ACJC Macro Policies (1) - Demand Side Policies

©ACJC Econs Dept/2024/Macroeconomic Policies Part 1: Demand Side Policies 1 ANGLO-CHINESE JUNIOR COLLEGE JC2 Economics 2024 H2 MACROECONOMIC POLICIES (1) Demand-Side Policies Section Contents Page 1 Overview of Macroeconomic Policies 3 2 Demand Side Policies 5 2.1 Fiscal Policy 5 2.2 Monetary Policy: Interest Rates 14 2.3 Monetary Policy: Exchange Rates 23 3 Annexes 32 Texts for References: 1. Principles of Economics: Case, Fair & Oster, 10th edition, pages 638-644, 662-663 2. Principles of Economics, Asian Edition: Mankiw, Quah & Wilson, chapter 25 3. Economics: John Sloman & Alison Wilde, 7th edition, chapters 14.4, 14.5, 22 & 23 4. Economics Today: • Volume 21 Issue 1, Pages 10-15 • Volume 24 Number 2, Pages 22-28

©ACJC Econs Dept/2024/Macroeconomic Policies Part 1: Demand Side Policies 2 WHAT IS THIS TOPIC ABOUT? At any time, every country faces a set of macroeconomic problems, such as slow/negative GDP growth, high /negative inflation (deflation) and high unemployment. These problems are caused by a confluence of internal and external factors and the causes of some of these problems are interrelated. For example, a fall in consumer confidence could lead to a country experiencing both negative GDP growth and high unemployment (i.e. causes of macroeconomic problems may be interrelated). Thus, t he complexity of macroeconomic problems makes them difficult to solve and policy decisions will also involve hard choices and constraints. When governments consider the various polic y options, they have to take into account the constraints they face, the cost and benefits of the policies as well as the intended and unintended outcome s of their policy options. For example, to solve the problem of high inflation, policies used may pose the risks of slower growth and rising unemployment. The choice of policies adopted by governments will depend on their economic priorities and the economic characteristics of their countries. LEARNING OUTCOMES Enduring Understanding: • Dealing with macroeconomic problems involves the use of a set of policy instruments which are broadly considered as fiscal policy, monetary policy, and supply-side policies. • Policies chosen by governments are dependent on the causes of macroeconomic problems they are meant to address, the characteristics of the economy as well as the government constraints. • Every policy chosen will have its set of intended consequences and trade- offs, which the government may need to weigh the benefits and costs. Overarching Essential Questions: • Which policy is the most appropriate to solve a country’s macroeconomic problems? • How effectively can government intervention be in solving a country’s macroeconomic problems?

©ACJC Econs Dept/2024/Macroeconomic Policies Part 1: Demand Side Policies 3 1. OVERVIEW: Recall in the previous set of lecture notes, you learnt