Government And Policy

Introduction
Government is a system governing an organized community and government usually
consists of legislature, executive and judiciary. Government policy is a declaration of
government political activities, plans and intentions relating to a particular cause.

Why is Government and Policy Important?

Government policies contain the reasons things that are to be done in a certain way and
the reason for doing in that direction. Public problems can originate in endless ways,
and they require different policy responses.

Governments establish many policies that guide businesses. The government can make
changes in fiscal policy which leads to changes in taxes, trade, subsidies,
regulations, interest rates, licencing and more. Businesses should be flexible enough to
respond to changing rules and policies.

The government policies are applicable at all the levels from the national level to local
levels such as states and municipalities, and these local authorities have their own sets
of rules. There are few international treaties which can influence the way companies to
do business.

Governments get revenue to spend from taxation. Increased spending requires

increases in taxes or borrowing. Any tax increase will discourage investment, especially
among entrepreneurs, who take the risks of starting and managing businesses.
Increased spending also eats into the limited pool of savings, leaving less money for
private investment.

Latest News
The Indian government is likely to bring e-commerce policy in 2020. The ministry
of commerce informed that the National e-commerce policy is under consideration, but
there is no deadline fixed for it.

Industry Impact
The government policy can influence how much tax the community pays, pensions,
immigration status and laws, penalties for violation of rules, education system,
commerce and trade in an economy.

The government implements a policy that changes social behaviour in

the business environment. The government can enter into agreements to develop new
technology that will bring the necessary change. Reduction in private investments
shrinks production of goods and services. That, in turn, may lead to the elimination of
jobs.

Government policy can influence interest rates, a rise in which increases the borrowing
cost. Higher rates will lead to decreased consumer spending, but Lower interest rates
attract investment as businesses increase production. Businesses can not thrive when
there is a high level of inflation.

Conclusion
The government makes policies to take action against the current complications. The
government policies make sure to fulfil the future obligations/requirements of the
economy.

Related Terms


Fiscal Policy

Fiscal policy is a policy via which a government makes adjustments in its tax
rates and spending levels to influence and monitor a nation's economy.  

Monetary Policy

Monetary policy refers to the use of monetary instruments to regulate

magnitudes such as interest rates, money supply, and availability of credit,
under the control of the central bank, to achieve the ultimate objective of
economic policy.  

Economics
 Economics is defined as the study of production, distribution, and consumption
of various goods and services.  

Recent Terms


Economics

Economics is defined as the study of production, distribution, and consumption

of various goods and services.  

Fiscal Policy

Fiscal policy is a policy via which a government makes adjustments in its tax
rates and spending levels to influence and monitor a nation's economy.  

Monetary Policy

Monetary policy refers to the use of monetary instruments to regulate

magnitudes such as interest rates, money supply, and availability of credit,
under the control of the central bank, to achieve the ultimate objective of
economic policy.  

Introduction
Economics is defined as the study of production, distribution, and consumption of
various goods and services. It studies the decisions made by nations, governments,
businesses, and individuals in the allocation of resources to achieve the best return on
investment.

Importance of Economics
1. It helps in coming up with a proper mechanism to counter the exhaustion of raw in times
of shortage.
2. Economists have a divided option on the governments level of intervention in an
economy. While some economists believe that government intervention can improve
access to public goods, free-market economists wish to have limited government for the
same.
3. One of the main duties of economists is to analyse and understand the reasons for any
slump in economic growth, political issues, unemployment and poverty. This can help
individuals make a better decision.

Latest News
Based on the level of focus, economics can be classified into two categories:

Macroeconomics: The study focuses on the behaviour of an overall

economy. Microeconomics: The study concentrates on individual-
level business behaviour.

Industry Impact
Based on the level of focus, economics can be classified into two categories:

Macroeconomics: The study focuses on the behaviour of an overall economy.

Microeconomics: The study concentrates on individual-level business behaviour.

Macro-Economics:

1. The science of macroeconomics is the study of an aggregate economy where its focus

can range from the entire world, a continent, a nation, to even a particular region in a
country.
2. The study includes various topics such as the unemployment levels,
prevailing interest rates, inflation levels, monetary policies, government regulations and
Gross Domestic Product (GDP) performances, among others.

