Economic policy

What is economic policy?

Economic policy includes all that action carried out by a government in relation to the political-economic sphere, with the aim of promoting and contributing to the well-being of the economy.

The economic policies carried out by a government are influenced by fiscal, monetary, foreign and income policy, mainly.

Sometimes the International Monetary Fund, the World Bank or the Federal Reserve directly influence the economic policy of a country.

Characteristics of economic policy

Among the main characteristics of economic policy we can highlight the following:

• Its objective is to achieve the political and socio-economic stability of a country, contributing to the proper functioning of the economy and the well-being of citizens.
• It is country specific, since it is influenced by particular ideologies, social and geographical factors.
• Sometimes is influenced by international organizations, such as the IMF, the World Bank or the Federal Reserve.
• Their main instruments are monetary, fiscal, foreign and income policy.
• Various social problems depend on its control, such as inflation, poverty and unemployment.

Instruments of economic policy

Economic policy can be classified according to the main instruments it handles, which are set out below:

• Fiscal policy: also called public finance policy, includes public expenditures, investments, budgets, subsidies, among others.
• Monetary politics: It includes different operations, such as the open market, the regulation of the money supply and interest rates. This instrument presents an interaction with the government through the Central Bank and intermediaries of financial entities.
• Foreign policy: This body is in charge of controlling foreign trade, both export and import, as well as the entry and exit of capital, immigration, and the coordination of prices and wages.
• Income policy: Its objective is to achieve price stability, that is to say that these remain constant and do not rise.

Objectives of economic policy

The objectives of the economic policy are the following:

• Economic growth: organize the economy so that production and consumption are high.
• Price stability: avoid the processes of inflation and deflation, maintaining the purchasing power of the population and avoiding major conflicts.
• Balance in the international market: maintain a good level of trade balance to avoid shocks to the economy.
• Income redistribution: distribute equitably the funds allocated by the market to citizens.
• Generate job: through economic policy, the majority of the population must have a job.

Importance of economic policy

Economic policy is important because helps each country in its development. This should drive greater economic capacity, which in turn it will generate more jobs and well-being for the country.

On the other hand, it establishes criteria and recommendations so that monetary and fiscal policies have positive effects on the economy. What's more, analyzes the development of the price level and the factors that determine it, as well as the reduction of prices, that is, deflation.

Economic policy will be of vital importance to the stability of a country since it will help the population to have a stable job and that, in this way, there is good economic development in the country.