Economics and Philosophy

There are three types of government policies.

First one is Fiscal policy:

• Government spending
• Taxation
• Borrowing

Changes in fiscal policy causes changes in AD and AS

Types if tax:

• Direct tax: a tax on income, wealth, profit. Such as: corporation tax, capital gains tax.
• Indirect tax: taxes on spending ( on goods). Like Value Added Tax
• Progressive tax: the marginal rate of taxes rises as income rises
• Proportional tax: the rate of tax is constant
• Regressive tax: rate of tax decreases as income rise

Government spending:

• Transfer payments: government welfare payments. The aim is to provide minimum standard of living for low income household.
• Current g.s.: state provided goods and services. For example National Health Service
• Capital spending: infrastructural spending.

Fiscal policy and Aggregate Supply

• Labour market incentives: cut in income tax will incentive people who are seeking for a job
• Capital spending: spending on infrastructure.
• Research and development and innovations

Human capital: spending on education, training.

Monetary policy

Monetary policy use interest rates. It influences the decision how much we save, borrow and spend. The interest rate s are setting up by Bank of England with help of MPC( Monetary Policy Committee)

Supply-side policies


• Education and training
• Encourage people to open new firms
• Reduction in direct tax
• National Minimum Wage
• Reduction in unemployment benefit
• Reduction in other benefits
• Reduction in trade union power
• Privatisation
• Deregulation

Types of inflation:

Cost push inflation and Demand pull inflation.

Methods of protectionism:

• Tariff is the tax on import. The effect of imposing tariff is to raise prices for imports.
• Quotas. This is a limit on the supply of goods and services. It can be imposed on exports or on import.
• Voluntary Export restraint: a limit placed on imports from a country with the agreement of that country’s government.
• Foreign exchange restrictions.
• Embargoes. An embargo is a ban on the export or import of a product or ban trade with a particular country.
• Red tape. Time delaying customs procedures may be used to discourage imports.