Macroeconomic Policy: Government Strategies for Economic Welfare

Macroeconomic
1

TABLE OF CONTENT
Introduction......................................................................................................................................3
Main body........................................................................................................................................4
Analysing economic policy which government is using.............................................................4
Advantages and disadvantages of the policy and measuring the effectiveness of last 10 years..5
Challenges faced by the government in implementing the policies and recommendation..........7
Conclusion.......................................................................................................................................9
REFERENCE................................................................................................................................11
2

Introduction
Macroeconomic policy is the setting of goals through the government for the entire
economy. They use policy tools so that their objectives can be achieved. The objectives of
macroeconomic includes full employment, balance of payments, avoiding inflation, fiscal policy,
supply policies, economic growth, monetary policy etc. These are the instruments which
regulates the economy. Normally achieving the broad objectives, like inflation avoiding includes
achieving the intermediate targets like increasing growth of money supply (Hansen, 2018). In
order words macroeconomic policy is the economies which deals with the performance, decision
making, structures of the entire economy. Under this growth and stability of the economy is
regulated by taxes, interest rates, government spending etc. It involves district, national and
international economy.
Macro economies are very important as it is helpful in functioning of the economy. It provides
proper knowledge of the behaviour pattern of the variable and describe the complex economic
system. It helps in making economic policies, as through macro economic government does not
deals only with an individual but can deals with masses. As the policies is helpful in the situation
of unemployment. With the help of macro economic national income can be studied. It raises the
important of national income and social accounts. As through national income only people has
got idea that half of the world population is under the poverty.
Through macro economic policy government can do economic welfare. The tools which
government can use to implement macro economic policy are the fiscal policy and monetary
policy. As by using this tool economy can be maintained. In monetary policy, government bank
start market operations. When cash in the economy have to be increased, then government bonds
are bought by the central banks. As the security can leverage to the central bank to inject cash in
the economy by supplying money to it. In this case interest rate on borrowed money is reduced
as the binds demand will be increasing the price and reduces the interest rates. In fiscal policy, to
create fiscal contraction government can lower their spending and increases the taxes (Asandului
and et.al., 2021). It will reduce the output as less spending by the government means low
disposable incomes of the customers. This report will discuss the economic policies which the
government is using for economic welfare. Further will analyse advantages and disadvantages of
these policies along with measuring effectiveness in last ten years. The report will also discuss
key challenges which is faced by government to implement the policies with recommendations.
3

Main body
Analysing economic policy which government is using.
Economic development means improving the economic welfare via increasing GDP, also
making improvements in the economic indicators, like improving literacy, reducing poverty,
enhancing infrastructure, improvising healthcare standards etc.
Some of the economic policies which is used by government are:
Fiscal policy:
This policy is depends on the idea of British economist, who said that economic recessions are
caused because of decreasing in the consumption spending and components of business
investment of the aggregate demand (Minford and Meenagh, 2020). This policy means using the
government spending and tax policies so that economic conditions can be influenced. In
recession time, government can implement expansionary fiscal policy and lowers tax rate in
order to increase aggregate demand and facilitate economic growth. at the time of inflation and
in expansionary symptoms, government can implement contractionary fiscal policy. Aggregate
demand and spending delivers the growth and performance into the economy.
Aggregate demand is formed through business investment spending, net exports, consumer
spending etc. Elements in the aggregate demand are dependent on the emotional factors so that
growth in the economy can be maintained. Economic depression is lead by uncertainty in
consumers and businesses and exuberance is lead by inflation and by heated economy (Baqaee,
Farhi and Sangani, 2021).
Monetary policy:
This policy is the procedure of making, announcing, evaluating and implementing the action plan
which is taken through central bank or the monetary authority of the country. As it controls the
volume of money in the economy and methods via which there is the supply of new money. It
includes the management of interest rates, money supply and also make goal to achieve the
macro economic objectives like managing inflation growth, consumption etc. It can be achieved
by the actions which includes interest rate modification, purchasing and selling government
bonds, foreign exchange rate regulation and making changes in the amount which is required by
the banks as the reserves.
In other words, it is the undertaken actions by the central banks of the country in order to control
the supply of money and achieving sustainable economic growth. It is divided into two which is
4