Monetary and supply-side policy
G3 Economics - syllabus K343, 2027
How interest rates, the money supply and the exchange rate steer the economy, and how supply-side policies raise capacity.
- Money supply and monetary policy
The money supply is the total money in the economy; monetary policy changes interest rates, money supply or the exchange rate.
- Monetary policy measures: interest rate, money supply and exchange rate
A central bank can change the interest rate, the money supply or the exchange rate, and each changes how much households and firms spend.
- How monetary policy helps each macroeconomic aim
Tighter monetary policy slows inflation but also growth; looser policy supports growth and jobs but risks inflation.
- Supply-side policy measures
Supply-side policies raise the economy's productive capacity by improving the quantity and quality of resources and incentives.
- How supply-side policy affects the macro aims
Supply-side policies can raise growth and cut unemployment without inflation, but they are slow and costly.
- Put it together: Bring down inflation
Prices are rising at 6% a year, well above the 2% target. Compare three ways to bring inflation down.
What you will be able to do
I can define money supply and monetary policy.
Syllabus K343, 4.3.1. Definitions of money supply and monetary policy
Taught in Money supply and monetary policy
I can describe monetary policy measures: changes in interest rates, money supply and the exchange rate.
Syllabus K343, 4.3.2. Monetary policy measures: changes in: interest rate, money supply, foreign exchange rate
Taught in Monetary policy measures: interest rate, money supply and exchange rate
I can explain how monetary policy can help a government meet its macroeconomic aims.
Syllabus K343, 4.3.3. Effect of monetary policy on government macroeconomic aims: how monetary policy measures may enable a government to achieve its macroeconomic aims
I can define supply-side policy.
Syllabus K343, 4.4.1. Definition of supply-side policy
Taught in Supply-side policy measures
I can describe supply-side measures such as education, infrastructure, labour reforms, lower taxes and deregulation.
Syllabus K343, 4.4.2. Supply-side policy measures: education and training; infrastructure spending; labour market reforms; lower direct taxes; deregulation; improving incentives to work and invest; privatisation
Taught in Supply-side policy measures
I can explain how supply-side policy can help a government meet its macroeconomic aims.
Syllabus K343, 4.4.3. Effects of supply-side policy measures on government macroeconomic aims: how supply-side policy measures may enable a government to achieve its macroeconomic aims