what is physical policy
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Monetary and fiscal policies primarily operate through some control of
the supply or demand conditions of the economy. The traditional control
is that of demand management, but subsidies, indirect taxes, the effects
of interest rates on firms, etc., work mainly on the supply side.
Physical policy in contrast ignores these supply and demand controls and
simply dictates how markets will work. With prices policies, for
example, the market prices will be fixed at a level stipulated by
government, with little or no reference to the price that would be
reached by the free interaction of supply and demand.
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