Global Macroeconomic Policies: Policy Responses for Rising Commodity Prices and Stock Market Booms

This report discusses the policy responses for rising commodity prices and stock market booms in the context of global macroeconomic policies. It covers the use of aggregate demand and aggregate supply to rationalize the remarks and the merits or potential policy responses of macroeconomic policymakers. The report also explains how the government and central bank design policies to manage the economy's inflation rate and create a sustainable market. The subject covered is global macroeconomic policies, and the course code, course name, and college/university are not mentioned.

GLOBAL
MACROECONOMIC
POLICIES

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Commodity prices, such as oil, are rising due to continued expansion in new and developing
economies. Discuss the policy response for this issue...........................................................3
Stock market boom in advanced economies. Discuss the policy response for this issue.......6
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Major transformations in demography, income, technology, and environment have
ushered in a new period of fast global change. However, economic development has been
unequal, has harmed the environment, and has already halted owing to climate change.
Developing countries must address a number of connected underlying issues in order to achieve
long-term economic growth and inclusion. Low productivity and international competitiveness,
inefficient government spending, insufficient domestic resource mobilisation, price distortions
from the general budget that discourage sustainability, level of financial resilience, mounting
debt levels, an uncertain manufacturing, and the rising threat of climate change are just a few of
them (Hai-Jew, 2020). These factors contribute to the market's macroeconomic equilibrium. It is
the factor that guarantees that the market's expansion is taken into account more thoroughly. The
impact of rapid expansion and developing markets, increases in commodity prices such as oil,
and stock market booms in advanced economies will be examined in this report, as well as the
merits or potential policy responses of macroeconomic policymakers using aggregate demand
and aggregate supply to rationalise the remarks.
MAIN BODY
Commodity prices, such as oil, are rising due to continued expansion in new and developing
economies. Discuss the policy response for this issue
Economic growth is defined as a rise in the production of economic goods and services
from one period of time to the next. This is calculated both in real and nominal terms.
Historically, gross national product (GNP) has been used to quantify the country's overall
economic growth (GNP). Economic growth is defined as an increase in aggregate production in
the economy (Mazier, 2020). However, aggregate gains in overall production are not always
associated with higher average marginal productivity, which leads to an increase in income,
prompting consumers to open their wallets and spend more, indicating that they are putting their
money toward a higher quality of life or standard of living.

According to Focus Economics' projection for the next five years, India, for example, is
one of the world's fastest-growing economies in emerging and developing markets. Last spring,
India was severely impacted by the worldwide pandemic COVID-19, and was placed under strict
quarantine. In addition, a national vaccination effort is ongoing. Investments and exports are
increasing, according to trade data, which will boost economic development in the coming year.
Aggregate demand refers to the total amount of money spent in a given economy on
goods and services consumption (Chowdhury, and Popov, 2019). Aggregate supply, on the other
hand, refers to the total quantity of product that businesses may produce and sell, or the country's
real GDP. The aggregate demand/aggregate supply model shows what variables impact total
supply or total demand for the whole economy, as well as how they interact at the
macroeconomic level, assuring the economy's correct functioning and market application. The
AD-AS model describes the price level and output by linking aggregate demand (AD) and
aggregate supply (AS) (AS). This idea was created by John Maynard Keynes. In this case,
growth in the emerging market occurs, increasing the chances of inflation in the market, as it is
well known that money is allocated in an inefficient manner, resulting in some members of
society having higher income levels and others operating at lower income levels in emerging
economies. This raises the issue of inflation, which will be further explained using the AD-AS
Model curve provided below:

According to the overrepresented diagram, an increase in the consumer's income level
has an influence on aggregate demand in the economy. As can be observed, there is an
inflationary gap in the economy as a result of the increase in aggregate demand, which is not
acceptable in developing countries due to the inequitable distribution of income.
Rise in the general price relates to the gradual loss of a currency's buying power over
time. It's also clear that the quantitative estimate of the rate at which buying power is declining
may be observed in the economy. It is critical to address the situation of inflation in the economy
since it causes the economy to face higher and higher prices for its commodities in general and
relates to the lowering the power one currency holds in the market.
The country's government and central bank are the policymakers, ensuring that the
economy is functioning smoothly and that money is moving in the right direction, therefore
contributing in the market's overall development (Boissay, and Rungcharoenkitkul, 2020). The
government uses fiscal policy to reduce the inflationary gap in the economy so that it can keep
track of the entire inflationary gap and respond properly. The government uses fiscal policy as
the case is related to the rapid expansion and development in the economy. To cater these rapid
changes the government will pose more taxes on the industries who are adding to these growth
prospects and reduce their own spending in the economy as the country is already having enough
flow of capital and funds (World Bank, 2018). This policy emphasises how the government's
revenue and expenditures are used. By adjusting the total distribution of taxes and government
expenditure, this strategy aids in the stabilisation of the economy. To keep inflation under
control, the government raises interest rates while simultaneously reducing subsidies, reducing
overall consumer spending within the economy. In this approach, they are able to keep the
economy's inflation under control. When the government either cuts expenditure or hikes taxes,
it is referred to as contractionary fiscal policy. Its term comes from the way it shrinks the
economy. It decreases the amount of money that firms and individuals have available to spend.
Merit of this policy is that it is one of the policies which can be easily implemented as it
is mostly concerned with the government’s spending and revenue. It contributes to the nation's
economic growth and development, particularly during a slump. As a result, it is widely accepted
during the early phases of development (Chadwick, 2019). It reduces loan applications and
interest rates, resulting in an increased inflow of money into the economy.

