LESSON 2: National Economic Policy

1. Political priorities
2. Economic theories and models
3. Social needs
4. Global conditions

Economic policies are not random—they are shaped by:

1. Interest Rate Targeting
2. Open Market Operations
3. Reserve Requirements
4. Forward Guidance

Monetary Policy Tools

1. Expansionary Monetary Policy
2. Contractionary Monetary Policy

Types of Monetary Policy

1. Expansionary Fiscal Policy
2. Contractionary Fiscal Policy

Types of Fiscal Policy

1. Government Spending
2. Taxation

Fiscal Policy Tools

1. Tariffs
2. Quotas
3. Subsidies
4. Trade Agreements
5. Export Incentives
6. Embargoes and Sanctions
7. Export Controls

Trade Policy Tools

1. Subsidies
2. Tax Incentives
3. Regulation
4. Public Procurement
5. Trade Policy
6. Investment in Infrastructure
7. Education and Training

Tools of Industrial Policy

1. Interest Rate Adjustments
2. Open Market Operations (OMO)
3. Reserve Requirements
4. Quantitative Easing (QE)

Social Policy Tools

National Economic Policy

is a set of strategies, decisions, and actions taken by a government to influence its country's economic performance.

National Economic Policy

It encompasses efforts to promote growth, reduce unemployment, stabilize prices, ensure equitable wealth distribution, and maintain balance in external trade.

National Economic Policy

its goal is to create conditions where economic development is possible, sustainable, and inclusive.

National Economic Policy

is a set of strategies, decisions, and actions taken by a government to influence its country's economic performance.

Monetary Policy

is a set of actions undertaken by a nation's central bank to control the money supply and credit conditions in order to achieve macroeconomic objectives such as price stability, full employment, and economic growth.

Monetary Policy

It is a powerful tool for influencing the overall economy, and its effectiveness depends on the central bank's ability to manage the supply of money and credit in a way that achieves desired outcomes.

Interest Rate Targeting

This is the most common tool, involving adjusting the central bank's policy interest rate. By lowering interest rates, the central bank encourages borrowing and spending, stimulating economic activity. Conversely, raising interest rates discourages borrowing and spending, slowing economic growth.

Open Market Operations

This involves buying or selling government securities in the open market. Buying securities injects money into the economy, while selling securities withdraws money.

Reserve Requirements

Central banks can adjust the amount of reserves that commercial banks are required to hold.

Forward Guidance

Central banks may communicate their intentions regarding future policy actions to influence market expectations and guide economic behavior.

Contractionary Monetary Policy

This is used to slow economic growth and curb inflation during periods of overheating.

Contractionary Monetary Policy

It involves raising interest rates, reducing the money supply, and potentially using measures such as raising reserve requirements.

Expansionary Monetary Policy

This is used to stimulate economic activity during periods of recession or slow growth

Expansionary Monetary Policy

It involves lowering interest rates, increasing the money supply, and potentially using unconventional measures such as quantitative easing.

Fiscal Policy

is a powerful tool used by governments to influence a nation's economy through the manipulation of government spending and tax policies.

Fiscal Policy

It is often contrasted with monetary policy, which is managed by central banks and focuses on controlling the money supply and interest rates.

Contractionary Fiscal Policy

This is used to curb inflation and slow economic growth during periods of overheating

Expansionary Fiscal Policy

It involves increasing government spending, decreasing taxes, or a combination of both.

Expansionary Fiscal Policy

This aims to boost aggregate demand and encourage economic growth.

Expansionary Fiscal Policy

This is used to stimulate economic activity during periods of recession or slow growth.

Contractionary Fiscal Policy

It involves decreasing government spending, increasing taxes, or a combination of both

Contractionary Fiscal Policy

This aims to reduce aggregate demand and prevent the economy from becoming overheated.

Taxation

Governments can adjust tax rates to influence economic activity. Lowering taxes increases disposable income, encouraging spending and investment. Raising taxes reduces disposable income, potentially slowing economic growth.

Government Spending

This includes spending on infrastructure, education, healthcare, defense, and other public services.

Trade Policy

encompasses the rules, regulations, and strategies a government implements to govern its international trade and commerce.

Trade Policy

It dictates how a country interacts economically with other nations, including the exchange of goods, services, and investments across borders

Export Controls

These are regulations governments place on whether and how certain products can leave the country. They typically apply to products deemed important for national security, economic security, or foreign policy.

Embargoes and Sanctions

These are restrictions or bans on trade with specific countries, often for political reasons.

Export Incentives:

These are measures to encourage domestic businesses to expand into international markets, such as tax breaks or government grants.

Trade Agreements

These are bilateral or multilateral treaties that establish rules and terms for the exchange of goods, services, and investments between signatory countries. They can reduce or eliminate tariffs and other trade barriers, facilitating trade and economic cooperation.

Subsidies

These are financial assistance provided to domestic industries to lower production costs and make their products more competitive in the global market.

Quotas

These are limits on the quantity of a particular product that can be imported, restricting supply and potentially raising prices for consumers.

Tariffs

These are taxes imposed on imported goods, making them more expensive for consumers and potentially reducing demand for foreign products.

Industrial Policy

refers to government interventions aimed at influencing the structure and performance of specific industries within a country's economy.

Industrial Policy

It involves a range of measures designed to promote the growth, competitiveness, and technological advancement of targeted sectors

Education and Training

Government programs to improve the skills and education levels of the workforce can enhance the competitiveness of domestic industries.

Investment in Infrastructure

Government investment in transportation, energy, and communication infrastructure can create a more favorable environment for industrial development.

Trade Policy

Tariffs, quotas, and other trade barriers can be used to protect domestic industries from foreign competition.

Subsidies

Financial assistance provided to domestic industries to lower production costs, encourage innovation, or support research and development.

Tax Incentives

offered to businesses in targeted industries to encourage investment and growth.

Regulation

can be used to shape industry behavior, promote environmental sustainability, or ensure consumer safety.

Public Procurement

Governments can use their purchasing power to support domestic industries by favoring domestic suppliers in government contracts.

Social Policy

is often viewed as a subset of public policy, focusing specifically on addressing social problems.

Social Policy

It seeks to understand and find solutions to issues like poverty, inequality, crime, unemployment, and healthcare disparities

Quantitative Easing (Q)

This is a more recent tool used by central banks to inject liquidity into the economy during times of crisis. It involves the central bank purchasing a large amount of assets, such as government bonds, from banks and other financial institutions.
This increases the money supply and lowers interest rates, making it easier for businesses and consumers to borrow money.

Reserve Requirements

The central