Policy Mix

The policy mix refers to the combination of a government’s fiscal and monetary policies used to influence a country’s economic performance. Fiscal policy involves government spending and taxation, while monetary policy is managed by a central bank, controlling interest rates and money supply. The policy mix is tailored to achieve specific economic goals, such as controlling inflation, stimulating growth, or reducing unemployment. The balance between these policies can significantly impact economic stability.

Example

A country facing high inflation may adopt a restrictive monetary policy (raising interest rates) combined with a neutral fiscal policy (maintaining government spending levels) to stabilize prices.