Policy in the News

Related A-Level, IB Economics Resources

EconPlusDal YouTube Channel
– Monetary Policy Transmission Mechanism

– Monetary Policy & Central Banks
– Managing Demand with Monetary Policy
– Monetary Policy and Exchange Rates

– Global Economics: Monetary Policy
– EU Monetary Policy

– UK Monetary Policy
– Tight Monetary Policy Mechanism
– Monetary vs Fiscal Policy

Follow us on Facebook, TES and SlideShare for resource updates.

The post Monetary Policy Notes & Questions (A-Level, IB) appeared first on Qurious Education | Admissions | Tutoring.

Supply-Side Policy Definition:
– Supply-side policies increase aggregate supply of the economy by increasing economic productivity or improving market efficiency.
– Market-based supply-side policies aim to provide incentives and reduce market inefficiency, such as reducing business taxes to promote investment, privatisation and tackling labour unions to improve labour market efficiency.
– Interventionist supply-side policies aim to improve productivity, such as by investing in education, healthcare and infrastructure.

Supply-Side Policy Examples & Explanation:
Supply-side policies can be a way for the government to achieve economic growth in the longer term, especially for policies focused on investment. China’s investment in infrastructure (roads, electricity, telecommunications) in the last three decades has contributed significantly to economic growth. Infrastructure can reduce business costs and create more business opportunities, shifting aggregate supply (AS) to the right. This leads to an increase in GDP without inflating the price level, when compared to demand-side policies. Developing countries with good infrastructure tend to attract more foreign investment (e.g. due to low transport cost by having roads). This can lead to even further economic growth, although one can argue China’s high spending in infrastructure may not be sustainable. The lower cost of production for businesses will also help to improve international competitiveness for goods produced in the country, which can help in reducing a current account deficit. Although China’s current account surplus is more likely due to the relatively low cost of labour in the country in the past.

Supply-Side Policy Notes with Diagrams

Want a closer look? Download these supply-side policy notes.

Supply-Side Policy Video Explanation (Featuring EconPlusDal)

The left video is a quick, key summary on Supply-Side Policies by EconPlusDal, whereas the right video is the in-depth Qurious Education lesson for the topic.

Supply-Side Policy Multiple Choice & Essay Questions (A-Level)

Confused about the answers and need a more thorough explanation? Watch our YouTube video on these questions instead.
Download these supply-side policy multiple-choice and essay questions if you want a closer look.

Supply-Side Policy in the News

Related A-Level, IB Economics Resources

EconPlusDal YouTube Channel
– UK Supply-Side Policies

– Supply-Side Policies Introduction
– Supply-Side Policies Explanation
– Supply-Side Policies Evaluation

– Global Economics: Supply-Side Policies
– Managing the Economy: Supply-Side Policies

– Importance of Supply-Side Policies

Follow us on Facebook, TES and SlideShare for resource updates.

The post Supply-Side Policy Notes & Questions (A-Level, IB) appeared first on Qurious Education | Admissions | Tutoring.