economic policy

Economic intervention used by a government to allow them to achieve their political and economic goals. The main two areas of economic policy consist of monetary policy and fiscal policy.

Normally, economic policies are used to manage and achieve goals in benefit of the whole society. Some goals that these economic policies try to achieve are:

  • Economic growth
  • Achieve full employment
  • Price stability
  • Economic competitiveness
  • If economic growth is achieved, the government will try to keep it going at reasonable pace for years. The indicators that are most commonly used to show economic growth are gross domestic product (gdp) and Gross National Product (GNP). When it comes to maintaining price stability, the State controls prices in such a way that they do not increase a lot, otherwise it would cause a decrease in spending power and inflation, and therefore a decrease in consumption

    Types of economic policies 

    Some of the several types that may be used to aim economic goals are:

  • Monetary policy: all central banks are responsible for it (Federal Reserve in the US). They control money supply, while keeping inflation rates (or deflation rates) in check and under control according to the current economic/monetary policy.
  • Fiscal policy (tax policy): policy used to obtain income through taxes in order to defray public expenses.
  • Foreign relations policy: sometimes transactions made with other countries are regulated. To make this happen there are limits imposed in importations, exchange rates are fixed, etc.
  • Income policy: Especially on government employees´ wages to control, in some cases, inflation.