economic policy

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economic policy

the strategies and measures adopted by the government to manage the economy as a means of achieving its economic objectives. In general terms governments are concerned with (at the macro-level) securing full employment (see UNEMPLOYMENT), price stability (see INFLATION), ECONOMIC GROWTH and BALANCE OF PAYMENTS equilibrium, and (at the micro-level) an efficient use of resources. In practice, given the complexities of the economy and its exposure to international influences, the simultaneous achievement of all these objectives is virtually impossible, so that a degree of prioritizing is required. Inevitably, political as well as economic considerations will influence this process.

Various general measures can be employed by governments to achieve their objectives, including FISCAL POLICY (the manipulation of tax rates and government expenditure), MONETARY POLICY (the control of the money supply and interest rates), PRICES AND INCOMES POLICIES (controls on costs and prices) and the management of the EXCHANGE RATE to influence the country's external trade and payments position. These policies are augmented at a more specific level by measures designed to encourage industrial investment, research and development and enterprise, and to protect consumers' interests; see INDUSTRIAL POLICY, REGIONAL POLICY, COMPETITION POLICY.

Fiscal and monetary policies, the main measures used by successive governments in the UK since 1945, operate on the level and distribution of spending in the economy. They are thus essentially demand-side measures. In recent years greater emphasis has been given to the need to improve the supply-side of the economy, reflected, in particular, by attempts to inject greater flexibility into the workings of the labour market by breaking down the power of trade union monopolies.

The government's economic policy is formulated and coordinated through the office of the CHANCELLOR OF THE EXCHEQUER, the TREASURY and the BANK OF ENGLAND and implemented through more specialized agencies such as the OFFICE OF FAIR TRADING, DEPARTMENT OF TRADE AND INDUSTRY, DEPARTMENT FOR WORK AND PENSIONS etc. See BUSINESS CYCLE, MONETARISM.

economic policy

The strategies and measures adopted by the government to manage the economy as a means of achieving its economic objectives. In general terms, governments are concerned with (at the macro-level) securing full employment (see UNEMPLOYMENT), price stability (see INFLATION), ECONOMIC GROWTH and BALANCE OF PAYMENTS equilibrium, and (at the micro-level) an efficient use of resources. In practice, given the complexities of the economy and its exposure to international influences, the simultaneous achievement of all these objectives is virtually impossible, so a degree of prioritizing is required. Inevitably, political as well as economic considerations will influence this process.

The priority accorded to different economic objectives will reflect the ideology of the ruling government (which at the extremes could range from democratically elected to non-elected dictatorships). Governments with a broadly left-wing ideology tend to favour widespread state ownership of the means of production and detailed intervention in the economy as a means of achieving their economic objectives; while governments with a broadly right-wing ideology tend to favour limited state ownership and minimum government intervention in the economy, relying instead on the market mechanism (see ECONOMIC SYSTEM). In practice, most countries have a MIXED ECONOMY, featuring both public and private sectors.

The pursuit of purely economic objectives by governments needs to be tempered by the various value judgements or views that governments hold about, for example, the most appropriate distribution of income between citizens (see INCOME DISTRIBUTION) and the effects of their policies on particular subgroups within the community and the desirability of helping some groups at the expense of others. Governments also hold different value judgements with regard to the priority accorded to national defence, law and order, protection of the environment, and many other noneconomic issues. All these so-called ‘normative’ elements can have an impact on the formulation of economic objectives and policies (see NORMATIVE ECONOMICS).

At the MACROECONOMIC POLICY level, various general measures can be used by governments operating in mixed economies to achieve their objectives, including FISCAL POLICY (the manipulation of tax rates and government expenditure), MONETARY POLICY (the control of the money supply and interest rates), PRICES AND INCOMES POLICIES (controls on costs and prices) and the management of the EXCHANGE RATE to influence the country's external trade and payments position. The UK government's economic policy is formulated and coordinated through the office of the CHANCELLOR OF THE EXCHEQUER, the TREASURY and the BANK OF ENGLAND, and implemented through more specialized agencies such as the OFFICE OF FAIR TRADING, DEPARTMENT OF TRADE AND INDUSTRY, DEPARTMENT FOR EDUCATION AND SKILLS, etc. These policies are augmented at a more specific level by measures designed to encourage industrial investment, research and development and enterprise, and to protect consumers’ interests (see INDUSTRIAL POLICY, REGIONAL POLICY, COMPETITION POLICY).

Fiscal and monetary policies, the main measures used by successive governments in the UK since 1945, operate on the level and distribution of spending in the economy. They are thus essentially demand-side measures. In recent years, greater emphasis has been given to the need to improve the supply side of the economy, reflected, in particular, by attempts to inject greater flexibility into the workings of the labour market by breaking down the power of trade union monopolies. See WELFARE ECONOMICS, SUPPLY-SIDE ECONOMICS, MICROECONOMIC POLICY, MONETARISM, NEW AND OLD PARADIGM ECONOMICS.

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