The possibility could not be discounted as the country’s economic … 2.4 Fiscal Policy: The government budget . One of the most important economic models in microeconomics is the model of supply and demand. Monetary policy addresses interest rates and the supply of money … Fiscal policy and short-term demand management • Explain how changes in the level of government expenditure and/or taxes can influence the level of aggregate demand in an economy. This section of the IB Economics course provides us with an overview of economics as a social science, quickly differentiating between the two main branches of economics – Microeconomics and Macroeconomics. The fiscal policy ensures that the economy develops and grows through the government’s revenue collections and government’s appropriate expenditure. Most economies have built-in stabilisers like unemployment benefits and progressive taxes. The economy would grow faster if the government were scaled back. Fiscal and Monetary Policy-Study Guide-IB Economics SL-Benson. That makes private firms more likely to invest and set up business in the country. a lot in macroeconomic circles are monetary policy and fiscal policy. Central banks are able to manipulate the money supply and this way control the interest rate. A good demonstration of implementation delays is illustrated by the Great Recession. After the Great Depression, market economies learned that they were not adjusting to economic downturns quickly enough. This point is also connected to the independence of the central banks. Monetary Policy and Interest Rates Monetary policy is when the government changes an economy’s interest rates or money supply to influence the level of economic activity in an economy. Fiscal policy is a type of demand-side policy, as it helps the government achieves its macroeconomic … We see that the final outcome was falling interest rates r1 -> r2. And they're normally talked about in the context of ways to shift aggregate demand in one direction or another and often times to kind of FISCAL POLICY Fiscal policy involves the use of government spending, direct and indirect taxation and government borrowing to affect the level and growth of aggregate demand in the economy, output and jobs. If they had decreased the money supply, the interest rate would have gone up. Used in attempts to close deflationary (recessionary) gaps. Lower unemployment means less government spending on unemployment benefits and higher wages (as well as more working people who pay taxes) mean more government income from progressive taxes. In this page, we created a glossary of IB Economics terms to help students search for Economics definitions in just a few clicks. Monetary stability: Conducting monetary policy to ensure stable prices and confidence in the currency. Used to close deflationary (recessionary) gaps. Is defined as the set of a government's policies relating to its spending and taxation rates. could issue bonds to finance government spending, Responsible for exchange rates (holds foreign currency reserves), Independence of the central bank means politicians are unable to influence its decisions (e.g. If taxes are decreased, people might start saving the extra income and the expansionary fiscal policy does not work (or its effect is smaller). Learn econ monetary policy with free interactive flashcards. To excel in IB Economics, students need to have a good understanding of Economics Terminology.This is can be rather daunting for most students. 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