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Write an essay: Discuss the statement ‘through demand management policies, the government does more harm than good’. What innovations in macroeconomics have occurred in order to try and improve...

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Write an essay: Discuss the statement ‘through demand management policies, the government does more harm than good’. What innovations in macroeconomics have occurred in order to try and improve policy?


I include a marking scheme below and this provides detail as to what to expect in a general essay based assessments. For more guidance around this scheme, specifically I will be looking for the following items:

  • The use of economic analysis: remember this is an economics essay and therefore the economic analysis and economic principles should come first. This is most easily demonstrated through using graphs (as they stand out quite well) and specifically making reference to economic principles (for example, allocation, demand and supply, diminishing marginal returns, etc.). The essay should at least make reference to some point of the textbook (attached in zip).

  • The use of external resources: although the economic concepts are meant to drive everything, using external resources adds weight and empirical reference to your arguments. What I am really looking for is an application by you to analyzing a specific issue using economic principles, and using external resources is a good demonstration of this. Remember that academia is really a skill of ‘standing on shoulders of giants’ by which it is meant that the first thing you should do is understand what others have said and think.

  • Structure: make everything clear and concise and have a clear narrative. The best way to do this is to have a clear structure from the outset. The structure should be:

  • o Introduction

o Applicationoftextbookeconomicideas
o Empiricalobservationsandexternalresources

o Conclusions

  • Clarity of argument: in all your work, try and have one clear narrative running through your work. You do this by stating your argument in the introduction and then systematically returning to this throughout the main body. You may think that you are being clear and subtle, but often, this is not the case.

  • There will also be 5 marks available for self-reflection. At the end of your essay (on the final page – after your references and any appendices you might have) you will be required to both give your essay a mark you would anticipate to receive and the reason for this. This is an exercise to engage and reflect on the quality of your work. Marks will be given for the depth of your reflection on the strengths and weaknesses of your essay and for how accurate these are. Note that the self-reflection does not contribute towards your word count.

Answered Same Day Dec 20, 2021

Solution

Azra S answered on Dec 29 2021
156 Votes
Aggregate Demand and Policy changes
Introduction
Aggregate Demand (AD) and Aggregate Supply (AS) are measures that help in assessing the economic situation of a country. As a result, both are extremely important for an economy and the government takes keen interest in these measures. The government thus intakes a range of measures in order to not only calculate and assess aggregate demand and supply, but also to control it. These policies take the form of monetary policies as well as fiscal policies (ECO19 Aggregate demand and the National Economy). However, through demand management policies, the government may be doing more harm than good. The market has the tendency to adjust itself to equili
ium and hence government interference may simply be unnecessary.
What is Aggregate Demand?
Aggregate demand or (AD) indicates the total demand for a particular good or service in any particular economy. The measure of Aggregate demand is a kind of representative of the economic wellbeing of an economy. It can thus a measure of overall demand while keeping prices constant at a period of time. Aggregate demand is important to the economy as it represents the GDP of the economy. Both Aggregate Demand and GDP are calculated using the same formula. They move in tandem and increase, or decrease simultaneously (Dutt, 2006).
A better way to understand Aggregate demand and its impact on the economy is to learn how it is calculated. The formula used to calculateAggregate Demand and GDP is one and the same (Dutt, 2006).
The Formula for Aggregate Demand (ECO19 Aggregate demand and the National Economy)
Understanding how AD is calculated gives us a better perspective on understanding how monetary and fiscal policy affect aggregate demand. The same formula is used for the measurement of both GDP and AD:
AD = C + I + G + (X - M)
where
AD=Aggregate Demand, C refers to Consumer spending , I refers to investment on goods, G refers to Government spending, X is Exports and M Imports.
The following graph shows the Aggregate demand in an economy.
Source: (Economics HL IB, n.d.)
Government policy Overview
The government undertakes a range of fiscal policy and monetary policy initiatives in order to impact the aggregate demand.
The fiscal policy that is implemented by the government can cause changes in the AD through changing the way the government spends its money and through its tax system. These impact employment rates and the income of people. Both these factors effect the spending of consumers and investment rates in the country. Monetary policy influences the money supply, which then changes the interest rates as well as the inflation rates in the economy. Various other factors like net exports, the cost of debt, employment etc. are effected with each factor impacting aggregate demand in some or the other way(ECO19 Aggregate demand and the National Economy).
Fiscal Policy and Aggregate Demand
The fiscal policy is the government policy that governs how the government spends its money and the rates at which taxes are implemented (ECO19 Fiscal Policy).
The government usually enacts either an expansionary fiscal policy or contractionary fiscal policy.
Expansionary fiscal policy is enforced as a resort from recessions or similar economic situations. Using these policies, the government increases its spending on education, infrastructure, and unemployment benefits. Contractionary fiscal policy is used to lessen government spending as well as a country’s sovereign debt. It is also used to control inflation and asset bu
les.
Expansionary policies help in preventing negative shifts in aggregate demand as they can stabilize employment among government employees and people involved with stimulated industries. The fiscal policy is responsible for directly influencing government expenditure and indirectly affecting consumption and investment.
Monetary Policy and Aggregate Demand
The government’s Monetary policy is enacted through manipulating the money in an economy. This is done through central banks by manipulating the money supply. The money supply effects interest rates and inflation. These in turn are determinants of factors like cost of debt, employment and consumption levels.
The government usually enacts either an expansionary monetary policy or contractionary monetary policy.
The expansionary monetary policy is...
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