Economic policy

The economy of governments covers a systems for imposing levels of taxation, government budgets, a money dispense in addition to interest rates as alive as the labour market, national ownership, in addition to many other areas of government interventions into the economy.

Most factors of economic policy can be dual-lane into either fiscal policy, which deals with government actions regarding taxation in addition to spending, or monetary policy, which deals with central banking actions regarding the money manage and interest rates.

Such policies are often influenced by international institutions like the International Monetary Fund or World Bank as well as political beliefs and the consequent policies of parties.

Tools and goals

Policy is loosely directed to achieve particular objectives, like targets for inflation, unemployment, or economic growth. Sometimes other objectives, like military spending or nationalization are important.

These are subjected to as the policy goals: the outcomes which the economic policy aims to achieve.

Tothese goals, governments usage policy tools which are under the guidance of the government. These generally include the interest rate and money supply, tax and government spending, tariffs, exchange rates, labor market regulations, and numerous other aspects of government.

Government and central banks are limited in the number of goals they canin the short term. For instance, there may be pressure on the government to reduce inflation, reduce unemployment, and reduce interest rates while maintaining currency stability. If all of these are selected as goals for the short term, then policy is likely to be incoherent, because a normal consequence of reducing inflation and maintaining currency stability is increasing unemployment and increasing interest rates.

This dilemma can in part be resolved by using microeconomic supply-side policy to help adjust markets. For instance, unemployment could potentially be reduced by altering laws relating to trade unions or unemployment insurance, as well as by macroeconomic demand-side factors like interest rates.