What two policies can the government employ to influence economic growth and inflation?

The two policies the government can employ to influence economic growth and inflation are MONETARY and FISCAL policy.

1. Monetary policy: Change the interest rate and affecting the supply of money (e.g. through quantitative easing). To increase spending in the economy and encourage economic growth, the government may lower interest rates and increase the supply of money however this can cause an increase in inflation. If the economy is growing too much and there is too much inflation, the government can increase interest rates and lower the supply of money to discourage spending.

2. Fiscal policy: Changing government spending and taxation to influence aggregate demand. To increase aggregate demand in the economy (and thus economic growth) the government may increase government spending and lower tax. If the government wants to decrease aggregate demand, they may decrease government spending and increase taxation.