Policy Mix

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DEFINITION of 'Policy Mix'

A government's combined use of fiscal policy and monetary policy to attempt to manage the economy. Monetary and fiscal policies affect each other, and the right policy mix is supposed to achieve desirable macroeconomic outcomes such as price stability, credit availability, economic growth and financial stability.

BREAKING DOWN 'Policy Mix'

Monetary policy refers to a national government's handling of the money supply and interest rates. These are often managed by a central bank (in the case of the United States, the Federal Reserve sets the country's monetary policy). Fiscal policy refers to a national government's taxing and spending behavior. An example of a policy mix would be tight monetary policy combined with easy fiscal policy.

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RELATED FAQS
  1. How is the Federal Reserve audited?

    Contrary to conventional wisdom, the Federal Reserve is extensively audited. Politicians on the left and right of a populist ... Read Full Answer >>
  2. Who decides when to print money in the US?

    The U.S. Treasury decides to print money in the United States as it owns and operates printing presses. However, the Federal ... Read Full Answer >>
  3. Why do some people claim the Federal Reserve is unconstitutional?

    The U.S. Constitution does not mention the need for a central bank, nor does it explicitly grant the government the power ... Read Full Answer >>
  4. How can the federal reserve increase aggregate demand?

    The Federal Reserve can increase aggregate demand in indirect ways by lowering interest rates. Aggregate demand is a measure ... Read Full Answer >>
  5. How does the stock market react to changes in the Federal Funds Rate?

    The stock market reacts to changes in the federal funds rate in various ways depending on where it is in the business cycle. ... Read Full Answer >>
  6. How does the bond market react to changes in the Federal Funds Rate?

    The bond market is highly sensitive to changes in the federal funds rate. When the Federal Reserve increases the federal ... Read Full Answer >>

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