Macroeconomic Policy

7 Key excerpts on "Macroeconomic Policy"

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  eBook - PDF

  Workbook in Introductory Economics

  • Colin Harbury(Author)
  • 2014(Publication Date)
  • Pergamon

    (Publisher)

  Political views apart, the reasons may be found in disagreements about how the economy works and on the effects of alternative policies. Moreover, it is no easy political task to set national objectives, several of which may not be mutually consistent. A policy may be successful with respect to one goal at the expense of moving away from another. A policy for growth, for instance, may threaten the balance of payments or distributive goals, and a conflict between price stability and full employment may also be experienced. The economist can best advise on the most efficient policy to achieve a given set of goals if they are ranked in order of importance and expressed in precise quantitative terms. There are several ways of classifying the economic functions of government, but a simple division between macroeconomic concern with the level of national output, employment and price stability, and microeconomic concern with the allocation of resources is a useful first approximation. Some attention was given to the macroeconomic role of government in previous chapters, which stressed the role of aggregate demand and supply in determining the level of national income and of prices. There are three principal ways in which the State can intervene in the economy to try to promote economic growth, full employment and price stability. They are fiscal, monetary and prices-incomes policies, and it should be repeated that the choice between them is a matter of great controversy among economists. Fiscal policy can affect aggregate demand either directly by changing the levels of total government revenue and expenditure (budgeting for a surplus or deficit as required, or changing the Public Sector Borrowing Requirement, PSBR) or indirectly by altering the tax structure to stimulate private sector consumption or investment expenditure.

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  Economic Growth in Middle-Income Countries

  A Theoretical and Empirical Approach to Development in Turbulent Times

  • Manuel Agosin(Author)
  • 2023(Publication Date)
  • Routledge

    (Publisher)

  6 Macroeconomic policies for development DOI: 10.4324/9781003332848-6 A The major topics to be covered Macroeconomic Policy has usually been thought of as the set of instruments that policymakers can use to moderate the economy’s cycles and control inflation. This chapter takes a look at this vast issue from the vantage point of how macroeconomic policies can assist countries in accelerating their growth and achieving higher levels of development. Fiscal policy is important for development in several ways. In the first place, public expenditure, if excessive, may jeopardize a country’s attractiveness to foreign and domestic investment via its effects on public indebtedness and inflation. Second, by moderating the business cycle, an anticyclical fiscal policy may encourage investment by making less uncertain the macroeconomic environment. Third, the composition of fiscal expenditure is essential if a country is to meet its human development goals, which in all cases involves the provision of good education for all, access to good medical care, access to housing by those who cannot provide it for themselves and ensuring reasonable pensions. Evidently, these social benefits take time to be achieved, but making a head start (or building on what previous governments have accomplished) should be an essential component of good government policy. In most countries in the developing world, citizens who are left out of the fruits of progress are demanding these services. Fourth, taxation can also be a powerful tool to correct the high levels of inequality that prevail in almost all developing countries and particularly in middle-income economies. As we discussed in Chapter 2, tax and social spending in most MICs do not correct sufficiently the unequal distribution of income that arises from market processes

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  The Logic of Congressional Action

  • Rebecca West, Bernard Schweizer(Authors)
  • 1993(Publication Date)
  • Yale University Press

    (Publisher)

