The economic policy of governments covers the many areas of government interventions into the economy. These include systems for setting levels of taxation, government budgets, the money supply and interest rates as well as the labour market and national ownership.
Most factors of economic policy can be divided into either fiscal policy, which deals with government actions regarding taxation and spending. Or monetary policy, this deals with central banking actions regarding the money supply 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.
Therefore the most important things that need to be in an economic policy may generally include the interest rate and money supply, tax and government spending, tariffs, exchange rates, labour market regulations, and many other aspects of government.
Policy makers undertake three main types of economic policy:
•Fiscal policy: Changes in government spending or taxation.
•Monetary policy: Changes in the money supply to alter the interest rate usually to influence the rate of inflation. This is an attempt to keep the money supply growing at a rate that doesn’t result in excessive inflation, and to smooth out the business cycle.
•Supply-side policy: Attempts to increase the productive capacity of the economy.
Almost every aspect of government has an important economic component. A few more examples of the kinds of economic policies that exist include:
•Trade policy, which refers to tariffs, trade agreements and the international institutions that govern them.
•Policies designed to create economic growth, policies related to development economics
•Policies dealing with the redistribution of income, property and/or wealth.
•As well as regulatory policy, anti-trust policy, industrial policy and technology-based economic development policy