Types of government policies

 The three main types of government macroeconomic policies are fiscal policy, monetary policy and supply-side policies.

1. Fiscal Policy:

Fiscal policy refers to changes in government expenditure and taxation. Government expenditure, also called public expenditure, and taxation occur at two main levels – national and local. Governments spend money on a variety of items including benefits (for the retired, unemployed and disabled), education, health care, transport, defense and interest on national debt.

Importance:

Fiscal policy in India is the guiding force that helps the government decide how much money it should spend to support the economic activity, and how much revenue it must earn from the system, to keep the wheels of the economy running smoothly. In recent times, the importance of fiscal policy has been increasing to achieve economic growth swiftly, both in India and across the world. 
         Through the fiscal policy, the government of a country controls the flow of tax revenues and public expenditure to navigate the economy. 

2. Monetary Policy:

Monetary policy includes changes in the money supply, the rate of interest and the exchange rate, although some economists treat changes in the exchange rate as a separate policy. The main monetary policy measure, currently used in most countries, is changes in the rate of interest.

Importance:

Monetary policy is another important instrument with which objectives of macroeconomic policy can be achieved. It is worth noting that it is the Central Bank of a country which formulates and implements the monetary policy in a country. In some countries such as India the Central Bank (the Reserve Bank is the Central Bank of India) works on behalf of the Government and acts according to its directions and broad guidelines.

However, in some coun­tries such as the USA the Central Bank (i.e., Federal Reserve Bank System) enjoys an inde­pendent status and pursues its independent policy. Like the fiscal policy the broad objectives of monetary policy are to establish equilibrium at full-employment level of output, to ensure price stability and to promote economic growth of the economy.

Monetary policy is concerned with changing the supply of money stock and rate of interest for the purpose of stabilising the economy at full-employment or potential output level by influencing the level of aggregate demand.


3. Supply-side Policies:

Supply-side policies are policies designed to increase aggregate supply and hence increase productive potential. Such policies seek to increase the quantity and quality of resources and raise the efficiency of markets. These include improving education and training, cutting direct taxes and benefits, reforming trade unions and privatization. Improving education and training is designed to raise labour productivity.


The importance of supply-side policies:

Supply side policies are government policies which seek to increase the productivity and efficiency of the economy. They can involve interventionist supply side policies (e.g. government spending on education) or free market supply-side policies (e.g. reduce government legislation)The three main types of government macroeconomic policies are fiscal policy, monetary policy and supply-side policies.


1. Fiscal Policy:

Fiscal policy refers to changes in government expenditure and taxation. Government expenditure, also called public expenditure, and taxation occur at two main levels – national and local. Governments spend money on a variety of items including benefits (for the retired, unemployed and disabled), education, health care, transport, defense and interest on national debt.

Importance:

Fiscal policy in India is the guiding force that helps the government decide how much money it should spend to support the economic activity, and how much revenue it must earn from the system, to keep the wheels of the economy running smoothly. In recent times, the importance of fiscal policy has been increasing to achieve economic growth swiftly, both in India and across the world. 
         Through the fiscal policy, the government of a country controls the flow of tax revenues and public expenditure to navigate the economy. 

2. Monetary Policy:

Monetary policy includes changes in the money supply, the rate of interest and the exchange rate, although some economists treat changes in the exchange rate as a separate policy. The main monetary policy measure, currently used in most countries, is changes in the rate of interest.

Importance:

Monetary policy is another important instrument with which objectives of macroeconomic policy can be achieved. It is worth noting that it is the Central Bank of a country which formulates and implements the monetary policy in a country. In some countries such as India the Central Bank (the Reserve Bank is the Central Bank of India) works on behalf of the Government and acts according to its directions and broad guidelines.

However, in some coun­tries such as the USA the Central Bank (i.e., Federal Reserve Bank System) enjoys an inde­pendent status and pursues its independent policy. Like the fiscal policy the broad objectives of monetary policy are to establish equilibrium at full-employment level of output, to ensure price stability and to promote economic growth of the economy.

Monetary policy is concerned with changing the supply of money stock and rate of interest for the purpose of stabilising the economy at full-employment or potential output level by influencing the level of aggregate demand.


3. Supply-side Policies:

Supply-side policies are policies designed to increase aggregate supply and hence increase productive potential. Such policies seek to increase the quantity and quality of resources and raise the efficiency of markets. These include improving education and training, cutting direct taxes and benefits, reforming trade unions and privatization. Improving education and training is designed to raise labour productivity.


The importance of supply-side policies:

Supply side policies are government policies which seek to increase the productivity and efficiency of the economy. They can involve interventionist supply side policies (e.g. government spending on education) or free market supply-side policies (e.g. reduce government legislation)