d
d1
AS
Price
level
Real GDP
Stock market boom in advanced economies. Discuss the policy response for this issue
The phrase "advanced economy" refers to a country's economy that is more developed than
economies in less developed countries. The advanced economy is classified as a more
economically developed country due to its sophisticated technical infrastructure (MEDC). The
word used by the International Monetary Fund (IMF) to designate the world's most developed
countries is "them." When a country's economy has a high per capita income, a significant export
industry, and a financial sector that is a hybrid of global financial systems (Rout, and Mallick,
2020). Although the economy suffers from market inflation on occasion, this does not detract
from the community's overall consideration. In such economies, inflation is a desirable thing that
leads to increased GDP growth, but if inflation increases over a certain amount, such as 3%, it
will have an influence on the consumer's net disposable income (Kavalevich, 2019). As a result,
it is critical for the economy to keep inflation under control in order to maintain general
corporate functionality. When the stock market rises, the price of goods rises, and the consumer's
purchasing power rises as well, resulting in a rise in the stock market. This is the stage at which
the country's enormous market is booming.
When it comes to comprehending aggregate demand and aggregate supply in the market,
it can be claimed that when consumer demand rises in parallel with rising income levels,
aggregate demand for the stock market rises as well, as seen in the diagram.

From the preceding graph, it can be seen that as buying power rises due to favourable
inflation, aggregate demand shifts from d to d1, indicating an increase in total consumer
spending. However, it tends to raise the total pricing of commodities in the market, making it
difficult for individuals to purchase the goods and services they seek.
The government and the bank design such policies so that they can appropriately retain in
the market and formulate such policies so that they can have better consideration in the market in
order to manage the economy's inflation rate and create a sustainable market here. Monetary
policy is being employed by the bank to cover the inflationary gap in order to address the
economy's condition. Open market operations, reserve requirements, and the discount rate are all
examples of monetary policy instruments. The monetary policy regulates the supply of money to
the citizens of the country, as well as the manner in which such monetary sums are distributed
throughout the economy (Duval, and Furceri, 2018). The government employs the assistance of
the market bank in order to control inflation in the economy. The National Bank of England
enlists the assistance of its national bank in order to reduce the total consumption rate in the
economy in the United Kingdom. The bank raises the borrowing rate, causing small banks to
charge higher rates of interest to customers, reducing the total flow of money in the market. As a
result, they have a tendency to exert influence over the entire supply of money in the market.
Monetary policy attracts investment, and consumers spend more as a result of the
expansionary monetary policy, in which banks lower interest rates on loans and mortgages in
order to inspire businesses to grow and, as a result, assure better working conditions within the
economy. Contractionary monetary policy, also known as tight money policy or tight monetary
policy, is a type of economic policy that aims to restrict the amount of money available in a
given country. The purpose of contractionary monetary policy is to limit inflation while also
contracting real GDP (GDP). When expansionary monetary policy fails to control inflation,
contractionary monetary policy is implemented. When there is inflation in the market, it leads to
a higher rate of borrowing from the bank, allowing the bank to lower the overall quantity of
money in the economy, and people's investment in the market is reduced. The federal reserve
employs this policy to create money, which aids them in acquiring government bonds and, as a
result, ensuring the economy's proper functioning (da Silva, 2018). If the interest rate is reduced,
banks and financial institutions are more willing to lend to borrowers. One of the major benefits
of this approach is that prices in the economy stabilise over time, lowering the rate of inflation.

CONCLUSION
As per the above report, macroeconomics is a discipline of financial matters that
empowers the better working of the economy by considering utilization and result in the
economy overall. In the arising economy, expansion has affected the entire economy, and while
considering total interest and total stockpile, the AD will in general move in the market as
shopper pay rises, showing that the market has more prominent help, which prompts better
thought in the economy. Then again, an ascent in the financial exchange builds the shopper's all
out buying influence, suggesting that the whole progression of cash is the main component on
the lookout.

REFERENCES
Books and Journals
Hai-Jew, S., 2020. Book Review: Examining Macroeconomic Policies in the Global South. C2C
Digital Magazine, 1(12), p.20.
Chowdhury, A. and Popov, V.V. eds., 2019. Macroeconomic Policies in Countries of the Global
South. Nova Science Publishers.
Boissay, F. and Rungcharoenkitkul, P., 2020. Macroeconomic effects of Covid-19: an early
review (No. 7). Bank for International Settlements.
Chadwick, R.W., 2019. Modeling Political-Military Policy Dynamics in a Global Model.
In Theories, Models, and Simulations in International Relations (pp. 115-132).
Routledge.
Kavalevich, L., 2019. Prospects and problems for global macroeconomic development (Doctoral
dissertation, Белорусский государственный экономический университет).
Duval, R. and Furceri, D., 2018. The effects of labor and product market reforms: The role of
macroeconomic conditions and policies. IMF Economic Review, 66(1), pp.31-69.
da Silva, L.A.P., 2018. Some Lessons of the Global Financial Crisis. Progress and Confusion:
The State of Macroeconomic Policy, p.219.
Rout, S.K. and Mallick, H., 2020. International Macroeconomic Activity And Its Interaction:
Evidence From Us, Japan, Germany, China, India And Russia. Global Economy
Journal, 20(02), p.2050008.
World Bank, 2018. Global Economic Prospects, January 2018: Broad-Based Upturn, but for
How Long?. The World Bank.
Mazier, J., 2020. Global imbalances and macroeconomic adjustments: A three-country SFC
model. In Global Imbalances and Financial Capitalism (pp. 71-106). Routledge.