Macroeconomics Policies
Order Instructions:
What type of macroeconomics policy (monetary,fiscal, structural) might include each of the following actions:
a) Abroad government initiative to shift from a high energy-use economy to a low -energy use economy.
b) A Government spending program to improve roads and other infrastructure during a recession.
c) series of internet rate cuts by the central bank to stimulate spending in the economy.
d) an attempts to reduce the government budget deficit by raising taxes.
e) central bank provision of additional cash to the banking system during a financial crisis.
f) a decision by developing country to impose controls on international capitals flows.
SAMPLE ANSWER
Macroeconomics Policies
Macroeconomics involves two major short-term policies, fiscal and monetary policies. Each of the policies addresses different issues in macroeconomics but they are all projected toward realization of economic stability. In monetary policy, money supply is regulated by the central bank. The policy mainly focuses on money circulation especially between banks. Central bank usually intervenes to regulate interest rates formulated by different banks. Fiscal policy on the other hand entails government intervention to manipulate a country’s economy by means such as taxation and revenue collection. In most cases, governments focus on demand manipulation to cause stability. Fiscal policy is significantly influenced by the political status of a nation unlike the monetary policy. Implementation of the monetary policy is considerably easier compared to that of the fiscal policy. Key players in the regulation of economic stability are the government and a country’s central bank.
Contrary to the short-term effect of fiscal and monetary policies, a third macroeconomic policy, the structural policy encompasses long term methods of creating economic stability (ABDEL-KADER, 2013, Pg. 46). Structural policies work on price control, management of public resources, labor, and social aspects among other variables.
Structural policies would for instance be implemented if a government wants to create an extensive shift from an economy highly dependent on energy to one that would have little dependence on energy. A decision by a country to regulate international capital flux would also entail the structural policy. On the other hand, the government would apply the fiscal policy in improvement of infrastructure in a state of economic recession. Likewise, the fiscal policy of macroeconomics is likely to be applied in a bid by the government to contain a budget deficit by increasing taxation. Instances of monetary policy application would include central bank’s act of increasing money supply to financial institutions. The same policy would be effective if the central bank induces cutting of internet rates so as to improve the state of a country’s economy.
Reference
ABDEL-KADER, K. (2013). What are Structural Policies? International Monetary Fund, 50(1), 46-47
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