Economic Policy Examples

Monetary Policy

Monetary policies are policies that decide or impact money supply, aka, how much money will be circulated in the economy. 

In the US, monetary policy is controlled and executed by the Federal Reserve Bank, the central bank of the country.

The money supply impacts the price of goods and services, which in turn impacts people’s decisions and their living standards.

Fiscal Policy

Fiscal policies are those policies that decide government budgets, aka, how much money the government will be spending for that year. Since the government is the biggest elephant in the room, government spending has a tremendous impact on the economy (normally, the overall impact is more on the negative side).

Economic Policy is intertwined with politics

Unfortunately, economic policy is often intertwined with politics, especially on the fiscal policy side. 

That’s another critical reason why one must understand economics (the study of the economy) to make good judgments about economic policies.

Labor specialization and trading 

Not everyone is born with the same interests or skillset, and not every region or country has the same resources. Some people or countries are better at producing certain goods or services than others. For example, it is much cheaper to drill for oil in Saudi Arabia where oil is abundant than in Spain where oil is scarce, and it is much cheaper to grow vegetables in Spain than in Saudi Arabia where water is scarce. So it makes sense to drill oil in Saudi Arabia and to grow vegetables in Spain and then trade with each other for both sides to benefit. People are the same, hence we have labor specialization, and we exchange (trade) goods and services among ourselves. 

Trading normally leads to economic expansion, prosperity, and peace.