economic policy

We explain what an economic policy is, how it is classified according to its objectives, its instruments and other characteristics.

Each economic policy responds to a specific political-economic approach.

What is an economic policy?

An economic policy is the set of measures and decisions through which a government try to influence the course of the economy of his country. It responds to a certain political-economic approach that the government wishes to put into practice, and is usually reflected in the budget national: the specific way a government invests its money.

Thus, economic policies may be aimed at causing different effects on the productive and commercial circuit of a company. nation. A first classification would differentiate between the following types of economic policy:

  • Short or long term economic policies. Depending on when the desired effects are expected to be obtained: immediately or in the foreseeable future, respectively.
  • Short-term or structural economic policies. Depending on whether it is respectively extraordinary measures designed to stop a trouble or a temporary situation, or if instead they are permanent measures that are a constant part of the country's economy.
  • Economic stabilization or development policies. Depending on whether your objective is to reach a level of economic stability, that is, to overcome a crisis or perpetuate financial and commercial peace, or if they rather pursue the growth of the economy and are therefore ambitious policies.

In any case, economic policies are taken by the executive powers me legislative of a sovereign government, depending on the parties and interests that are governing.

Finally, an economic policy should not be confused with political economy.

Objectives of an economic policy

Economic policies can be very dissimilar to each other and have different objectives in the short, medium or long term. In that sense, we can talk about, for example:

  • Protectionist policies. Those that seek to protect or favor some sector of the national economy, shielding it from the free competence versus the products of another country or another region.
  • Liberal politics. Their objective is to liberalize the economy, that is, to reduce or restrict the factors that intervene in it, allowing the market to “self-regulate”, that is, to impose the conditions by itself.
  • Healthcare policies. Those that seek to improve the socioeconomic situation of the populations most vulnerable in the country, through plans and allocations that allow them to alleviate their socioeconomic weakness.

In general, all economic policies have the task of benefiting the local economy, by solving problems, that is, the stimulation of certain economic behaviors and the inhibition of others. Of course, there is no consensus on how to achieve these goals, but there we are already entering the fields of political economy or economic philosophy.

Characteristics of an economic policy

Economic policies are characterized by:

  • They are implemented by the government of a country or by the group of governments of a region (when it obeys international agreements).
  • They consist of different types of measures (called instruments) that allow the Condition Influence the functioning of the economy, stimulating some sectors and inhibiting others, as appropriate.
  • Its purpose is to adapt the economic and productive circuit to the needs of the nation, thus contributing in the short, medium or long term with the improvement of the quality of life in the same.
  • They generally obey the ideological, economic and political considerations of the party that controls the executive and / or legislative power.

Instruments of an economic policy

A state can increase or decrease the amount of money circulating.

Economic policies can be implemented through various mechanisms, which have a concrete effect on the economic and financial functioning of the country.

These instruments can broadly be of a fiscal nature (management of taxes), monetary (managing the issuance of money), social (managing the spending public), commercial (management of incentives or loans) or exchange (management of the international value of the currency).

For example:

  • Taxes and tariffs. The State may impose a surcharge on the price of the products from other countries or powerful sectors of the industry national, to increase its cost and discourage its purchase, thus artificially favoring competing sectors, for example, nationals. Likewise, the State can tariff the products that it considers harmful, discouraging their massive purchase, or it can exempt the industries that it wishes to stimulate from taxes, making them more profitable and encouraging the purchase of its products.
  • Issuance or monetary restriction. The State can increase or decrease the amount of cash that circulates in the country, to stimulate or discourage the consumption, which in turn has an impact on inflation and other aspects of the economy. microeconomics.
  • Subsidies The State can invest part of its budget in helping various Economic sectors, injecting them capital to assume part of their expenses, thus alleviating all the economic actors involved, especially the consumers, which enjoy a better price.
  • Exchange controls. These are radical measures in which a State "freezes" the internal exchange rate of its currency with respect to those of other countries, artificially supporting its price, by assuming the difference in cost. This measure can serve as an emergency mechanism to curb currency outflows or encourage sightseeing and imports, but they usually have a high cost to sustain themselves in the long term.
  • Social helps. It is about money invested in sustaining the standard of living of the economically less favored, either through scholarships, study plans, feeding, social allowances, etc., all of which is paid from the state budget.

Importance of economic policies

The economic policy of the countries is one of the main factors that intervenes in their economic and commercial performance. An assertive economic policy provides productive sectors the incentive and the necessary help to generate wealth and grow, thus recovering their independence and manufacturing more wealth, more work and more well-being.

On the contrary, a disastrous economic policy can cause the opposite, hindering the economic dynamics until it becomes unviable, which would have an enormous cost in the quality of life of the inhabitants of that country.

Economic policy and political economy

We must not confuse these two terms, the similarity of which can be misleading. Economic policy is the economic philosophy behind the measures that a government takes to control or lead the economy, even if that means trying not to influence or drive it as little as possible.

On the other hand, political economy is an academic discipline dedicated to the study of the productive circuit and its relationship with institutions policies, from a multiple or transdisciplinary perspective, making use of the anthropology, sociology, history, right Y Political Sciences.

Thus, political economy professionals study and understand the economic policies of countries.

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