Since the 1970s and 1980s we have moved away from an active exchange rate policy as part of an overall demand management strategy. Indeed, by the mid 2000s, even the role of fiscal policy in demand management had diminished. The article below looks at these changes and considers whether this new approach to demand management is proving effective.
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Questions
| 1. | Explain how the approach to management of the economy has changed over the last three decades. |
| 2. | Assess the problems that might arise from trying to manage the economy using just one policy instrument (i.e. interest rates).. |
| 3. | Explain what is meant by an exchange rate policy. Discuss whether the reintroduction of an exchange rate policy would help with the management of the economy. |