Accomodating monetary policy

These typically used fiscal and monetary policy to adjust inflation, output and unemployment.

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These generally include the interest rate and money supply, tax and government spending, tariffs, exchange rates, labor market regulations, and many other aspects of government.

For instance, unemployment could potentially be reduced by altering laws relating to trade unions or unemployment insurance, as well as by macroeconomic (demand-side) factors like interest rates.

For much of the 20th century, governments adopted discretionary policies like demand management designed to correct the business cycle.

If all of these are selected as goals for the short term, then policy is likely to be incoherent, because a normal consequence of reducing inflation and maintaining currency stability is increasing unemployment and increasing interest rates.

This dilemma can in part be resolved by using microeconomic supply-side policy to help adjust markets.

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