Macroeconomic Policies and their Impact on Unemployment and Inflation

Macroeconomic
Policies

Table of Contents
Introduction-................................................................................................................................................3
Macroeconomic policies and unemployment-.............................................................................................4
Macroeconomic policy and inflation-..........................................................................................................6
Advantages -................................................................................................................................................7
Disadvantages-............................................................................................................................................8
Effectiveness of policies-...........................................................................................................................10
Challenges in implementing macroeconomic policies-..............................................................................11
Conclusion-...............................................................................................................................................11
References-................................................................................................................................................11

Introduction-
In this report, macroeconomic policies and its importance in achieving lower level
unemployment and lower level inflation. Macroeconomic policy is defined as considering
economic operations as whole. Objective of macroeconomic policy is to provide stable economic
environment which helps in economic growth. These policies are controlled by economic policy
maker. Government has three main types of policies which include fiscal policy, monetary policy
and supply side policies. Main goal of macroeconomic policy is to increase employment, control
inflation, economic growth and keeping balance of payment in equilibrium. It is focused on long
term growth of the country. If there is no economic growth in country then it leads to low living
standards. Importance of monetary policy is as follows-
 It is useful in understanding the functioning of complicated economic model of country.
 Economic growth of the country can be increased by higher GDP level and increase in
employment.
 Stability is achieved in terms of price level and fluctuations can be achieved in business
activities.
 Macroeconomic policy helps in solving all the problems related to economy such as
poverty, unemployment, inflation and deflation etc. Solution of all these problems are at
macro level.
Unemployment is very important indicator because it shows the capability or incapability of
workers to get productive work to contribute to the economy. High unemployment shows that
there is less economic production. Monetary policy and unemployment are related to each other.
Change in policy directly affects the rate of employment. If supply of money is increased then it
leads to more government expenditure. It plays very important role in reducing unemployment as
increasing expenses on education, road and health leads to increase in aggregate demand which
further help in reducing unemployment. There are few strategies that can be used in reducing
unemployment-
 Labor intensive technologies can be used.
 Investment in agriculture field should be increased.
 Diversified agriculture.
 Sufficient number of workers in industrial growth.

 Expansion of services leads to growth of employment
 Expansion of health and education domain.
Inflation can be controlled by adopting contractionary monetary policy. Reduction in supplying
money can control inflation. If money supply is less and interest rates are high then it leads to
spending less money, prices will automatically dropped and inflation can be reduced. Central
banks use this technique to reduce the inflation. Central bank restricts other banks volume of
money they can lend. High interest rates are charged and loans can be more expensive to control
inflation.
In this report, all the key points related to macroeconomic policy are discussed. Affect of
macroeconomic policy in reducing unemployment and inflation is explained. Macroeconomic
policies used by government in increasing employment and controlling inflation are elaborated
and advantages and disadvantages and challenges in implementing these policies is discussed.
Macroeconomic policies and unemployment-
Unemployment is defined as not utilizing resources properly which leads to fall in economy.
There is negative correlation between unemployment and economy growth. Management of
unemployment is very hard task for government. If a country has economy of around 5% then it
is considered as healthy economy. It is highest among young workers aged between 15 to 24.
Unemployment is of different types such as seasonal employment, cyclical unemployment,
technical employment, Frictional unemployment, structural unemployment, disguised
unemployment and underemployment. There are two main strategies by which employment can
be reduced which are supply side policies and demand side policies. Demand side policies
include unemployment caused by recession and supply side policies try to reduce structural
unemployment.
Demand side policies-