Stephen King on connections between monetary and fiscal policy, Unit 4 Macro: Abenomics - Changing Monetary Policy in Japan, Analysis and evaluation practice of the monetary policy decision. Demand Side Policies can be classified into fiscal policy and monetary policy. AS Macro Revision Fiscal Policy Spring 2014 Writing good research paper is quite easy and very difficult simultaneously. This topic video provides an introduction to monetary policy in the UK economy including the role played by the Bank of England. Aggregate Demand is made up of Consumer Spending … AS Macro Revision: Monetary Policy and Exchange Rates 1. But the continuing fiscal consolidation and squeeze on households’ real purchasing power are likely to act as a brake on the economy.”. West Yorkshire, Boston House, Deflation makes monetary policy much less effective. Firstly, deflation can increase the real interest rate. He has over twenty years experience as Head of Economics at leading schools. The lower interest rates make domestic bonds less attractive, so the demand for domestic bonds falls and the demand for foreign bonds rises. The Effect of the Expansionary Monetary Policy on Aggregate Demand When interest rates are cut (which is our expansionary monetary policy… The benefit of monetary policy is that it works faster than fiscal policy. Fiscal policy refers to the use of taxes and government spending to achieve desirable changes in aggregate demand. Effective exchange rate index Sterling (Jan 2005 = 100), daily from Timetric, Bank of England View (Inflation Report, February 2011), “Expansionary monetary policy, combined with growth in global demand and the past depreciation of sterling, should ensure that the recovery in the UK is maintained. In general, demand-side policies aim to change the aggregate demand in the economy. UK target is CPI 2% +/-1. 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