Introduction: Gives an introduction to the different tools the government has and how it can use those tools to revive the economy and ensure growthMonetary Policies: Describes the different measures like interest rate, exchange rate and the mechanism of prices of assets to ensure that aggregate demand for economy strengthensFiscal Policies: Describes the different measures like taxation, government spending and buying and selling of government bonds to look into the fact that aggregate demand strengthens and the economy grows. Policy to boost aggregate demand in UK: Shows the policy adopted by the UK and how a change in policy will help UK to come out of the global crisisConclusion: Endorses how the monetary and fiscal policy helps to achieve aggregate demand and hence forth the growth rate predicted for the economy. IntroductionMonetary and Fiscal policies are tools in the hands of the government to see that aggregate demand doesn’t fall.
The government while forecasting the demand for the year looks into various factors and growth from different quarters. The expectations don’t always match and there are some deviations. These forces the government to use some immediate steps to continue on the path as forecasted.
This makes the government use monetary and fiscal policies to see that growth is achieved. The effect on monetary and fiscal policy on the global crisis has been looked into for UK. It demonstrates how the monetary policies and the tools will help to bring down inflation and unemployment. The fiscal policy has also been looked into considering the long term effects and how it will help the UK government to ensure that different fiscal stimulus package acts for the consumers, firms and business units.
Using this policies will benefit and will help to revive the economy. Aggregate Demand“Aggregate demand is total quantity of goods demanded in the economy at a particular price level and changes with the change in price”. (Mankiw, 2006) Aggregate demand depends on price. When price falls the quantity demanded increases. It shows that the demand is downward slopping. The government to ensure that demand does not fall use both the monetary and fiscal policy. Monetary Policies“The monetary policy adopted by the government brings about a change in demand”.
Government uses these measures to see that the changes in demand are offset and the growth is ensured. Interest rate is a monetary measure which is used to see that aggregate demand doesn’t fall. Interest Rate MechanismGovernment to ensure that demand rises “lower the interest rate which makes the cost of borrowing to be low thereby giving a push to investment and consumers spends more money making domestic demand for goods to rise and ensuring that investment and consumer spending grows”. (Sandra, 2005) This causes the price to falls and thus aggregate demand rises. Exchange Rate MechanismExchange rate which is also a monetary policy affects the aggregate demand.
“The government to see that aggregate demand rises and doesn’t fall uses expansion monetary policy to ensure that the domestic currency becomes less attractive and depreciates giving a push to domestic goods making aggregate demand to rise”. (Sandra, 2005)