Economic policy

economic-dictionary

Economic policy includes the actions and decisions that the authorities of each country take within the scope of the economy. Through its intervention it is intended to control the country's economy to provide stability and economic growth, establishing the guidelines for its proper functioning.

As a government establishes a certain economic policy, it is in charge of controlling different important economic factors in the life of the country, such as state budgets or the labor market. So to speak, the State conducts the economy of its territory with the tools of economic policy.

Objectives of economic policy

Among the objectives of economic policy we can distinguish short-term (temporary) objectives and longer-term (structural) objectives.

Regarding the short-term objectives, we can distinguish three:

  • Full employment.
  • Price stability.
  • Improvement of the balance of payments.

Regarding the long-term objectives, we can distinguish eight:

  • Production expansion.
  • Satisfaction of collective needs.
  • Improved distribution of income and wealth.
  • Protection and priorities to certain regions or industries.
  • Improvement in the norms of private consumption.
  • Security of supply.
  • Improvement in the size or structure of the population.
  • Reduction of the working day.

Disciplines of economic policy

By controlling economic variables a government can stimulate the economy. According to the tools used by the authorities, we can distinguish two disciplines of economic policy:

  • Fiscal policy: Focused on the management of the resources of a State and its Administration. It is in the hands of the government of the country, who controls the levels of spending and income through variables such as tax collection and public spending to maintain a level of stability in the countries. It can be expansive or restrictive.
  • Monetary policy: Controls monetary factors (mainly money supply and interest rates) to guarantee price stability and economic growth. It can be expansive or restrictive.

Characteristics of economic policy

Economic policies must have a high level of coherence, coordination and integration of the fiscal and monetary measures with which it complies, in order to achieve the objectives set and the search for well-being. Thanks to a good use of economic policy, a country can deal with important social and conjunctural problems such as inflation, poverty, in addition to trying to contribute to the economic growth of the country.

Economic policy is specific to each country or region, since it is developed taking into account the characteristics of each territory in which it is applied and generally it is not possible to obtain identical results by testing it equally in two different countries. This happens because there are social, geographical or ideological factors that make each country unique.

However, depending on the ideologies and economic approaches that exist in the world, different positions can be found regarding the level of intervention that a government has to adopt in the economic life of its country.

There are international organizations that influence decision-making when proposing a specific economic policy, such as the International Monetary Fund (IMF), the Federal Reserve or the World Bank. In the same way, economic policy is closely related to the ideological and political tendencies existing in the world and represented by the political powers of each country.

Political economy Conditions for economic growth

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