Wednesday, April 18, 2012

Macroeconomics - Introduction


Macroeconomics studies trends of the entire economy. It studies historical issues or events of the macroeconomy or the entire economy to understand the sources of fluctuations in macroeconomic variables so that they can be controlled in an acceptable range and business cycles are avoided.

The central measures of macroeconomics are gross national product or gross domestic product, employment level or unemployment level, inflation and net exports.

Objectives of Macroeconomic Policy of Country or  Nation

The major objectives with which macroeconomic management is attempted include:
1. High level and growth of output and consumption of goods and services.
2. High employment of willing persons.
3. Price level stability from period to period.
4. To have a stable foreing exchange rate

Instruments of Macroeconomic Policy

Fiscal Policy

Fiscal policy consists of setting the levels of taxation and expenditure to affect macroeconomic performance. Government expenditure includes spending defence equipment, building dams and roads, and salaries to government employees etc. Government expenditure determines the relative size of public and private sectors in the economy. It also determines the expenditure on common or collective goods and invidividual consumption. Government expenditure has an effect on the overall level of spending in the economy and the overall level of spending has an effect on the level of GNP.

The tax policy of the government reduces or increases people's incomes. Also taxes determine prices in markets especially through indirect taxes. Certain tax concessions make investing in capital assets attractive and withdrawal of such concessions make investment relatively unattractive.

Monetary Policy

Monetary policy consists of management of money supply and credit.

Foreign Sector Policy

Foreign trade policy and exchange rate management policy form  the foreign sector policy

Income Policies

This policy is more accurately termed as wage-price policies.


Paul A. Samuelson and William Nordhaus, Economics, McGraw Hill
Original knol - 2100

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