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Encyclopedia > Economic policy
Public finance
This article is part of the series:
Finance and Taxation
Taxation
Direct tax  ·   Indirect tax
Income tax  ·   Payroll tax
CGT  ·   Stamp duty
Sales tax  ·   VAT  ·   Flat tax
Tax, tariff and trade
Tax incidence
Tax rate  ·   Proportional tax
Progressive tax  ·   Regressive tax
Tax advantage

Economic policy
Monetary policy
Central bank  ·   Money supply
Fiscal policy
Spending  ·   Deficit  ·   Debt
Trade policy
Tariff  ·   Trade agreement
Finance
Financial market
Financial market participants
Corporate  ·   Personal
Public  ·   Banking  ·   Regulation

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Economic policy refers to the actions that governments take in the economic field. It covers the systems for setting interest rates and government deficit as well as the labour market, national ownership, and many other areas of government. The Politics series Politics Portal This box:      Political economy was the original term for the study of production, the acts of buying and selling, and their relationships to laws, customs and government. ... This article does not cite any references or sources. ... This article does not cite any references or sources. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        The term direct tax has more than one meaning: a colloquial... The term indirect tax has more than one meaning. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        An income tax is a tax levied on the financial income... This article is the current Taxation Collaboration of the Month. ... A capital gains tax (abbreviated: CGT) is a tax charged on capital gains, the profit realized on the sale of an asset that was purchased at a lower price. ... Stamp duty is a form of tax that is levied on documents. ... A sales tax is a consumption tax charged at the point of purchase for certain goods and services. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        Value added tax (VAT), or goods and services tax (GST), is... A flat tax, also called a proportional tax, is a system that taxes all entities in a class (typically either citizens or corporations) at the same rate (as a proportion on income), as opposed to a graduated, or progressive, scheme. ... The tax, tariff and trade laws of a political region, state or trade bloc determine which forms of consumption and production tend to be encouraged or discouraged. ... First discussed by the Physiocrats in France, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. ... A tax (also known as a dutyor Zakat in islamic economics) is a charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (e. ... A flat tax, also called a proportional tax, is a system that taxes all entities in a class (typically either citizens or corporations) at the same rate (as a proportion of income), as opposed to a graduated, or progressive, scheme. ... A progressive tax is a tax imposed so that the tax rate increases as the amount to which the rate is applied increases. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        A regressive tax is a tax imposed so that the tax... Tax advantage refers to the economic bonus which applies to certain accounts or investments that are, by statute, tax-reduced, tax-deferred, or tax-free. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links Flag_of_Germany. ... Image File history File links Flag_of_Hong_Kong. ... Image File history File links Flag_of_India. ... Image File history File links Flag_of_Indonesia. ... Image File history File links Flag_of_New_Zealand. ... Image File history File links Flag_of_Ireland. ... Image File history File links Flag_of_Russia. ... Image File history File links Flag_of_Singapore. ... Image File history File links Flag_of_the_United_Kingdom. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... Comparison of tax rates around the world is a difficult and somewhat subjective enterprise. ... This table lists OECD countries by total tax revenue as percentage of GDP (as of 2005). ... It has been suggested that monetary theory be merged into this article or section. ... In macroeconomics, money supply (monetary aggregates, money stock) is the quantity of currency and money in bank accounts in the hands of the non-bank public available within the economy to purchase goods, services, and securities. ... Fiscal policy is the economic term that defines the set of principles and decisions of a government in setting the level of public expenditure and how that expenditure is funded. ... Government spending or government expenditure consists of government purchases, which can be financed by seigniorage (the creation of money for government funding, at a heavy price of high inflation and other possibly devastating consequences), taxes, or government borrowing. ... A budget deficit occurs when an entity (often a government) spends more money than it takes in. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        Government debt (also known as public debt or national debt) is... This article does not cite any references or sources. ... This article does not cite any references or sources. ... A trade pact is a wide ranging tax, tariff and trade pact that usually also includes investment guarantees. ... This article does not cite any references or sources. ... This article does not cite any references or sources. ... There are two basic financial market participant catagories, Investor vs. ... Domestic credit to private sector in 2005 Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. ... Personal finance is the application of the principles of finance to the monetary decisions of an individual or family unit. ... This article does not cite any references or sources. ... For other uses, see Bank (disambiguation). ... Face-to-face trading interactions on the New York Stock Exchange trading floor. ... An interest rate is the price a borrower pays for the use of money he does not own, and the return a lender receives for deferring his consumption, by lending to the borrower. ... A budget deficit occurs when an entity (often a government) spends more money than it takes in. ... Labour economics seeks to understand the functioning of the market for labour. ... Nationalization or nationalisation is the act of transferring assets into public ownership. ...