  The problem is complicated by the fact that so much of what happens in Congress affects the general health of the economy. Everyone would agree that Congress makes Macroeconomic Policy when it decides how large the deficit should be. So, too, does Congress influence the general health of i. On particularism, see Kenneth A. Shepsle and Barry R. Weingast, Legislative Poli-tics and Budget Outcomes, in Gregory B. Mills and John L. Palmer (eds.), Federal Budget Policy in the 19808 (Washington, D.C.: Urban Institute Press, 1984), pp. 343-367; on deficit spending, see James M. Buchanan and Richard E. Wagner, Democracy in Deficit: The Political Legacy of Lord Keynes (New York: Academic Press, 1977); on governmental growth, see Morris P. Fiorina, Legislative Facilitation of Government Growth (paper presented at the conference on the causes and consequences of public sector growth, Dorado Beach, Puerto Rico, November 1978), with portions reprinted as Universalism, Reciprocity, and Distributive Policymaking in Majority Rule Institutions, in John P. Cre-cine (ed.), Research in Public Policy Analysis and Management: Basic Theory, Methods, and Perspectives (Greenwich, Conn.: JAI Press, 1981), pp. 197-221. Economic Policy 151 the economy whenever it makes lesser decisions concerning the size, purpose, and nature of federal expenditures, the basic character of the tax code, the conditions for competition in specific industries, or the extent of environmental, health, or safety regulation. The only differ-ence is that some decisions affect the economy in large and immediate ways while others have more indirect and cumulative effects. In these two chapters I assume that practically every policy that Con-gress considers has both a macroeconomic component and a non-economic component. The macroeconomic component is the total effect that a policy would have on economic growth, unemployment, and infla-tion, both in the short run and in the long run.

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  Principles of Macroeconomics 3e

  • David Shapiro, Daniel MacDonald, Steven A. Greenlaw(Authors)
  • 2022(Publication Date)
  • Openstax

    (Publisher)

  This chapter will look at macroeconomic policies around the world, specifically those related to reducing unemployment, promoting economic growth, and stable inflation and exchange rates. There are extraordinary differences in the composition and performance of economies across the world. What explains these differences? Are countries motivated by similar goals when it comes to Macroeconomic Policy? Can we apply the same macroeconomic framework that we developed in this text to understand the performance of these countries? Let’s take each of these questions in turn. Explaining differences: Recall from Unemployment that we explained the difference in composition and performance of economies by appealing to an aggregate production function. We argued that differences in productivity explain the diversity of average incomes across the world, which in turn were affected by inputs such as capital deepening, human capital, and “technology.” Every economy has its own distinctive economic characteristics, institutions, history, and political realities, which imply that access to these “ingredients” will vary by country and so will economic performance. For example, South Korea invested heavily in education and technology to increase agricultural productivity in the early 1950s. Some of this investment came from its historical relationship with the United States. As a result of these and many other institutions, its economy has managed to converge to the levels of income in leading economies like Japan and the United States. Similar goals and frameworks: Many economies that have performed well in terms of per capita income have—for better or worse—been motivated by a similar goal: to maintain the quality of life of their citizens. Quality of life is a broad term, but as you can imagine it includes but is not limited to such things as low level of unemployment, price stability (low levels of inflation), and the ability to trade.

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  Macroeconomics For Dummies

  • Dan Richards, Manzur Rashid, Peter Antonioni(Authors)
  • 2016(Publication Date)
  • For Dummies

    (Publisher)

  Part 5

  Examining Macroeconomic Policy

  IN THIS PART … Consider what monetary and fiscal policies make sense in the long run and recognize the government’s long-run budget constraint. Examine the role of monetary policy in countering short-run demand shocks. Analyze the use of fiscal policy to offset short-run demand shocks and learn about the role of automatic fiscal stabilizers. Discover the Phillips Curve relation between unemployment and inflation and comprehend the link this provides between the short run and the long run. Passage contains an image Chapter 13

  Macroeconomic Policies for the Long Run

  IN THIS CHAPTER Remembering the long-run model Quantifying macroeconomic targets Dealing with deficits and debt Valuing commitments

  In the episode “Mirror, Mirror” of the original Star Trek TV series, Captain Kirk finds himself in a quasi-parallel universe in which the alternative Enterprise is part of an oppressive empire and not the democratic Federation. After many twists and turns, Kirk eventually works out an arrangement with the alternative Spock to beam him back to the “right” Enterprise. Before leaving, though, he urges the alternative Spock to be part of the freedom movement in that parallel universe because, he argues, the overthrow of the empire is inevitable. The alternative Spock agrees with that assessment, though he notes it will take over 200 years. Still, he says he will consider Kirk’s arguments.