Micro-Economics:

1. The study of microeconomics concentrates on individual consumers and businesses

behaviour of taking decisions. The research focuses on distinct entities such as a
government agency, a business firm, a household or a person.
 2. Microeconomics allows us to understand the reason for the change in price and demand
of a particular product at a specific time. This is done primarily by tracking behaviour at
the individual level, where certain aspects of human behaviour are analysed.
3. The study also includes various topics such as the efficiency and cost involved in the
production of a particular good, supply and demand, allocation of labour, risk involved,
uncertainty, and strategic approach at the individual consumer and business level.

Conclusion
Most economists believe that it is the result of the microeconomic actions of individuals
and businesses that lead to the phenomena of an overall economy.

Macroeconomics and microeconomics go hand-in-hand according to economists.

Understanding the behaviour of the business at both the micro and macro-level can
help us make better decisions in the allocation of resources.

Introduction
Fiscal policy is a policy via which a government makes adjustments in its tax rates and
spending levels to influence and monitor a nation's economy. It is a sister strategy in
relation with the monetary policy by which a central bank impacts the money supply of a
nation. Both these policies are utilised in several combinations to direct the economic
goals of a country.

Highlights of Fiscal policy:

1. A government adjusts both the tax rates as well as its spending levels by means of fiscal
policy. It is also helpful in monitoring and influencing a nation's economy.
2. Using a combination of fiscal and monetary policies, the government can monitor
economic phenomena.
3. The impact of a fiscal policy is not the same for everyone. Based on the goals of the
policymakers and political orientations, a tax cut might impact only the middle class,
which is mostly the largest economic group.
4. The three stances of fiscal policy include neutral fiscal policy, contractionary fiscal policy,
and expansionary fiscal policy.

Latest News
Fiscal policy is considered as contractionary or tight when the revenue is higher as
compared to spending i.e., the budget of the government is in surplus. Fiscal policy is
considered as loose or expansionary when spending is higher as compared to revenue
i.e., the budget of the government is in deficit. Mostly, the focus lies on the change
in deficit and not on the level of the deficit.

Also, a fiscal policy has an impact on the trade balance and the exchange rate in an

open economy. In the event of fiscal expansion, a rise in interest rates will attract
foreign capital because of government borrowing.
Industry Impact
Fiscal policy helps accelerate economic growth by raising the rate of investment in
public as well as private sectors. In the short run, it can impact the level of activity in
the economy by changing aggregate demand for goods and services.

Conclusion
Governments utilise fiscal policy in order to make an impact on the level of aggregate
demand within the economy, so that specific economic goals such as price stability,
economic growth, and full employment are achieved.

Introduction
Monetary policy refers to the use of monetary instruments to regulate magnitudes such
as interest rates, money supply, and availability of credit, under the control of the central
bank, to achieve the ultimate objective of economic policy. The central bank in the
country is vested with the responsibility of conducting monetary policies. In India, the
central bank is the Reserve Bank of India (RBI).

Why is Monetary Policy Important?

The RBI Act, 1934 provides for an empowered six members Monetary Policy
Committee (MPC) constituted by the Central Government, that determines the
policy interest rate required to achieve the inflation target.

The MPC has to conduct meetings at least four times a year and it publishes its
decision after each such meeting. The next MPC meeting is due in December 2019.

As per the minutes of the MPC’s meeting conducted in October 2019, the key indicators
are as follows Cash Reserve Ratio (CRR) is 4% Statutory Liquidity Ratio (SLR) is
18.50% Repo rate is 5.15% Reverse repo rate is 4.90% The Marginal standing facility
(MSF) rate is 5.40% Bank rate is 5.40%

Latest News
The Reserve Bank Monetary Policy Department (MPD) assists the MPC in formulating
the monetary policy. Key stakeholders view in the economy and Reserve Bank
analytical work will contribute to the process for deciding on the policy repo rate.

The Financial Market Committee (FMC) meets regularly to review

the liquidity conditions. It ensures that the operating target of monetary policy (weighted
average lending rate) is kept close to the policy repo rate.

The key indicator rate changes transmitted through the financial system, which in turn
influences aggregate demand, a key determinant of inflation and growth.
Industry Impact
Once the repo rate is announced, the operating framework designed by the RBI
envisages liquidity management on a day-to-day basis through appropriate actions
around the repo rate. The liquidity management framework was last revised significantly
in April 2016.

Conclusion
The responsibility of conducting monetary policy is explicitly mandated under the RBI
Act, 1934.