"Why do the central bank control monetary policy, but the government control fiscal policy?"

As of 1997, monetary policy has been independent from the government in order to remove any political bias or influence from the decision making. The government often had the habit of reducing interest rates prior to elections in order to boost spending and consumer confidence, thereby winning votes, and then raising interest rates once elected. This is unsustainable and can lead to excess inflation and instability, and hence the setting of interest rates was made independent.
Furthermore, this essentially reduces the scope and extent of government intervention in the economy, allowing the government to use its time and resources more effectively on fiscal policy.

TD
Answered by Tutor114968 D. Economics tutor

1862 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

Using the data and your knowledge of economics, to what extent do you agree that cuts to direct taxation would benefit growth and living standards in the UK? Justify your answer.


Explain how monetary policy can be used to prevent business cycles


Explain how The Monetary Policy Committee controls inflation within the UK economy.


Identify two key responsibilities of a country's central bank.


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences