Policy mix

Public finance
Policies Agricultural Economic Energy Industrial Investment Social Trade Fiscal Monetary Policy mix
Fiscal policy Budget policy Debt external internal Deficit / surplus Finance ministry Fiscal union Revenue Spending deficit Tax
Monetary policy Bank reserves requirements Discount window Gold reserves Interest rate Monetary authority central bank currency board Monetary base Monetary (currency) union Money supply
Trade policy Balance of trade Free trade Gains from trade Non-tariff barrier Protectionism Tariff Trade bloc Trade creation Trade diversion Trade / commerce ministry
Revenue Spending Non-tax revenue Tax revenue Discretionary spending Mandatory spending
Optimum Balanced budget Economic growth Price stability
Reform Fiscal adjustment Monetary reform

The policy mix is the combination of a country's monetary policy and fiscal policy. These two channels influence growth and employment, and are generally determined by the central bank and the government (e.g., the United States Congress) respectively.

Ideally, the policy mix should aim at maximizing growth and minimizing unemployment and inflation. However, central banks and governments are sometimes theorized to have different time horizons, with the elected governments having a shorter horizon. Both can have other objectives and must adhere to some constraints – obeying a deficit rule, securing the financial sector, courting popularity, etc. – diverting them from these primary objectives.

Monetary policy is typically carried out by the central bank, which controls interest rates and the money supply to balance the outcomes for inflation and unemployment. The government influences labour market conditions, public investment, public spending, and discretionary fiscal policy.

Central bank independence is generally held to be positive, because it prevents a single authority from simultaneously issuing debt and paying it off with newly created money, which would be inflationary.

See also

• Stimulus (economics)