Monday, July 09, 2012

Policy choices

What are the policy choices you have when faced with recession?
  1. Lower exchange rate to improve exports
  2. Lower interest rate to spur home and car buying
  3. Public investment in infrastructure, education, and public health
  4. Encourage domestic and foreign investment by reducing restrictions, red tape, welfare and taxes. Streamline regulation to reduce cost of doing business.
# 1 and 4 are supply side measures. They aim to increase production. # 2 and 3 are demand side initiatives. They work by stimulating demand.

Conservatives usually want to use supply side measures. Liberals usually want to use demand side policies.

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