Bpp learning Media is an acca approved Content Provider

lagging indicator
, you will have guessed, is one which 'lags behind' the economic cycle. 
Unemployment, to take an example, often continues to rise until after a recession has ended and 
only starts to fall again after recovery has begun. 
There are a number of monetary indicators. 
(a) 
The size of the money stock 
(b) 
Interest rates such as the banks' base rate of interest, the Treasury bill rate and the yield on long-
dated government securities 
(c) 
The exchange rate against another currency, for example the US dollar, or the trade-weighted 
exchange rate index 
(d) 
The size of the Government's borrowing 
(e) 
Government borrowing as a percentage of Gross Domestic Product 
10.6 Monetary policy and fiscal policy 
Monetary policy can be made to act as a subsidiary support to fiscal policy and demand management
. 
Since budgets are once-a-year events, a government must use non-fiscal measures in between budgets 
to make adjustments to its control of the economy. 
(a) 
A policy of 
low interest rates 
or the absence of any form of credit control might stimulate bank 
lending, which in turn would increase expenditure (demand) in the economy. 
(b) 
High interest rates 
might
 
act as a deterrent to borrowing and so reduce spending in the economy. 
(c) Strict 
credit controls 
(for example restrictions on bank lending) might be introduced to reduce 
lending and so reduce demand in the economy. 
Alternatively, monetary policy might be given prominence over fiscal policy as the most effective 
approach by a government to achieving its main economic policy objectives. This might not, however, be 
possible: from 1990 to 1992, for example, monetary policy in the UK was heavily constrained by the 
need to set interest rates at levels which maintained sterling's position in the European exchange rate 
mechanism (ERM). From 1997, the Government has given the Bank of England the role of setting 
interest rates, although it is still the Government which sets an inflation target. If the UK joined a single 
European currency, interest rates would largely be determined at the European level. 
10.7 Monetary policy, inflation control and economic growth 
Monetarists argue that monetary control will put the brake on inflation, but how does this help the 
economy? We might argue like this. 
BPP Tutor Toolkit Copy

---

CHAPTER 3
//
THE MACROECONOMIC ENVIRONMENT