Is monetary policy controlled by the government?

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ana bloom
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Hello folks,

Just recently I had an economics test on theme 2 (UK economy) and the 20 mark question was about the "effectiveness of GOVERNMENT POLICIES in reducing unemployment". I only referred to fiscal and supply-side but not monetary as I thought it was controlled independently by Central Banks/The Bank of England.
My teacher told me that I had an unbalanced answer, as I should've talked about interest rates as well.

Could anybody please tell me if I'm wrong or not?
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BasicMistake
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You're correct, in most developed economies, monetary policy is indeed controlled by the central bank.

What was the phrasing of the question exactly and do you have access to a mark scheme? It's a poor one to ask if they expect you to write about monetary policy.
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Trapz99
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No, monetary policy is decided by the central bank, which is independent of the government in the UK.
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jpt4749
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Fiscal policy is controlled by the Government in forms of taxation and government spending affecting IS curve

Monetary policy on the other hand is regularly by central bank in the form of alternating money supply to change interest rates affecting LM curve

I really hope that this is helpful ^_^
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username1751857
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Fiscal policy is decided by the government, monetary policy by the Bank of England.
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Alex2245
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I think your teacher is wrong about this.
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Miss Maddie
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Your teacher is correct. To view monetary policy as purely a central bank tool is wrong. In some countries monetary policy is directly controlled by the bank and in others indirectly controlled by the government. Take China, a government agency (state administration of foreign exchange) controls foreign exchange. Also because China has a closed foreign currency market unlike somewhere like the US. In the US there's indirect tools like treasury department printing more money to change the exchange rates.

I would've talked about the expansionary fiscal policies leading to monetary policies and changes in employment. Selling money to foreign countries is used as a way to borrow more. These tools can weaken the currency and stimulate more FDI. More FDI -> more jobs.
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BasicMistake
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(Original post by Miss Maddie)
Your teacher is correct. To view monetary policy as purely a central bank tool is wrong. In some countries monetary policy is directly controlled by the bank and in others indirectly controlled by the government. Take China, a government agency (state administration of foreign exchange) controls foreign exchange. Also because China has a closed foreign currency market unlike somewhere like the US. In the US there's indirect tools like treasury department printing more money to change the exchange rates.

I would've talked about the expansionary fiscal policies leading to monetary policies and changes in employment. Selling money to foreign countries is used as a way to borrow more. These tools can weaken the currency and stimulate more FDI. More FDI -> more jobs.
OP mentioned that this was for Theme 2 - UK economy so talking about countries with non-independent central banks and fixed exchange rates may not be credited in the exam. That said, assuming this is the exam board I think it is, then it's possible that this question was drawn from a paper that includes both Theme 2 and Theme 4, the latter of which is about the global macroeconomy.
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ana bloom
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(Original post by BasicMistake)
You're correct, in most developed economies, monetary policy is indeed controlled by the central bank.

What was the phrasing of the question exactly and do you have access to a mark scheme? It's a poor one to ask if they expect you to write about monetary policy.
Thanks a lot!
The question was exactly as follows:
"Evaluate the effectiveness of government policies that could be used to increase the employment rate in the UK."
I found the mark scheme and it says that government policies should be identified as fiscal and supply-side solely. No marks were awarded for the use of monetary policy tools.

And yet, my teacher still lowered my grade
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ana bloom
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(Original post by Trapz99)
No, monetary policy is decided by the central bank, which is independent of the government in the UK.
Thanks, Trapz99! Appreciate it!
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ana bloom
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(Original post by Nathan9087)
Fiscal policy is controlled by the Government in forms of taxation and government spending affecting IS curve

Monetary policy on the other hand is regularly by central bank in the form of alternating money supply to change interest rates affecting LM curve

I really hope that this is helpful ^_^
Thanks man! Helped a lot
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The Asian Tory
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I would just like to add as other TSR members mentioned that you could have discussed the fiscal-monetary splurge of lower interest rates, higher public-private sector investments and consumption dynamics till the market re-equilibrates towards the long run average, ceteris paribus. Interest rate differentials compared to the world average and regional interest rate environment may lead to appreciation/depreciation will affect the demand side element of the economy with respect to the associated price changes for normal/inferior goods/services that are exported/imported.
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Username3823048
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You can't have your cake, and eat it.
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jpt4749
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(Original post by ana bloom)
Thanks man! Helped a lot
Happy to help my friend ^_^
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