Monday, March 14, 2011

Monetary and Fiscal Policy

This week and next week we'll talk about monetary and fiscal policy.  I put up the link last week of the interview with Mervyn King, governor of the Bank of England, which contained his views on how monetary policy saved the economy from the abyss during the recession in 2008-09.  Equivalently, politicians and many economists argue that fiscal policy can have an impact on growth - but that impact is complex, as we'll find out.  Nonetheless, Labour have today started talking about their proposals for growth, ahead of next week's Budget.

Changes to fiscal policy (how the government spends and taxes) are bound to have an impact on the economy; you learnt in econ101a how taxing wages distorts incentives in markets, and this is the same in goods markets too.  Hence governments are able to influence economic activity in dramatic ways.  In econ101b we'll look a little more at this at the macro level, thinking about government spending as an aggregate and how that can influence economic activity.

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