Which policy is better - monetary, fiscal or supply side?

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Which policy is better - monetary, fiscal or supply side?

Monetary policy, fiscal policy, and supply side policies all have their advantages. However, looking at the macroeconomic objectives (economic growth, stable rate of inflation, low unemployment and balance of payments), the three policies mentioned are either very effective in influencing these objectives, or ineffective in influencing the objectives.

Monetary policy involves the use of changes in short term interest rates to control the level and rate of growth of AD (aggregate demand) in the economy. The first two macroeconomic objectives that concern monetary policy are economic growth and inflation. Monetary policy is very effective in steadying the rate of economic growth, as monetary policy controls interest rates in order to keep growth low.  Another reason why monetary policy is effective in steadying the rate of economic growth and inflation is through government intervention in foreign markets. If the UK is in a recession, the government (through monetary policy) can intervene in the foreign exchange market to influence the value of other currencies. By increasing the competitiveness of UK goods/services, AD will increase (as X in X-M increases) which will therefore increase economic growth. In addition, the Bank of England is now independent, and their target percentage of inflation is 2% per year. The CPI has been an important factor in keeping inflation low over the past 15 years, however over the last 2 years alone, inflation has been rising rapidly, which suggests that monetary policy is useless in steadying inflation as it is out of the governments control.

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The fact that the CPI has kept inflation low over the past 15 years has also effected unemployment. The CPI has also provided a stable environment for jobs and growth, which shows that monetary policy is effective in keeping “low unemployment” - one of the macroeconomic objectives. A major flaw in monetary policy how

ever, is that the use of monetary policy depends upon lenders passing  on the interest rate cuts and, as we have seen during the recession, lenders have been extremely reluctant to pass on interest cuts. This has, in effect, made the interest rate an ineffective ...

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