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In this chapter we are introduced to both the demand side and supply side policies. First we willlook at the demand side policies. The fiscal policy primarily focuses on the government budget and it’s a discretionary policy that refers to government changes of Expenditure and Taxes to influence the aggregate demand. an expansionary fiscal policy aims to eliminate a recessionary gap and the contractionary fiscal policy aims to close inflationary gap. This Is Pal policies are presented in both the new classical and the tension water. the fiscal policy is also affected with the size of the multiplier. In the chapter we also study about the automatic stabilizers like the progressive income taxes and the unemployment benefits.

The fiscal policy focuses on short-term stabilization although it can affect the long-term growth of potential GDP. A detailed study of the strengths and weaknesses of the fiscal policy will help the students to understand the concept better. Similarly the monetary policies which are carried out by the central banks are also discussed in the chapter. Next we will look at the supply side policies. There are two types of supply side policies interventionist and market-based and the market based are divided in three types: encouraging competition, labour market reforms and incentive related policies.A detailed evaluation of the supply side policies will help students to understand the concept of these policies better. Lastly, the chapter also discusses the unemployment policies which deal with cyclical unemployment Natural unemployment; inflation policies which deal with demand pull and cost push inflation and inflation targeting.