Understanding Different Types of Economic Policies

Economic policy refers to the actions that governments take in the economic field. There are different types of policies such as; supply-side, demand-side, and monetary policy.

To begin, the supply-side policy can also be known as "Reaganomics". It has been given that name from the 40th president, Ronald Reagan. A credible site explains, "He popularized the controversial idea that greater tax cuts for investors and entrepreneurs provide incentives to save and invest, and produce economic benefits that trickle down into the overall economy." In general, the supply-side policy has three pillars; tax, regulatory, and monetary policies. The supply-side theory is typically held in contrast to Keynesian theory which, among other facets, includes the idea that demand can decrease, so if lagging consumer

demand pulls the economy into recession, the government should intervene with fiscal and monetary stimuli. A supply-sider believes that producers and their willingness to create goods and services set the pace of economic growth. Supply-side economics has a colorful history. Some economists view supply-side as a useful theory. Others tend to disagree with the theory that they dismiss it as offering nothing particularly new or controversial as an updated view of classical economics.

Secondly, the demand-side has the opposite side of the subject matter.

The demand-side economics is based on a belief that the main force affecting overall economic activity and causing short-term decreases is consumer demand for goods and services. A reliable source describes, "At the core of demand side economics is the focus on aggregate demand. Aggregate demand is the combination of consumption of goods, industry investment in capital goods, government spending and net exports. When other elements of aggregate demand are weak, the government can mitigate their impact by increasing its spending. The government can intervene to generate demand for goods and services." The people who believe in the demand-side also believe that there should be high government during high recession points to overcome a short-term low aggregate demand. Increasing the aggregate demand will reduce unemployment and encourage economic activity, according to this theory. The government rises demand through spending on public goods and services as well as through its control of the money supply through changing interest rates or exchanging on government-issued

bonds.

Lastly, the monetary policy means the monetary authority controls the supply of money to gain stability. Monetary policy consists of the actions of a central bank, currency board or other regulatory committee. A credible source explains, " Broadly, there are two types of monetary policy, expansionary and contractionary. Expansionary monetary policy increases the money supply in order to lower unemployment, boost private-sector borrowing and consumer spending, and stimulate economic growth.... Contractionary monetary policy slows the rate of growth in the money supply or outright decreases the money supply in order to control inflation; while sometimes necessary, contractionary monetary policy can slow economic growth, increase unemployment and depress borrowing and spending by consumers and businesses." In the recent years, the unconventional monetary policy has become more popular. Central banks (in theory) are often independent from other policy makers. The Federal Reserve has what is commonly referred to as a "dual mandate": to achieve maximum employment.

In conclusion, everyone has their own beliefs to stabilizing money and helping the economic aspect of things. The three main sides are; supply, demand, and monetary policies.