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Government economic policy - Essay Example

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This paper talks about main economic objectives set by the governments all over the world and the activities carried out by them to guide the economy towards achieving these aims, which are referred to as its economic policies. The interplay of the sets of different policies is also being analyzed…
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Government economic policy
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Download file to see previous pages This paper describes main economic objectives set by different governments all over the world and the its economic policies carried out by them to guide the economy towards achieving these objectives.
The policies of governments can be referred to as macroeconomic policy while the policies of smaller entities like business organizations are called micro economic policies. Both these sets of economic policies have a dynamic relationship with each other and affect each other significantly.
Both these sets of economic policies have a dynamic relationship with each other and affect each other significantly.
There are four economic objectives that are espoused as standard. These are: full employment or stated low unemployment; stability of prices;
rate of economic growth, determined by the government; and the maintaining of the Balance of Payments in equilibrium.
In its simplest form full employment measures those who are employed out of those who are employable.The attraction in full employment as an economic objective is the potential it provides to maximize production while leading to enhance standards of living. The reverse side of the coin is that it reduces economic and thereby social dysfunctions. Managing inflation to an acceptable level is the objective of price stability.
In recent times there are other objectives that have been added on to the macro economy and they have to do with the management of the social and natural spheres through macroeconomic policy. One such an objective is ensuring a more equal distribution of wealth in society and the second is the managing of the environment to ensure that economic activity does not adversely affect the environment
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It also makes sound decision making and allocation of resources more tedious. Inflation is measured as the annual rate of change of the Retail Price Index (RPI). When inflation is kept low prices remain stable, which augurs well for all governments. The next objective refers to economic growth. It is deemed as attractive when the rate is both high and can be sustained. The measure used is the rate of change of countries Gross Domestic Product. The effect of inflation has to be negated for it to be an acceptable measure therefore what’s measured is real GDP, which is GDP with the effect of inflation negated. The final of the four traditional objectives is the maintenance of the balance of payments equilibrium. This could also be called maintenance of external stability, which in turn ensures confidence in the international markets of a countries economy. Managing the foreign debt of a country does this. In recent times there are other objectives that have been added on to the macro economy and they have to do with the management of the social and natural spheres through macro economic policy. One such objective is ensuring a more equal distribution of wealth in society and the second is the managing of the environment to endure that economic activity does not adversely affect the environment like the depletion of resources to levels where it cannot be replenished or pollution. Economic policy actions can vary from manipulation of interest rates by a central finance authority such as the Federal Reserve, regulating the expenditure of governments, taxes as well as interventions such as property rights of private individuals. An example of such ...Download file to see next pagesRead More
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