Economic Policy and Banking: Objectives and Functions
Economic Policy
Economic policy refers to the interference of government in the economic affairs of a country in order to achieve certain aims and objectives. These are provided by the public authorities and are based on constitutional principles and social preferences.
Aims
- Material well-being: Elevation of the overall standard of living for citizens.
- Equity: Equality before the law and the basic conditions of development.
- Peace and security: Defense against possible attacks.
- International agreements respecting freedom: The right to express one’s own opinions.
- Solidarity: Acting altruistically.
Objectives
Resource distribution: These are the monetized objectives proposed. For purposes of checking the degree to which the objectives are met, statistical indicators show deviations that are produced. The objectives can be:
- Economic: These aim to achieve general economic welfare through the pursuit of economic growth and price stability.
- Social: These try to increase social welfare by improving education and health.
- Economic growth: Increasing production without exhausting resources.
- Price stability: Keeping the general price level stable.
- Distribution of income: Progressive reduction of differences between incomes.
- Full employment: Creation of jobs, reduction of structural and cyclical unemployment.
- Balance of payments equilibrium: Reduction of the external deficit.
Instruments
An instrument is any variable that governments can control and use to achieve the objectives.
- Direct instruments: Restrict the free operation of markets.
- Indirect instruments: Use the price system to alter the behavior of markets.
They can also be classified as monetary, fiscal, direct controls, and commercial instruments.
Classification
- Macroeconomic policies: Governing global economic activity.
- Microeconomic policy: Governing a productive sector.
- Structural policies: Their purposes are long or medium-term.
- Cyclical policies: Short-term.
Banks
This also includes savings banks and financial intermediaries such as rural savings banks. These are institutions that receive funds from some clients to lend to others. For the money they receive, banks pay an amount, and for loans granted, they charge another, greater amount. This amount is the interest. They also charge fees for transactions such as transfers and foreign currency exchange.
Functions
- Resource mobilization: This is attracting resources through clients’ bank accounts.
- Current accounts: The client may have checking accounts.
- Savings accounts: These are like a flow of funds without a checkbook, but with a passbook.
- Housing savings accounts: These have many tax benefits, but that money can only be spent on purchasing a first home or repairing an existing one.
- Fixed-term deposits: This money belongs to the bank for a fixed time specified in the contract.
- Loans: Funds granted to individuals or institutions that must be returned. There are two modalities: personal and mortgage loans.
- Credits: Rights granted by banks to customers to provide funds up to a limit.
- Debit cards: These allow you to withdraw money and pay in shops.
- Credit cards: These are like debit cards, but the money is returned at the beginning of the next month.