Feedback-Rule Policy

DEFINITION of 'Feedback-Rule Policy'

An economic policy that is triggered when a certain economic situation results in economic instability, as a result of gross domestic product (GDP) being either above or below full employment equilibrium or the price level not clearing the aggregate market. Feedback-rules are representations of what the government, in terms of monetary or fiscal policy, should do in order to help the economy get back to equilibrium.

BREAKING DOWN 'Feedback-Rule Policy'

The type of policies that the government can implement is to change the aggregate supply of money, change the level of taxes, or to change the aggregate level of consumption by changing government expenditure.

One example of a feedback-rule policy could involve changes in net exports. If the net exports of a country have fallen, then a feedback-rule policy could be that as net exports fall, the government will lower the level of government expenditure to help increase net exports.

Because net exports are equal to exports less imports, a decrease in government expenditure will reduce imports. When imports fall, net exports will rise.

RELATED TERMS
  1. Net Exports

    The value of a country's total exports minus the value of its ...
  2. Export Incentives

    Monetary, tax or legal incentives designed to encourage businesses ...
  3. Dollar Drain

    When a country imports more goods and services from another country ...
  4. Export

    A function of international trade whereby goods produced in one ...
  5. Economic Equilibrium

    A condition or state in which economic forces are balanced. These ...
  6. Import And Export Prices

    Two indexes that monitor the prices of imports and exports in ...
Related Articles
  1. Markets

    Understanding Net Exports

    Net exports are the difference between a country’s exports and imports.
  2. Markets

    Growth and Politics In Exports

    An export is a good or service that is shipped from one country to another for sale or trade.
  3. Markets

    Interesting Facts About Imports And Exports

    Imports and exports exert a profound influence on the consumer and the economy. Learn what affects these figures, and in turn how these figures affect the economy.
  4. Markets

    How Imports And Exports Affect You

    Imports are an important indicator of an economy’s health. In a healthy economy, exports and imports are both growing.
  5. Markets

    China’s Stock Market Tumbles on Weak Export Data

    China's exports declined by 25.4% in February, imports also dropped by 13.8%, with trade surplus declining to $32.6 billion in February from $63.29 billion in January
  6. Markets

    What's Aggregate Demand?

    Aggregate demand is a macroeconomic term describing the total demand in an economy for all goods and services at any given price level in a given time period.
  7. Markets

    What Is Fiscal Policy?

    Learn how governments adjust taxes and spending to moderate the economy.
  8. Markets

    Daimler’s Earnings Signal the German Economy Is Falling Apart (VOW)

    Volkswagen’s (ETR: VOW3) emission cheating scandal has come to a climax, as the German company reached a preliminary agreement with the US government.
  9. Markets

    The Biggest Losers From China's Slowdown

    A look at how China's slowdown is impacting countries around the world.
  10. Markets

    Explaining Aggregate Supply

    Aggregate supply is the total supply of goods and services an economy produces in a given time period.
RELATED FAQS
  1. How do fiscal and monetary policies affect aggregate demand?

    Learn about the impact fiscal and monetary policy have on aggregate demand, and discover how the government influences economic ... Read Answer >>
  2. How are aggregate demand and GDP related?

    See why aggregate demand and gross domestic product (GDP) are necessarily the same thing according to Keynesian macroeconomic ... Read Answer >>
  3. How are net exports influenced by the crowding out effect?

    Discover how an increase in U.S. government borrowing to finance deficits can influence the net exports of U.S. companies ... Read Answer >>
  4. How do you calculate GDP with the expenditures approach?

    Learn how to calculate gross domestic product, or GDP, using the expenditures approach, also known as the measurement of ... Read Answer >>
  5. Why do long-term care insurers require the loss of two Activities of Daily Living ...

    Find out why an importing or exporting merchant might turn to a banker's acceptance to help facilitate an international trade ... Read Answer >>
  6. How do changes in aggregate demand affect output?

    Find out why aggregate demand and total output are linked in macroeconomic models, and why economists disagree about the ... Read Answer >>
Hot Definitions
  1. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  2. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  3. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  4. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  5. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  6. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
Trading Center