The Goals of Economic Policy

The federal government policy is to create a healthy economy that will benefit all Americans - it is not an easy task. Economic policies that benefit some parts of society can damage other people. Restraining inflation by raising interest rates can make it more difficult for companies to raise funds to hire more workers by expanding their businesses and the unemployment rate may rise. On the other hand, low interest rates lead to inflation with increased expenditure; many workers feel that rising wages are meaningless as prices rise

Due to the complexity of economic policy, elected officials have found that the only way for them to reach consensus on some aspect is to compromise. Even political parties controlling two parliaments can not get everything the government wants. Trade-off - for example to accept higher inflation to keep expanding business - essential for economic policy

To maintain a steady economy, the federal government is trying to achieve three policy objectives: stable price, full employment, and economic growth. In addition to these three policy objectives, the federal government has other objectives to maintain sound economic policy. These include low interest rates or stable interest rates, balanced budgets (or at least budgets to reduce deficits in previous budgets), and trade balances with other countries.

As the price of goods and services rises sharply, the value of money falls, and it costs more to buy the same thing. This situation is called inflation. When the inflation rate remains low, the price remains at the same level. Beyond government control, prices will be affected. Long term drought of corn belt and quick freezing of orange crops in Florida caused shortages and resulted in price increases. Rising prices of certain major products (such as petroleum) can create inflation prices throughout the economy.

Absolute full employment is impossible and people can not resign at any time or work for various reasons. The unemployment rate or the proportion of unemployed people is less than 4% and is considered full employment. The unemployment rate varies by region and state. For example, if the aerospace industry and enterprise are out of state, the California tax rate will be higher than the national average in the early 1990s.

The measure of economic growth is the gross domestic product (GDP), the dollar value of the total output of goods and services in the United States. A rapidly growing economy may have an annual GDP growth rate of 4%; a stagnant economy may grow at less than 1% per year. In the case of economic stagnation, the unemployment rate is high, productivity is low, and employment is difficult to find. The economic downturn is defined as negative GDP for the second consecutive quarter. In the 1970s, the US experienced a strange combination of the high unemployment rate and the high inflation rate. This is called stagflation.

Economic Policy Goals Economic policy objectives include judgment of the value that economic policy should strive to achieve, therefore the title of normative economics. There are many differences in the appropriate goals of economic policy, but it seems to be widely accepted, but it is not widely accepted. These widely accepted goals are as follows.

Fiscal policy is defined as a government conscious effort to achieve specific macroeconomic goals by changing the number and pattern of income and expenditure, and the balance between them. The main economic goal of fiscal policy is to maintain a high average of employment and business activities to minimize fluctuations in employment activity, to prevent inflation, to promote and promote economic growth. Fiscal policy is used to control inflation by deliberately changing government revenues and expenditure, thereby affecting output and price levels. This is a budget policy. Fiscal policy is to use government taxes and expenditures to change the country's macroeconomic outcome. During the Great Depression of the 1930s people were unemployed and could not purchase goods and services so the government had to increase macroeconomic value and money supply to adjust money supply.

Macroeconomic stability policy refers to the use of government fiscal policy and monetary policy to achieve full employment, price stability, and economic growth. The government can use its policy mix to cope with the effects of intense volatility in the business cycle. Government expenditures can implement fiscal policy through budget surplus lower than tax revenue (ie G <T), resulting in lower expenditure levels and economic activity shrinking to lower price levels.