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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Policy mix:  low inflation

As previously discussed, restrictive MP is primarily used to fight inflation, however it can be supported by both BP and AS policies. Restrictive (contractionary) AD policies to reduce inflation, (e.g. via the delivery of tighter MP and budget surpluses) will be supported by AS policies (such as MRPs) that increase efficiency, reduce costs and boost productive capacity.  These AS policies will typically alleviate the (capacity) constraints that resulted in excessive growth in AD and inflationary pressure.  Accordingly, the right combination of policies can achieve a reduction in inflation without impacting negatively on the rate of economic and employment growth.  This is depicted in the diagram below.

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