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Definition

A mechanism to encourage economic activity within the economy. The Monetary Policy Committee (MPC) meets every two months to decide whether to reduce interest rates, increase them or leave them unchanged. If they decide to reduce interest rates, that acts as a stimulus on the economy because it reduces the monthly cost of every mortgage bond, overdraft and credit card in the country resulting in consumers having more disposable income. A stimulus can also be in the form of a fiscal measure like reducing taxes or increasing government expenditure. In general, it is good policy to keep fiscal and monetary policy in line otherwise they can negate each other.

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