Formulating Economic Policy

Here are the basic steps in policy-making:

• State the goal. The first step is to make a clear statement of the economic goal. If we say that we want "full employment," do we mean that everyone between, say, 16 and 65 years of age should have a job? Or do we mean that everyone who wants to work should have a job? Should we allow for some unemployment caused by inevitable changes in the structure of industry and workers voluntarily changing jobs? The goal must be specific.

• Determine the policy options. The next step is to formulate alternative policies designed to achieve the goal, and determine the possible effects of each policy. This requires a detailed assessment of the economic impact, benefits, costs, and political feasibility of the alternative policies. For example, to achieve full employment, should government use fiscal policy (which involves changing government spending and taxes), monetary policy (which entails altering the supply of money), an education and training policy that enhances worker employability, or a policy of wage subsidies to firms that hire disad-vantaged workers?

McConnell-Brue-Barbiero: Microeconomics, Ninth Canadian Edition

I. An Introduction to Economics

1. The Nature and Method of Economics

© The McGraw-H Companies, 2003

Part One • An Introduction td Economics and the Ecdncmy

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