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The younger the workforce the more they will be saving for retirement, instead of spending their retirement (Kotlikoff, 2008). This leads to a positive saving rate. In a country with a growing economy, the savings rate will be positive to ensure enough capital for its workers (Kotlikoff, 2008). The more that is being saved, the more we have to spend on capital to improve productivity. In the United States, all levels of government account for nearly one fifth of America’s consumption (Kotlikoff, 2008).
The main components of macroeconomic policy are monetary and fiscal policy. The main aims of macroeconomic policy are continued economic growth, high employment, stable prices (low inflation), an elevation in average living standards, and a maintainable stance on the balance of payments (Macroeconomics). Practically all governments apply macroeconomic policies to reach policy goals and to improve the workings of the economy. Economic growth is important for reducing poverty levels. Continued growth means the ability to meet the needs of the current generation without burdening future generations with debt (Macroeconomics).
Monetary Policy Monetary policy is the mechanism of a country’s monetary authority (usually the central bank) controlling money in the economy so as to promote economic growth and stability by creating relatively stable prices and low unemployment. A monetary policy mainly deals with the supply of money, availability of money, cost of money and the rate of interest so as to attain a set of objectives aiming towards growth and stability of the economy. Monetary policy is said to be expansionary when it increases the total supply of money in the economy more rapidly than usual. But it can also be termed as contractionary if it expands the overall money supply in a slower rate or shrink it. The price at which money can be borrowed at is usually referred to as the economy’s interest rates.