Economic policy is the set of government decisions that regulate the production, distribution, and consumption of goods and services.
The economic policy aims to maximize national wealth for a country by implementing procedures that contribute to economic growth and development. It is about ensuring the efficient functioning of an economy, moderating the ups and downs, and redistributing financial resources amongst individuals.
Our lives get constantly influenced by economic policy.
How is Economic Policy Different from Other Government Policies?
Government policy is a term used to describe a government’s policies. Government policy can be divided into two broad categories: economic policy and other policies such as social and cultural policy.
Economic policy refers to the procedures used to manage a country’s economy. It includes fiscal, monetary, and trade policies. The budgetary policy provides taxation, public spending, and public debt management. The monetary policy includes interest rates, money supply growth, and inflation targeting. Trade policies have tariffs and quotas on imports and exports and import duties on goods from outside countries.
Other policies include social welfare programs such as unemployment insurance or healthcare for all citizens, education; environmental protection; foreign affairs; national security; civil rights, and cultural experiences like arts or sports.
Types of Economic Policies
The instruments of economic policy vary between the types of economic policies. We can distinguish between two kinds of economic policies, viz.,
- Macro-economic policies (or aggregative policies), and
- Micro-economic policies (or sectoral policies).
Macro-economic Policies are designed to address the significant aggregative macro variables, like national output, employment, general price level, investment, savings, rate of exchange, etc.
Micro-economic Policies are sectoral policies designed to direct and contribute to the growth of the economy’s sectors, like agriculture, industry, services, etc.
Macro-Economic Policy
A macroeconomic policy encompasses the whole spectrum of economic activity. The state has to employ different tools to achieve the desired goals. These various tools can not be seen in isolation; these have to be used in an integrated manner to achieve balanced growth.
The principal instruments of a macro-economic policy could be identified as below:-
- Fiscal Policy
- Monetary policy
- Trade Policy
Micro Economic Policy
A government cannot restrict itself to a macroeconomic policy. Instead, the government defines policies toward different individual sectors of an economy, like agriculture, industry, and service sector. A government may also prohibit and discourage activities in specific sectors.
Different instruments of micro-economic policies used by a government are:
- Industrial licensing,
- Quota-permit system,
- Import control,
- Export control,
- Competition or anti-monopoly policy,
- Procurement policy,
- Support prices,
- A policy of buffer stocks, etc.
Conclusion: Economic Policy as a Key Driver of Social Change
An economic policy is a crucial driver of social change. It has been the driving force behind many social changes in the past and will continue to be so in the future.
Social change is a complex process that involves multiple factors, such as economics, politics, and culture.
Economic policy can impact social change because it shapes how society and individuals live their lives. So, for example, we can see that in some countries, where people have more opportunities to work and earn money, they can create more opportunities for themselves and their families than they would in other countries, where there are many limitations on what they can do with their time and energy. Economic policies have political implications and are subject to public opinion.
