1. Macroeconomic Policies

2. Macroeconomic Policies

3. Monetary Policy

6. Monetary Policy

12. The Interest Rate Transmission Mechanism 1 Interest Rates Borrowing Individuals Credit Loans Consumption Firms New Loans Investment Existing Loans Costs Employment Margins Consumption

13. The Interest Rate Transmission Mechanism 2 Interest Rates Mortgages Existing New Consumption Investment Disposable Income Property Equity Demand for New Housing Savings Consumption

14. The Interest Rate Transmission Mechanism 3 Interest Rates Exchange Rates Appreciation Mp Xp Dm Dx Depreciation Mp Xp Dm Dx Balance of Payments

15. Supply Side Policy

17. Supply Side Policy Inflation Real National Income AS Yf AS1 Yf2 AD 2.3% 2.0% Supply side policies can help to push the AS curve to the right increasing the capacity of the economy from Yf to Yf2 Increases in long-term capacity can help the economy to grow without undue pressure on inflation.

23. Fiscal Policy

28. Public Sector Income Source: http://www.hm-treasury.gov.uk/media//E3CCB/PublicFinancesDatabank280104.XLS

29. Government Income (£ billion) Source: http://www.hm-treasury.gov.uk/media/F6C/7E/public_fin_databank_211204.xls Inland Revenue 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 Income Tax (gross of tax credits) 88.4 95.7 106.1 110.3 112.6 118.3 Income Tax Credits -1.9 -1.8 -1.0 -2.3 -3.4 -4.3 Corporation Tax 30.0 34.3 32.4 32.0 29.5 28.1 Windfall Tax 2.6 0.0 0.0 0.0 0.0 0.0 Petroleum Revenue Tax 0.5 0.9 1.5 1.3 1.0 1.2 Capital Gains Tax 2.0 2.1 3.2 3.0 1.6 2.2 Inheritance Tax 1.8 2.1 2.2 2.4 2.4 2.5 Stamp Duties 4.6 6.9 8.2 7.0 7.5 7.5 NICs 55.1 56.4 60.6 63.2 64.6 72.5 Total Inland Revenue 183.2 196.5 213.4 216.8 215.8 228.0

30. Government Income (£ billion) Source: http://www.hm-treasury.gov.uk/media/F6C/7E/public_fin_databank_211204.xls Customs and Excise 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 VAT 52.3 56.4 58.5 61.0 63.5 69.1 Fuel Duties 21.6 22.5 22.6 21.9 22.1 22.8 Tobacco Duty 8.2 5.7 7.6 7.8 8.1 8.1 Spirits Duties 1.6 1.8 1.8 1.9 2.3 2.4 Wine Duties 1.5 1.7 1.8 2.0 1.9 2.0 Beer and Cider Duties 2.7 3.0 3.0 3.1 3.1 3.2 Betting and Gaming Duties 1.5 1.5 1.5 1.4 1.3 1.3 Air Passenger Duty 0.8 0.9 1.0 0.8 0.8 0.8 Insurance Premium Tax 1.2 1.4 1.7 1.9 2.1 2.3 Land Fill Tax 0.3 0.4 0.5 0.5 0.5 0.6 Climate Change Levy 0.0 0.0 0.0 0.6 0.8 0.8 Aggregates Levy 0.0 0.0 0.0 0.0 0.2 0.3 Customs Duties and Levies 2.1 2.0 2.1 2.0 1.9 1.9 Total Customs and Excise 94.0 97.3 102.2 104.9 108.7 115.7

31. Government Income (£ billion) Source: http://www.hm-treasury.gov.uk/media/F6C/7E/public_fin_databank_211204.xls 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 VED 4.6 4.9 4.3 4.3 4.3 4.8 Oil Royalties 0.3 0.4 0.6 0.5 0.4 0.0 Business Rates 14.7 15.4 16.3 17.9 18.5 18.4 Council Tax 12.2 13.1 14.1 15.2 16.9 18.8 Other Taxes and Royalties 7.5 7.9 8.5 9.4 10.2 11.2 Net Taxes and NICs conts 316.6 335.4 359.3 369.1 374.9 196.7 Interest and Dividends 5.0 4.3 6.0 4.7 4.5 4.4 Gross Operating Surplus and Rent 18.2 18.1 18.8 19.9 19.0 19.4 Other Receipts and Accounting Adjustments -5.3 -0.7 -3.8 -5.7 -5.2 -1.8 Current Receipts 334.5 357.2 380.4 387.9 393.2 418.7

32. Government Income – Inland Revenue 2003-04 Source: http://www.hm-treasury.gov.uk/media/F6C/7E/public_fin_databank_211204.xls

33. Government Income – Customs and Excise 2003-04 Source: http://www.hm-treasury.gov.uk/media/F6C/7E/public_fin_databank_211204.xls

34. Other Government Income 2003-04 Source: http://www.hm-treasury.gov.uk/media/F6C/7E/public_fin_databank_211204.xls

37. Public Spending Source: http://www.hm-treasury.gov.uk

38. Public Sector Net Cash Requirement (PSNCR) Source:http://www.hm-treasury.gov.uk/media//E3CCB/PublicFinancesDatabank280104.XLS

43. Fiscal Policy In Action Inflation Real National Income AS AD 2.0% U=5% Assume an initial equilibrium position with a level of National Income giving an unemployment rate of 5% (U = 5%) If government ‘reduces taxes’ (remember the subtleties) and or increases spending, it will have various effects: AD=C+I+G+(X-M) Apart from G, C and I are also likely to be affected directly or indirectly by the policy change. AD 1 AD therefore shifts to the right to AD1 2.5% U=3% The rise in AD leads to an increase in real national income, ceteris paribus , unemployment would fall to 3% but at a cost of higher inflation