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. This article needs additional references or sources to facilitate its verification. ... ... Politics is the process by which decisions are made within groups. ... Look up policy in Wiktionary, the free dictionary. ... A political party is a political organization subscribing to a certain ideology or formed around very special issues. ...

Contents

Types of economic policy

Economic policy is a complicated area and can be broken down into three principal areas:

Almost any aspect of government has an economic aspect and so many terms are used. However, they can usually be seen to apply to one of these areas. For instance, agricultural policy is generally a matter of the burden of taxation and of trade in agricultural goods. Fiscal policy is the economic term that defines the set of principles and decisions of a government in setting the level of public expenditure and how that expenditure is funded. ... A budget deficit occurs when an entity (often a government) spends more money than it takes in. ... “Taxes” redirects here. ... Government spending or government expenditure consists of government purchases, which can be financed by seigniorage (the creation of money for government funding, at a heavy price of high inflation and other possibly devastating consequences), taxes, or government borrowing. ... It has been suggested that monetary theory be merged into this article or section. ... For other uses, see Money (disambiguation). ... An interest rate is the price a borrower pays for the use of money he does not own, and the return a lender receives for deferring his consumption, by lending to the borrower. ... An interest rate is the price a borrower pays for the use of money he does not own, and the return a lender receives for deferring his consumption, by lending to the borrower. ... In economics, incomes policies are wage and price controls used to fight inflation. ... Bank regulations are a form of government regulation which subject banks to certain requirements, restrictions and guidelines, aiming to uphold the soundness and integrity of the financial system. ... ... It has been suggested that Commerce be merged into this article or section. ... A tariff is a tax placed on imported and/or exported goods, sometimes called a customs duty. ... A trade pact is a wide ranging tax, tariff and trade pact that usually also includes investment guarantees. ... This article needs to be cleaned up to conform to a higher standard of quality. ...


Policy what!!!


Tools and goals

Policy is generally directed to achieve particular objectives, like targets for inflation, unemployment, or economic growth. Sometimes other objectives, like military spending or nationalization are important. This article does not cite any references or sources. ... World GDP/capita changed very little for most of human history before the industrial revolution. ... A military budget of an entity, most often a nation or a state is the budget and financial resources dedicated to raising and maintaining armed forces for that entity. ... Nationalization or nationalisation is the act of transferring assets into public ownership. ...


These are referred to as the policy goals: the outcomes which the economic policy aims to achieve.


To achieve these goals, governments use policy tools which are under the control of the government. These generally include the interest rate and money supply, tax and government spending, tariffs, exchange rates, labour market regulations, and many other aspects of government. An interest rate is the price a borrower pays for the use of money he does not own, and the return a lender receives for deferring his consumption, by lending to the borrower. ... In macroeconomics, money supply (monetary aggregates, money stock) is the quantity of currency and money in bank accounts in the hands of the non-bank public available within the economy to purchase goods, services, and securities. ... “Taxes” redirects here. ... Labour economics seeks to understand the functioning of the market for labour. ...


The government's economic policy determines the tools and hopes that they will achieve its goals.


Selecting tools and goals

Government and central banks are limited in the number of goals they can achieve in the short term. For instance, there may be pressure on the government to reduce inflation, reduce unemployment, and reduce interest rates while maintaining currency stability. If all of these are selected as goals for the short term, then policy is likely to be incoherent, because a normal consequence of reducing inflation and maintaining currency stability is increasing unemployment and increasing interest rates.


