Macroeconomic Policy

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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). Low inflation rates are important because high inflation rates can damage the international competitiveness of a country’s commodities. Balance of payments refers to reducing deficits so that they do not create an unstable economy. Macroeconomic policy can also be concerned with redistributing income and thus, shrinking the income gap between the rich and the poor. Monetary policies can be referred to as demand-side macroeconomic policies. They operate by promoting or restraining spending on goods and services. Economy-wide recessions and booms reflect rises and falls in collective demand instead of in the economy’s productive capacity. Monetary policy attempts to reduce, or remove these variations (Pechman). It utilizes modifications in the money supply to alter interest rates and accelerate economic activity. Two types of monetary policy are expansionary and contractionary. When the Federal Reserve increases money supply, the policy is expansionary. When the Federal Reserve decreases money supply, the policy is contractionary (Sparknotes). Under expansionary monetary policy, the economy grows a... ... middle of paper ... ...nment Macroeconomic Policy." Tutor2u | Economics | Business Studies | Politics | Sociology | History | Law | Marketing | Accounting | Business Strategy. Web. 22 Oct. 2011. . Mankiw, Greg. "Four Goals of Tax Policy." Greg Mankiw's Blog. Web. 22 Oct. 2011. . Pechman, Joseph A. Federal Tax Policy. Washington: Brookings Institution, 1971. Print. "SparkNotes: Tax and Fiscal Policy: Monetary Policy." SparkNotes: Today's Most Popular Study Guides. Web. 21 Oct. 2011. . Weil, David N. "Fiscal Policy: The Concise Encyclopedia of Economics." Library of Economics and Liberty. Web. 21 Oct. 2011. .
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