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Can Monetary Policy Alone be used to control the Economy? Monetary Policy is the manipulation of monetary variables such as the rate of interest or the money supply to achieve the policies objectives. Currently in the UK the aim of monetary policy is to obtain a low inflation stable environment. By controlling the rate of interest many variables in the economy can be affected. The rate of interest affects both the household and corporate sectors. High interest rates increase the cost of mortgages and reduce the demand for most types of housing. A fall in interest rates will stimulate higher market demand and put upward pressure on house prices. This should also increase consumption and a rise in prices will increase total housing wealth and make consumers more confident. If interest rates fall the effective disposable income of home-owners will increase leading to a rise in their purchasing power. This will increase...

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