Demand-side vs. supply-side tools

This dilemma can in part be resolved by using microeconomic, supply-side policy to help adjust markets. For instance, unemployment could potentially be reduced by altering laws relating to trade unions or unemployment insurance, as well as by macroeconomic (demand-side) factors like interest rates. Supply-side economics is a school of macroeconomic thought which emphasizes the importance of tax cuts and business incentives in encouraging economic growth, in the belief that businesses and individuals will use their tax savings to create new businesses and expand old businesses, which in turn will increase productivity, employment... A union (labor union in American English; trade union, sometimes trades union, in British English; either labour union or trade union in Canadian English) is a legal entity consisting of employees or workers having a common interest, such as all the assembly workers for one employer, or all the workers... Unemployment benefits are sums of money given to the unemployed by the government or a compulsory para-governmental insurance system. ... Demand Side economics is a type of economics which believes increasing demand will in turn cause businesses to produce more output which will then cause bussineses to expand and create a favorable economic situation. ...


Discretionary policy vs policy rules

For much of the 20th century, governments adopted discretionary policies like demand management designed to correct the business cycle. These typically used fiscal and monetary policy to adjust inflation, output and unemployment. The introduction to this article provides insufficient context for those unfamiliar with the subject matter. ... Demand Management is the art or science of controlling economic demand to avoid a recession. ... // [edit] Introduction [edit] Definition If we were to take snapshots of an economy at different points in time, no two photos would look alike. ...


However, following the stagflation of the 1970s, policymakers began to be attracted to policy rules. This article uses excessive clichés and jargon. ...


A discretionary policy is supported because it allows policymakers to respond quickly to events. However, discretionary policy can be subject to dynamic inconsistency: a government may say it intends to raise interest rates indefinitely to bring inflation under control, but then relax its stance later. This makes policy non-credible and ultimately ineffective. In economics, dynamic inconsistency, or time inconsistency, describes a situation where a decision-makers preferences change over time, such that what is preferred at one point in time is inconsistent with what is preferred at another point in time. ...


A rule-based policy can be more credible, because it is more transparent and easier to anticipate. Examples of rule-based policies are fixed exchange rates, interest rate rules, the stability and growth pact and the Golden Rule. Some policy rules can be imposed by external bodies, for instance the Exchange Rate Mechanism for currency. The Stability and Growth Pact (SGP) is an agreement by European Union member states related to their conduct of fiscal policy, to facilitate and maintain Economic and Monetary Union of the European Union. ... A fiscal rule adopted by Chancellor of the Exchequer, Gordon Brown for HM Treasury in the UK to provide a guideline for the operation of fiscal policy. ... The European exchange rate mechanism (or ERM) was a system introduced by the European Community in March 1979, as part of the European Monetary System (EMS), to reduce exchange-rate variability and achieve monetary stability in Europe, in preparation for Economic and Monetary Union and the introduction of a single...


A compromise between strict discretionary and strict rule-based policy is to grant discretionary power to an independent body. For instance, the Federal Reserve Bank, European Central Bank, Bank of England and Reserve Bank of Australia all set interest rates without government interference, but do not adopt rules. Federal Reserve Districts The United States Federal Reserve System consists of twelve Federal Reserve Banks, each responsible for a particular district, and some with branches. ... Headquarters Coordinates , , Established 1 January 1998 President Jean-Claude Trichet Central Bank of Austria, Belgium, France, Finland, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Slovenia, Spain Currency Euro ISO 4217 Code EUR Reserves €43bn directly, €338bn through the Eurosystem (including gold deposits). ... Headquarters Coordinates , , Governor Mervyn King Central Bank of United Kingdom Currency Pound Sterling ISO 4217 Code GBP Base borrowing rate 5. ... The Reserve Bank of Australia came into being on 14 January 1960 to operate as Australias central bank and banknote issuing authority. ...


Another type of non-discretionary policy is a set of policies which are imposed by an international body. This can occur (for example) as a result of intervention by the International Monetary Fund. This article needs additional references or sources to facilitate its verification. ...


Economic policy through history

Main article: Economic history

The first economic problem was how to gain the resources it needed to be able to perform the functions of an early government: the military, roads and other projects like building the Pyramids. Economic history is the study of economic change, and of economic phenomena in the past. ... Classical economics distinguishes between three factors of production which are used in the production of goods: Land or natural resources - naturally-occurring goods such as soil and minerals. ... Mountain road with hairpin turns in the French Alps For other uses, see Road (disambiguation). ... This is about the polyhedron. ...


