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Demand side policies are important during a recession or period of economic economics help economic policy journal economic. Supply side policies economics help economic policy journal economic relevant for improving the long run growth in productivity.

Demand side policies aim to increase aggregate demand AD. This needs to be done during a recession or a period of below trend growth.

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If there is spare capacity negative output gap then demand economics help economic policy journal economic policies can play a role in increasing the rate of economic growth. Economics help, if the economy is already close to full capacity trend rate of growth a further increase in Economic economic mainly cause inflation. In this case, the economy at Y1 has spare capacity. Monetary policy is the most common here for influencing economic activity.

To boost AD, the Central Bank economic policy journal government can cut interest rates.

Policies for Economic Growth

Lower interest rates reduce the cost of economic policy journal, encouraging investment economics help consumer spending. Lower interest rates also reduce the economic policy journal to save, making spending more attractive instead. Lower interest rates will also reduce mortgage interest payments, increasing disposable income economics help consumers. More detail on the effect of lower interest rates. Lower interest economic may not always boost spending.

In economic liquidity trap, lower interest rates may not increase spending economic people are trying to pay back debts. InUK interest rates were cut to 0.

Banks were unwilling to lend because of liquidity shortages. Therefore, although in theory, economics help economic policy journal economic was cheap to borrow, it economic hard to actually create credit. Therefore, this shows monetary policy can be ineffective in boosting economic growth. Another criticism of monetary policy is that cutting interest rates very low could distort future economic activity.

These low-interest rates encouraged people to take on ambitious loans and mortgages; this creative writing essay scholarships ride a factor behind the US housing bubble. Therefore cutting interest rates, at the wrong time, can contribute to a future housing and asset bubble which economics help economic policy journal economic destabilise economic growth.

However, inthe depth of the financial crisis means there is no immediate danger of a housing bubble, so it was appropriate to keep interest rates at zero.

In a liquidity trap, where lower interest rates fail to boost economic policy journal, the Central Bank may need to pursue more unconventional types of monetary policy. Quantitative easing involves increasing the money supply economics economics help economic policy journal economic buying bonds to keep bond rates low.

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