Monetary and supply-side policy

G3 Economics - syllabus K343, 2027

How interest rates, the money supply and the exchange rate steer the economy, and how supply-side policies raise capacity.

• Money supply and monetary policy

  The money supply is the total money in the economy; monetary policy changes interest rates, money supply or the exchange rate.

• How monetary policy affects the macro aims

  Lower interest rates and more money raise spending; a stronger currency lowers import prices and helps control inflation.

• Supply-side policy measures

  Supply-side policies raise the economy's productive capacity by improving the quantity and quality of resources and incentives.

• How supply-side policy affects the macro aims

  Supply-side policies can raise growth and cut unemployment without inflation, but they are slow and costly.

• Put it together: Bring down inflation

  Prices are rising at 6% a year, well above the 2% target. Compare three ways to bring inflation down.