Early governments generally relied on tax in kind and forced labour for their economic resources. However, with the development of money came the first policy choice. A government could raise money through taxing its citizens. However, it could now also debase the coinage and so increase the money supply. “Taxes” redirects here. ... Unfree labour is a generic or collective term for forms of work, especially in modern or early modern history, in which adults and/or children are employed without wages, or for a minimal wage. ... For other uses, see Money (disambiguation). ... This article does not cite any references or sources. ... In macroeconomics, money supply (monetary aggregates, money stock) is the quantity of currency and money in bank accounts in the hands of the non-bank public available within the economy to purchase goods, services, and securities. ...


Early civilizations also made decisions about whether to permit and how to tax trade. Some early civilizations, such as Ptolemaic Egypt adopted a closed currency policy whereby foreign merchants had to exchange their coin for local money. This effectively levied a very high tariff on foreign trade. It has been suggested that Commerce be merged into this article or section. ... The Ptolemaic dynasty in Egypt began following Alexander the Greats conquest in 332 BC and ended with the death of Cleopatra VII and the Roman conquest in 30 BC. It was founded when Ptolemy I Soter declared himself Pharaoh of Egypt, creating a powerful Hellenistic state from southern Syria... This article does not cite any references or sources. ...


By the early modern age, more policy choices had been developed. There was considerable debate about mercantilism and other restrictive trade practices like the Navigation Acts, as trade policy became associated with both national wealth and with foreign and colonial policy. Mercantile redirects here. ... Wikisource has original text related to this article: Navigation Acts The English Navigation Acts were a series of laws which, beginning in 1651, restricted the use of foreign shipping in the trade of England (later Great Britain and its colonies). ...


Throughout the 19th Century, monetary standards became an important issue. Gold and silver were in supply in different proportions which metal was adopted influenced the wealth of different groups in society. GOLD refers to one of the following: GOLD (IEEE) is an IEEE program designed to garner more student members at the university level (Graduates of the Last Decade). ... General Name, Symbol, Number silver, Ag, 47 Chemical series transition metals Group, Period, Block 11, 5, d Appearance lustrous white metal Standard atomic weight 107. ...


The first fiscal policy

With the accumulation of private capital in the Renaissance, states developed methods of financing deficits without debasing their coin. The development of capital markets meant that a government could borrow money to finance war or expansion while causing less economic hardship. A budget deficit occurs when an entity (often a government) spends more money than it takes in. ... The capital market is the market for long-term loans and equity capital. ...


This was the beginning of modern fiscal policy. Fiscal policy is the economic term that defines the set of principles and decisions of a government in setting the level of public expenditure and how that expenditure is funded. ...


The same markets made it easy for private entities to raise bonds or sell shares to fund private initiatives. For alternative meanings, see bond (a disambiguation page). ... See stock (disambiguation) for other meanings of the term stock A stock, also referred to as a share, is commonly a share of ownership in a corporation. ...


Business cycles

The business cycle became a predominant issue in the 19th century, as it became clear that industrial output, employment, and profit behaved in a cyclical manner. The first real policy solution to the problem came with the work of Keynes, who proposed that fiscal policy could be used actively to ward off depressions, recessions and slumps. // [edit] Introduction [edit] Definition If we were to take snapshots of an economy at different points in time, no two photos would look alike. ... An abstract business cycle The business cycle or economic cycle refers to the ups and downs seen somewhat simultaneously in most parts of an economy. ... John Maynard Keynes John Maynard Keynes [ˈkeɪns], 1st Baron Keynes of Tilton (June 5, 1883 - April 21, 1946) was an English economist, whose radical ideas had a major impact on modern economic and political thought. ...


See also


  Results from FactBites:
 
Economic policy - Wikipedia, the free encyclopedia (1003 words)
Fiscal policy is the size of the government deficit and the methods it uses to finance it.
For instance, agricultural policy is generally a matter of the burden of taxation and of trade in agricultural goods.
Policy is generally directed to achieve particular objectives, like targets for inflation, unemployment, or economic growth.
  More results at FactBites »

 
 

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