Monetary and fiscal policies primarily operate through some control of the supply or demand conditions of the economy. The traditional control is that of demand management, but subsidies, indirect taxes, the effects of interest rates on firms, etc., work mainly on the supply side. Physical policy in contrast ignores these supply and demand controls and simply dictates how markets will work. With prices policies, for example, the market prices will be fixed at a level stipulated by government, with little or no reference to the price that would be reached by the free interaction of supply and demand.
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