What are the main components of Economic Policy?

12/02/2014 | Mª del Carmen González Oria (Alumna UC)

Economic policy is the set of strategies and actions undertaken by governments to lead and influence the economy of the countries. Economic policy is made up of the monetary, fiscal and trade policy.

Monetary policy is a branch of economic policy that uses the amount of money as a variable to control and maintain economic stability. This includes the decisions regarding on the money market. The objectives of monetary policy are to stabilize the value of money, that is to say, prevent inflation or deflation, have the highest level of employment possible and avoid imbalances in the balance of payments by maintaining a stable exchange rate and protecting national reserves.

On the other hand, we have the fiscal policy which, like monetary policy, is a branch of economic policy. The control variables that are used to secure and maintain fiscal stability are public spending and taxes. In this case, the objectives are to accelerate economic growth, obtain full the use of all the productive resources in society, both human and material and, finally, maintain price stability.

Finally, we have to take into account the exchange rates and trade policy. This policy makes decisions about the behavior of the currency exchange rate, that is to say; create a balance between the nominal exchange rate and the real exchange rate.

To sum up, economic policy refers to the actions that governments take in the economic field. It covers changes in interest rates and government budget as well as the labor market, national ownership or resources and many other areas of the economy. These policies most often (especially with the financial crisis we have been experiencing since 2008) are influenced by international institutions such as the International Monetary Fund or the World Bank. Moreover, keep in mind that some of these decisions on economic policy are made come from the political party in power, their political beliefs and agenda.

Nota: Este artículo ha sido elaborado por Mª del Carmen González Oria, alumna de la Universidad de Cantabria, como una de las actividades enmarcadas dentro del programa de capacitación lingüística, dando su permiso para la publicación del mismo en FxM.

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