Policies
taken by the government to influence the level of economic activities or
achieve one or more macroeconomic goal are called macroeconomics policies.
There are two traditional types of macroeconomic policies: Fiscal and Monetary
policies. Others are income policy, trade policy and exchange rate policy. In
taken by the government to influence the level of economic activities or
achieve one or more macroeconomic goal are called macroeconomics policies.
There are two traditional types of macroeconomic policies: Fiscal and Monetary
policies. Others are income policy, trade policy and exchange rate policy. In
practice, because one type of macroeconomic policy may not be able to achieve
the above objectives at the same time, government normally take on a
combination of policies. Economists call this a policy mix. This approach to
macroeconomic management is reinforced by the fact that often a policy that is
directed towards achieving one macroeconomic goal may prevent the realization
of the other.
A
common example cited in economic literature is a policy intended to increase
the level of resources utilization (such as increase in the money supply or reduction
in taxes), which has the potential to generate a significant, sometimes
massive, increase in the aggregate price level (thus preventing the realization
of price stability). Some economic goals are complementary, such as reducing
unemployment and inequality. A policy directed at achieving the former
implicitly achieves the latter objective to some extent.
common example cited in economic literature is a policy intended to increase
the level of resources utilization (such as increase in the money supply or reduction
in taxes), which has the potential to generate a significant, sometimes
massive, increase in the aggregate price level (thus preventing the realization
of price stability). Some economic goals are complementary, such as reducing
unemployment and inequality. A policy directed at achieving the former
implicitly achieves the latter objective to some extent.
But
often, a society may have to trade-off one objective (such as the achievement).
Hence, economists often talk about policy trade-offs. However, the combination
of macroeconomics policies in an optimum manner may enable the society to achieve
more than one macroeconomic objective simultaneously.
often, a society may have to trade-off one objective (such as the achievement).
Hence, economists often talk about policy trade-offs. However, the combination
of macroeconomics policies in an optimum manner may enable the society to achieve
more than one macroeconomic objective simultaneously.