  What Kirk and the alternative Spock agree on, then, is the long run. They both believe that given enough time, the other-universe empire will fall. But that’s really a way of saying that they also agree about the short run, at least a bit. Because the subtext of their exchange is that there are forces in the short run, that is, in each period, which are constantly pushing toward the revolution’s rise.

  So it is with the economy. As we’ve said many times, the short run is important and can last a while. Nevertheless, even in the short run, there are always forces at work pushing the economy toward its inevitable long-run path. And ultimately, that’s where the economy ends up. That’s the best description of the economy over an extended period of time.

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  The Reform of Macroeconomic Policy

  From Stagflation to Low or Zero Inflation

  • J. Perkins(Author)
  • 2016(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  4 Towards the Formulation and Testing of a More General Theory of Macroeconomic Policy (1987) * J.O.N. Perkins and Tran Van Hoa Introduction Virtually all the Macroeconomic Policy discussion in the literature is based on a very limited number of the possible alternative combina- tions of assumptions about the effects of changes in particular policy instruments on the principal macroeconomic objectives. At the mon- etarist extreme, budgetary instruments are taken to have no impact on the real variable of unemployment (or real output), whereas monetary policy is taken to influence the price level, with no more than a short- run influence on unemployment. At the other (‘Keynesian’) extreme, all the instruments are taken to have similar effects to one another in reducing unemployment, for any given effect on nominal aggregate demand, an effect that is transferred to the price level as full employ- ment is approached. The possibility of different macroeconomic instru- ments having different relative effects from one another on the price level and on unemployment respectively has been relatively little dis- cussed. Nor has the possibility that one or more of those instruments may have no effect on one of those objectives, whereas another instru- ment may affect both objectives. Where these possibilities have been discussed, the approach has still been in terms of a relatively small number of the logically possible alternative combinations of the possible effects of the main macroeconomic instruments on the two principal macroeconomic objectives. A very limited number of special 53 * Originally published in Weltwirtshaftliches Archiv (Review of World Economics), 123(2) (1987). The authors gratefully acknowledge the comments from Duncan Ironmonger, Bob Jones, Ian McDonald and Kirker Stephens. The usual caveat applies.

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  The Labour Party's Economic Strategy, 1979-1997

  The Long Road Back

  • R. Hill(Author)
  • 2001(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  A number of areas were identified as needing attention; the EMS, monetary policy in the face of the credit boom, an approach to public expenditure which emphasised differences in priorities rather than just increases, the problems of external balance and sterling, and an approach to inflation which was more credible. 109 The PRG tended to avoid the issues of Macroeconomic Policy and, indeed, one of the key arguments put forward in the policy review was that the main faults of the British economy were on the supply side. However, the policy review did commit the Party very strongly to the goal of full employment stating that this objective had to be ‘at the heart of a rational economic policy’. 110 In fact, this policy was extended slightly in that the quality of jobs was also highlighted. It was argued that ‘merely setting a target for the reduction of unem- ployment is not, however, enough’. 111 While full employment remained the objective, it was recognised that a traditional Keynesian reflation of the economy would not only run into a balance of payments constraint but, more seriously, a lack of the industrial capacity that would be needed to cope with any such increase in demand and so generate employment. The document states that steady 146 The Labour Party and Economic Strategy, 1979–97 macroeconomic expansion, with low inflation is necessary, but the need is for a ‘new focus on the encouragement of structural change, building up from the needs of flexibility and adaptability at the level of the firm and the industry’. 112 Achieving full employment is not to be by the traditional remedy of reflation, although demand will be raised at a ‘sustainable and predictable rate’, 113 but through ‘supply-side’ measures such as training. Overall, the goal of Macroeconomic Policy was to aim at ‘restoring balance to the economy’, 114 in particular that between consumption and investment, in order to support the industrial strategy.

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