2. Monetary Policy I loan capital to the Commercial Banks! 7% 14% 3.5% I want to make as much money as possible! LOANS I want to invest! Firms 5% 10% 2.5% INTEREST LOANS Central Bank INTEREST DEPOSITS Households Commercial Bank INTEREST 4% 2% 8%
6. Supply Side Policy Government attempts to increase productivity and shift AS to the right Developed during 1980’s; monetarist/neoclassical era Aim: to ‘liberate’ markets from forms of market ‘impurities’
7. Labour increase labour mobility in terms of geography location, industry and ‘time between jobs’ by increasing employees in firms to accept jobs Basic ideal: increase supply and quality of labour while developing mechanisms for efficient labour markets
8. Methods: Alter labour laws Reduce/abolish regional support schemes Re-examine education and retraining schemes Cut back social welfare unemployment benefits Reduce union power Abolish minimum wages Decrease marginal tax rates of income
9. Capital Aim: To increase the quality and the quantity of capital Methods: -Tax breaks/ deduction to firms -Lower taxes on dividends -Lower corporate profit taxes
10. Competition Key factor to increase AS: Competition Methods: -Privasation of government-run business and deregulation of markets -Grant subsidies/tax reductions -Grant tax relief beneficial funding schemes for new firms -Reduce import tarrifsfree trade/capital flows
