Analyse and Evaluate the significance of Fiscal Policy rules and Fiscal Policy targets and constraints in promoting Economic Growth, Economic Stability and International Competitiveness

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Katie Scott                Homework

Economics                8/10/2009

Analyse and Evaluate the significance of Monetary Policy rules and Monetary  Policy targets and constraints in promoting Economic Growth, Economic Stability and International Competitiveness

  1. Monetary policies are where the government use changes in the base rate of interest to influence the rate of growth of aggregate demand, the money supply and ultimately price inflation.

In the short run economic growth is an increase in real GDP, In the long run economic growth is an increase in productive capacity (the maximum output an economy can produce)

Economic Stability – the avoidance of volatility in economic growth rates, inflation, employment and unemployment and exchange rates.

International Competitiveness – The ability of an economy’s firms to compete in international markets and, thereby, sustain increases in national output and income.

  1. Monetary policies can be used to promote economic growth, Economic (this stability reduces uncertainty, promotes business, consumer confidence and investment) and International Competitiveness. This causes an  in AD, which can be good for an economy. For example if a Government  interest rates, people will have  an  in disposable income, because payments on credit cards will , mortgage payments will  and it is not worth saving due to the reduced rate of interest, meaning they have more to spend on goods and services, thus AD .
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  1. Monetary policies can promote economic growth and stability and international competitiveness as changes in the interest rate affects Domestic Demand (Consumer Expenditure, Investment and Government Spending) and National Demand (Net Exports) via Exchange Rates as when the interest rate  so the does the currency’s strength. So if the rate of interest increases, so does the strength of the pound, meaning that there is an  in international competitiveness as more economies want to purchase our currency. This causes an  in AD causing the AD curve to shift to the right, from AD1 to AD2. Causing and  in employment, ...

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**** Mostly sound analysis with some errors. The use of arrows is annoying and saves very little time