Feedback-Rule Policy – Definition

Cite this article as:"Feedback-Rule Policy – Definition," in The Business Professor, updated April 16, 2020, last accessed October 25, 2020, https://thebusinessprofessor.com/lesson/feedback-rule-policy-definition/.

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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.

A Little More on What is a Feedback-Rule Policy

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 fuelled by technological advancement in the major sectors.

References for “Feedback-Rule Policy”

https://www.investopedia.com › Insights › Markets & Economy

www.businessdictionary.com/definition/feedback-rule-policy.html

https://www.entrepreneur.com/article/280791

https://www.bankofcanada.ca/wp-content/uploads/2010/06/r001d-e.pdf

www.clsbe.lisboa.ucp.pt/docentes/url/pteles/res1106_final.pdf

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