The policy mix is the combination of the monetary policy

Monetary policy

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...

 and the fiscal policy

Fiscal policy

In economics and political science, fiscal policy is the use of government expenditure and revenue collection to influence the economy....

 of a country. These two channels influence growth and employment, and are generally determined by the central bank

Central bank

A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...

 and the government

Government

Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...

 respectively.

Ideally, the policy mix should aim at maximizing growth

Economic growth

In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...

 and minimizing unemployment

Unemployment

Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

. However, the central banks and governments are sometimes theorized to have different time horizons, with the elected governments having a shorter time range. Both can have other objectives and must apply to some constraints, diverting them from these primary objectives: obeying a deficit rule, securing the financial sector, courting popularity, etc.

Monetary policy is typically accomplished by the central bank which, by the control of interest rate

Interest rate

An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...

s and the money supply

Money supply

In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...

, balances control of inflation

Inflation

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

 and unemployment

Unemployment

Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

. The government determines labour market conditions, public investment and public spending, automatic stabilizers and in severe recessions possibly discretionary fiscal policy

Fiscal policy

In economics and political science, fiscal policy is the use of government expenditure and revenue collection to influence the economy....

.

Central bank independence is generally held to be positive, because it prevents a single authority from simultaneously issuing debt and paying it off with newly created money, which would result in severe inflation

Inflation

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

.

Sources

• THE FISCAL-MONETARY POLICY MIX, Alan Reynolds, Cato Journal, Vol. 21, No. 2, Fall 2001.
• The Monetary-Fiscal Policy Mix, Alexander D. Rothenberg