Feedback-Rule Policy - Explained
What is the Feedback Rule Policy?
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What is the Feedback-Rule Policy?
A Feedback-Rule Policy is a response of a government to prevailing economic situations. When a government is prompted to take certain actions due to the prevailing economic circumstances such as economic instability, it can be described as a feedback-rule policy. The purpose of feedback-rule police is to restore stability and balance to the economy. Examples of feedback-rule policies are fiscal and monetary policies that the central banks or federal governments use to stabilize the economy.
How is the Feedback-Rule Policy Used?
A Feedback-rule policy is an action of the government triggered by an economic situation. When an economy is unstable and requires the intervention of the government through fiscal and monetary policy, a feedback-rule policy is activated. Essentially, feedback-rule policies restore balance and stability to an economy, these policies include;
- Adjusting the supply of money or monetary base in an economy.
- Adjusting taxation (this can be either an increase or reduction in tax levels).
- Changing government spending and consumption.
Economic instability in a country is a serious circumstance that calls for a serious response by the government. Feedback-rule policies are often used by the government to jerk an economy back to stability. Using the feedback-rule policy, the government can formulate policies to reduce government spending on imported goods and increase the net export of the country, thereby generating more revenue. Typically, feedback-rule policies are used to correct economic challenges on a smaller scale, but in certain cases, these policies are used on a larger scale, especially in the rise of global economic events such as the Great Depression and Great Recession of 1930 and 2008 respectively.
American Recovery and Reinvestment Act of 2009
The American Recovery and Reinvestment Act of 2009 was enacted as a stimulus package to cushion the effect/aftermath of the 2008 Great Recession. Under this act, the United States government injected $831 billion into the economy to help restore balance in the economy, the $831 stimulus package was spread across the major sectors that were affected by the Great Recession such as the Real Estate/Housing sector. The Recovery Act is in itself a feedback-rule policy and also embodied several other feedback-rule policies designed to help correct the United States economy. The core objectives of the American Recovery and Reinvestment Act of 2009 include;
- To facilitate an overall economic recovery.
- To stimulate immediate job growth in the U.S. economy.
- To provide relief in terms of investments in sectors such as health, education, transportation, real estate, and others.
- To cater for those most impacted by the recession.
- To restore balance to the budgets of states and local authorities.
- To increase economic efficiency fueled by technological advancement in the major sectors.
- What is Government Spending?
- Autonomous Spending
- Autonomous Consumption
- Fiscal Policy
- Expansionary Fiscal Policy
- Progressive vs Regressive Tax
- Marginal Tax Rates
- Proportional Tax
- Trickle Down Theory
- Effects of Discretionary Policy (Interest Rates & Lags)
- Crowding Out Effect
- Government Borrowing
- Golden Rule
- Ricardian Equivalence
- Balanced Budget - Deficit and Surplus
- Deficit Hawk
- Fiscal Policy and the Aggregate Supply and Demand Curve
- Stabilization Policy
- Robin Hood Effect
- Ricardo Barro Effect
- Automatic Stabilizers
- Standardized Employment Budget
- How Does Fiscal Policy Affect Interest Rates?
- Crowding Out
- Types of Lag in Fiscal Policy
- Temporary and Permanent Fiscal Policy
- Limitations of Fiscal Policy?
- How Politics Affects Discretionary Fiscal Policy
- Government Borrowing
- Debtor Nation
- Fiscal Policy Affects Trade Balances
- Twin Deficits
- Exchange Rates Affect Budget and Trade Deficits
- What are the risks of chronic large deficits in the United States?
- How Fiscal Policy Can Affect Trade Imbalances
- Government Borrowing Affect Private Savings
- Ricardian Equivalence
- Fiscal Policy Affects Investment and Economic Growth
- Crowding Out of Physical Capital Investment?
- How Does Government Borrowing Affect Interest Rates in Financial Markets?
- Government Investment in Physical Capital
- Public Investment in Human Capital
- Fiscal Policy Can Affect Technology Development
- Skyscrapper Effect (Economics)
- V-Shaped Recovery
- W-Shaped Recovery
- U-Shaped Recovery
- Kondratieff Wave Cycle
- Feedback Rule Policy
- American Customer Satisfaction Index
- CNN Effect
- Bureau of Economic Analysis
- Business Starts Index
- American Recover and Reinvestment Act
- Emergency Economic Stabilization Act of 2008
- Commodity Credit Corporation
- Humphrey Hawkins Act
- Neoclassical Growth Theory
- Exogenous Growth Theory
- Endogenous Growth Theory
- New Growth Theory - Explained
- Classical Growth Theory - Explained
- Real Economic Growth Rate - Explained