What Is a Policy Mix?

Malcolm Tatum

A policy mix is a process that is sometimes employed by governments as a means of helping to move a national economy in a desirable direction. A mix of this type will often combine aspects of a monetary policy with a fiscal policy in order to produce a set of circumstances that is highly likely to eventually trigger the desired movement, with improvements occurring incrementally over a projected period of time. The use of a policy mix may be employed to help weaken and eventually reverse a period of inflation or recession, and restore a period of relative economic stability to the general economy.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

As part of the process of creating a policy mix, a government will look closely at the nature of the problem at hand and the factors that led to the development of the issue. This makes it easier to determine what type of shifts in policy will make a positive impact on those underlying factors and begin to slow undesirable effects of the current economic situation. Some of the strategies involved may include altering the current balance between imports and exports by imposing or reducing applicable tariffs and taxes, changing average interest rates as a means of encouraging or discouraging consumer spending, or making changes in domestic tax laws that promote the expansion of industry or in some manner aids in reducing unemployment rates.

The focus with a policy mix is to pull the right components of various other policies and alter them so that the desired result is more likely. While the underlying process itself is relatively straightforward, the difficulty often comes in identifying what of the many policies involved must be altered in some manner. Adherents of one approach may see great flaws in processes advances by supporters of a different approach, and vice versa, based on different projections of the outcome of pursuing a certain combination of policies within the mix.

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When the policy mix is successful, the end result can be beneficial to a large number of residents within the country. Typically, the economy becomes more stable as consumers resume purchasing goods and services at prices they consider equitable, unemployment rates fall into acceptable ranges, and industry is able to function in a manner that helps to keep the economy moving along at an agreeable pace. As underlying factors change, there is always the need to re-evaluate the effectiveness of certain policy combinations and alter the policy mix in order to deal effectively with those new circumstances and maintain some degree of balance in the economy.

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