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policy instrument


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A policy measure under the control of the monetary or fiscal authorities. This could be a measure such as a change in the money supply or in tax rates, or the imposition of price or quantitative controls. Policy instruments are distinguished from policy targets and policy indicators. Policy targets are aims such as high employment and low inflation; the authorities cannot decide these, but can only try to influence them through policy instruments. Policy indicators are used in taking policy decisions; the indicators are not necessarily themselves targets, but may be used in deciding policy in preference to targets, because the indicators can be measured more reliably or earlier than the targets. See also economic policy.

Subjects: Economics.


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