1. Demand Side policies
Policies aimed at managing the economy by manipulating AD
How can this be done?

2. How?
Fiscal & Monetary policies

3. Fiscal Policy
The use of Government Spending, Taxes and Government borrowing to manage the economy

4. Direct versus Indirect Taxation
Direct taxes – are paid directly to the Exchequer by the individual taxpayer – usually through “pay as you earn”. The same is true of corporation tax, paid by companies.
Indirect taxes – include VAT and a range of excise duties on oil, tobacco, alcohol. The burden of an indirect tax can be passed on by the supplier to the final consumer – depending on the price elasticity of demand and supply for the product.

5. Fiscal Policy In action
Tax changes will result in changes to disposable income
So changes in taxation rates can be used to manipulate the economy
Government spending can create demand and increase GDP

6. Task What will be the effects on the economy if the Government:
reduces Income Tax
Reduced corporation tax
increases spending on public projects such as new school
How does this relate to AD=C+I+G+X-M
BUT – what will be the impact if they do both of these?

7. The UK's budget deficit
As a country, we've grown accustomed to living beyond our means. The Government's tax revenues are rarely enough to fulfill its generous spending promises, so every year Britain runs a large budget deficit.

9. Monetary Policy
Progress Arrow
The deliberate use of interest rates to influence the level of economic activity is known as monetary policy
The UK “base rate” is an interest rate set monthly by the Monetary Policy Committee MPC of the Bank of England.
This rate acts as an indicator around which lending organisations base their rates of lending

10. Historic rates:

11. New historic rate – 0.25%

12. How can interest rates affect demand?
What forms of loan exist? For Consumers and Businesses
Mortgages
Short term personal loans
Credit cards
Overdrafts
Trade credit

13. Task How can interest rates affect demand? Think about AD=C+I+G+X-M
Think pair share:
How can interest rates affect demand?
Think about AD=C+I+G+X-M

14. Task
Show your understanding pg 73

15. Quantitative easing
Is an unconventional monetary policy aimed at stimulating bank lending by paying the banks in cash for bonds they hold, which are less liquid, in other words increasing the supply of money.
It has been used since the financial crisis ( ) to help stimulate the banks into lending more and encouraging business investment

16. Task
Exam style question d pg 75