The policy mix   Strong & sustainable growth   Low inflation  Full employment  External stability   Equity in disribution of income   Living standards

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 Course notes quick navigation

1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

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What is the policy mix?

Policy mix refers to how the Government’s demand and supply side policies are combined to achieve both the economic goals outlined earlier, as well as improvements in national living standards.  The economic goals of policy are as follows:

The policies available to the Government are as follows:

The way each policy will be used in the policy mix to achieve the Government’s goals will depend heavily upon an assessment of the relative strengths and weaknesses of each policy in terms of how well it can target particular goals.  For example, the fact that budgetary policy has the ability to manipulate taxation rates and transfer payments ensures that it is an integral part of the policy mix to achieve greater equity in the distribution of income.  Similarly, the fact that monetary policy is unable to focus on particular industries or sectors effectively limits its ability to play a constructive role in the re-allocation of the nation’s resources.  For example, the RBA is unable to reduce pressure on specific businesses that are the target of anti-competitive behaviour, nor can it address market failures such as promoting those activities producing positive externalities in production.  

The table below summarises how the policies are used in the policy mix to target the achievement of the government’s goals and improve living standards.  The key point to note is that all three policies have central roles to play in achieving domestic economic stability (i.e. internal stability), but only one or two policies are used to directly focus on the goals of external stability, equity in the distribution of income and living standards.

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