The economic policy is a purposeful action (or purposeful non-action) by government with the intent to affect economic behavior with the goal of achieving certain outcomes which will improve the material well-being of society.
Policy, according to the Oxford Dictionary, is defined as the “course or general plan of action adopted by government”.
There are active and passive elements in economic policy:
Active element occurs when purposeful action is planned and implemented.
Passive element occurs when policy makers purposefully decide not to take any action with regards to specific economic problems.
Three types of objectives are important for economic policy.
These objectives are macroeconomic, sectoral or microeconomic in nature. Because of the scarcity of resources available, only some of the goals can be achieved and, therefore, ranking of the goals in terms of priority may be necessary when making choices with regards to economic policy.
Macroeconomic objectives of economic policy attend to issues that affect economy as a whole. Examples are combating unemployment, poverty and inflation, enhancing economic growth and achieving balance of payments stability.
Microeconomic objectives of economic policy attend to issues that affect specific individual entities within the economy, such as individual organizations. Microeconomic objectives of economic policy also attend to issues which affect particular markets. An example of the microeconomic objective of economic policy may be addressing negative externalities in the market.
Sectoral objectives of economic policy may include:
1 – Development of economic and social sectors. Economic sectors include such sectors as manufacturing, mining and construction and social sectors include health and education.
2 – Cross-sectoral development (eg promoting foreign trade) and multi-sectoral development (developing regions of the country).