Question

First, briefly explain what is meant by the policy mix. Second, explain what effect different policy mixes might have on the level of output, investment, and the interest rate.
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Answer 1

First answer:

The policy mix is the combination of the monetary policy and the fiscal policy of a country. These two channels influence growth and employment, and are generally determined by the central bank and the government respectively. Ideally, the policy mix should aim at maximizing growth and minimizing unemployment.

Second answer:

Answer: In this case, the LM curve shifts up and the IS curve shifts to the right. The interest rate will clearly be higher.

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