Demand-side and Supply-side Policies on Economic Growth Case Study

Demand-side and Supply-side Policies on Economic Growth - Case Study mannequinThese policies argon either expansionary (catalyze spending in a recessionary economy) or contractionary (reduce spending in an inflationary economy). Also, supply side policies are those policies employed by the government to increase the countrys productivity consequently shifting the aggregate curve outwards. They also are designed to affect an economys ability to produce goods and services. They increase the countrys aggregate productivity over time and make better the potential of the economy to produce. These policies are always expansionary with an aim increasing an economys production strength which translates into increased living standards (Sloman, 2006). Demand side policies are further broken down to financial and fiscal policies. Fiscal policies are those policies that are aimed at bringing changes in the government spending or taxes hive away while mo pull inary policies aim at bringin g changes to the money supply engineered by the cardinal bank. Expansionary policies are then defined as those policies designed to stimulate economic growth through changes in genuine Gross Domestic Product (GDP) and the potential output of the economy (Economics Online, 2013). The policies are characterized and implemented in the request side by any of the four categories of expenditure i.e. consumption expenditure, investment expenditure, government expenditure, or net export expenditure that constitutes the Gross Domestic Product (GDP). On the supply side, the expansionary policies are designed to extend flavor to the capacity of production of the economy through labor policies (education, immigration, retirement), capital accumulation, research and development (seeking technological improvements), or promotion of resource availability. Monetary policies lower judge of evoke that accompany an increase in money supply hence affecting investment expenditure. A monetary poli cy would increase the fare of local currency available in the exchange market which volition then weaken the rates of exchange with early(a) currencies. Also, the lower rates of interest will make the economy unattractive to investors when compared to other economies which will lead to a capital overflow proceedsing in the sale of domestic assets and the currency in the exchange market resulting in an ultimate weak currency. A weaker currency makes exports relatively cheaper to foreign buyers hence will stimulate the demand for the local goods while at the same time imports will be more expensive to domestic buyers leading to a reduced demand for imported goods (Pettinger, 2011). This will result in an increase in Net Export expenditure. In times of large deficits in the budget, fiscal policies tend to be missing from the policy makers ideologies. These policies are easy to legislate as they are politically popular and supported. Monetary expansionary policies are ineffective an d unpredictable compared monetary contractionary (Sloman, 2006). In a case where the weak economic growth or high level of unemployment worries the Federal Reserve, the policy will react by increasing bank reserves by open market purchase (where the central bank buys or sells government bonds on the open market to manipulate the short term interest rate and supply of base money in an economy) prompting banks to convert their reserves into loans to their customers.