Managing the economy/Current Policies

Much of applied macroeconomics is about managing the economy by means of fiscal, monetary and regulatory economic policies. In new economics, all three types of policy should work together in a package depending on the problem to be addressed.

Within these broad types, specific economic instruments (e.g. the rate of VAT, the Central Bank’s base rate, or the carbon price floor) will have characteristics that should be taken into account when devising the policy package. For example, interest rate reductions combined with a fiscal stimulus to offset a sudden fall in aggregate demand, or a tax on fossil fuel to offset the rebound effects of an energy efficiency programme.