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The Basics of U.S. Economic Policy

For decades, the United States has the world’s largest national economy. Its gross domestic product (GDP) was estimated to be about $20 trillion as of

March 22, 2021 (Statista, 2021). The U.S. dollar, commonly considered the main reserve currency in the world, is one of the most commonly used

currencies in international trade.

Based on free market capitalism, the U.S. economy rewards those who meet the needs of the people in order to earn money. Long considered free

market capitalism, many rules and regulations were enacted to ensure people were not cheated or harmed by poorly made products.

This changed a little over the years with the political implementation of some socialist policies. Franklin D. Roosevelt, probably best known for his

implementation of some socialist policies in the mid-1930s, insisted he was not a socialist. It is important to understand exactly what socialism is, in

order to understand how it can and has in�uenced the U.S. economy.

Socialism  believes in distributing wealth by implementing high taxes on those who earn more and giving it to those who do not earn as much. A

socialist government can order people to be hired so they have jobs, even if those people aren’t contributing in a way that is needed. Though it works

well in small, highly motivated communities (such as loving families, convents, or monasteries), it has not worked well over time for countries (such as

the Soviet Union and Venezuela).

Here are some basic qualities of the U.S. economic policy:

Open All Panels

Some of the largest markets in the world are in the United States.

Financial Markets

Some of the goals of economic policy in the U.S. include economic growth, low unemployment levels, low in�ation, and balanced trade.

Goals of U.S. Economic Policy

Also known as “the Fed”, the Federal Reserve System  is the central banking system. It was created with the Federal Reserve Act  of

1913 to help the U.S. have stable prices, maximum employment, and moderate long-term interest rates.

The Federal Reserve System

Fiscal, monetary, and tax policies are all used by the federal government to deal with economic issues. While the Fed can’t control in�ation or

force higher output of goods and services, it can impact them by raising or lowering the “federal funds rate”, which is the short-term interest

rate.

Tools

There is a trade-o� between full employment and low in�ation. While the targeted level of unemployment is rarely disclosed, it is usually

about 4% of the number of people who could work. The targeted in�ation rate  is generally no more than 2%.

Economic Relationships