Supply-Side Economics Government Economic Policies FISCAL POLICY Government use of taxation and spending to influence the economy. MONETARY POLICY Government use of interest rates and the money supply to influence the economy. Supply-Side Economics Use of deregulation and cost reduction for businesses to influence the economy.

Impact of Fiscal policy Any action to cut (reduce taxes) will stimulate economic growth as consumers have more disposable income and will spend some of that income creating an increase in Aggregate Demand. If there is a negative output gap then the increase in demand can be met using the spare capacity, if there is a positive output gap then increases in demand will increase inflationary pressure. Any increase in Government spending can also stimulate the economy. This would also lead to an increase in demand in the economy and increases in inflation.

Economic Cyclical effects GDP Reduced investment leads to reduced GDP Growth Path Boom time: increased investment Real GDP Extra investment is needed here due to depreciation Less GDP, less demand, less employment Process stops when investment and growth are at minimum Eventually the investment in place is sufficient and begins to slow Output reduced due to falling demand

Impact of Fiscal policy REGIONAL DEVELOPMENT The New Zealand Government through primarily the Ministry of Economic Development actively looks at promoting regional economic development. By doing this the government is funding projects and research in regions to promote economic growth within those regions. With greater growth and employment in these regions there is also more income and opportunities for the people of that region. Regional growth leads to National growth

Impact of Fiscal Policy More funding on Research and Development leads to new products of an increased ability to make more products Greater funding on R&D can lead to improvements in productivity. Research & Development

Impact of Fiscal Policy Subsidies A payment made to producers that reduces the cost of production. A reduction in the cost of production enables firms to produce more goods and services cheaper than otherwise. They may provide those goods or services cheaper for the consumer (increasing production). This will encourage demand shifting AD to the right. Education Increased investment by the Government in Human Capital increases productivity. Increased productivity leads to increased economic growth.

The Governments Operating Balance A Surplus (G<T), means that there is more money taken out of the economy, this is contractionary Spending is an injection into the circular flow and taxation is a withdrawl. Expansionary policies create economic growth and inflationary pressure through increasing AD If injections equal leakages there is no change to GDP, ie a balanced budget A Deficit (G>T), means there is more money put into the economy, this is expansionary Contractionary policies reduce economic growth and inflationary pressure by decreasing the size of AD

The Government's Operating Balance A rise in the deficit As the Downturn begins tax revenue will fall: less income earned = less taxes paid, and less is purchased = less GST paid. The Government's Operating Balance A rise in the deficit A fall in the surplus Government spending in the downturn will rise as more people require assistance. A budget deficit tends to be expansionary-this may reverse the downturn.

Supply Side Economics? Use of microeconomic reforms and deregulations to impact on the economy (increase economic growth). Achieved via: reducing taxes to companies leading to an increase in AS Also achieved through reducing compliance costs associated with business regulations and reducing the costs of production.

Price level Y AD AS AS1 Supply side economics causes a reduction in the costs of production and a shift of the AS curve to the right PLe PL1 Ye Y1 The increase in AS increases the quantity of output produced and income received and employment (Ye-Y1) There has also been a reduction in the price level of deflation (Ple-PL1) Critics of S-Side policies, worry about growing deficits and falling spending.

NZ S-Side Reforms: Deregulation of the financial sector by removing controls on the currency and interest rates. Government departments were corporatised then privatised (sold off). The Labour market was freed up with the Employment Contracts Act Many trade policies like tariffs and quotas were removed. Welfare benefits were cut and the health sector was reformed.

PUBLIC FINANCE ACT 1989 Purpose (1) The purpose of this Act is to consolidate and amend the law governing the use of public financial resources. (2) To that end, this Act— (a) provides a framework for parliamentary scrutiny of— (i) the Government's expenditure proposals; and (ii) the Government's management of its assets and liabilities; and (b) establishes lines of responsibility for effective and efficient management of public financial resources; and (c) specifies the principles for responsible fiscal management in the conduct of fiscal policy and requires regular reporting on the extent to which the Government's fiscal policy is consistent with those principles

FISCAL RESPONSIBILITY ACT 1994 The Fiscal Responsibility Act was passed by the New Zealand Parliament in June 1994. The Act sets out to do five things: TRANSPARENCY : Increase the transparency of policy intentions and the economic and fiscal consequences of policy; LONG-TERM FOCUS: bring a long-term (as well as an annual) focus to budgeting; IMPACT: Disclose the aggregate impact of a Budget in advance of the detailed annual budget allocations; REPORTING & ASSESSMENT: ensure independent assessment and reporting of fiscal policy; and SCRUTINY: facilitate parliamentary and public scrutiny of economic and fiscal information and plans.

RESOURCE MANAGEMENT ACT 1991 PURPOSE: To promote the sustainable management of Natural & Physical resources. RMA facilitates planning of: USE DISTRIBUTION PRESERVATION Of both NATURAL and PHYSICAL RESOURCES (Buildings, bridges etc)