Six Debates over Macroeconomic Policy (pdf0
Added on 2021-05-30
4 Pages929 Words272 Views
Surname 1Name Tutor Course Date SIX DEBATES OVER MACROECONOMIC POLICYStabilizing the EconomyPolicy makers need to stabilize their economy because this benefits everyone in theeconomy. Following the principle ‘Rational people think at the margin’ it is evident thateconomists are persons that do their bests in order to achieve their goals. Hence it is importantfor the economy to be stable because this way they can achieve their objectives systematically.With a stable economy, fluctuations are expected. The fluctuations can be looked at as marginalchanges which are a small adjustment to a plan or action. Rational people tend to make changesin regards to what they are doing. Economists will, therefore, be able to make a decision basedon the marginal costs or marginal benefits to one that leads to the achievement of their goals. Also, a stable economy allows one to ‘lean against the wind’. In other words, one will usethe state of the economy to look for demand output and also offer employment. All one needs todo is look at the economy and know where and what the demand is. For example, a country likeKenya is experiencing floods. Many people are not able to get to their jobs because of the floodsaffecting employment situations in many organizations (Walsh 23). With a stable economy, theywill be able to carry on with little employment available that they have until the rains pass. Inthis instance, economists have to adjust to the macro-environment while still keeping afloat.Another example is the 2018 FIFA World Cup that is scheduled to begin from 14th June to 15thJuly. With a stable economy plane, ticket prices to Russia where the event is taking place will
Surname 2not inflate. These benefits everyone since all people will be able to go because the prices will beaffordable. Therefore it is correct to say that a stable economy is very essential.Should Monetary Policy Be Made By Rule Or Discretion?One of the economic principles ‘People Respond to Incentives’ basically states thatpeople tend to act due to a punishment or a reward (incentive). The person’s actions are basedon an incentive. For example, if fuel prices are high then a person with a car will prefer walkingwhen it is a short distance as opposed to driving in order to save on the fuel. Therefore withdiscretion, there can be abuse especially politically. Politicians will tend to act in ways that willfavor them winning in elections because the reward (incentive) is them being in power. Peopleare driven by power and will do anything to be in power thus discretion will allow personsespecially politicians to abuse power (Mankiw 45).In addition, discretion can cause great harm if the Central Bank is incompetent. If theCentral Bank does not have the skills required lay down the macroeconomic policy, they cancause harm to an economy. Instead of an economy that benefits everyone, there will be onewhere prices are inflated and demand in the market is low. Price inflation is a huge problemsince most people follow the principle ‘the cost of something is what you get for it’. When pricesare high the number of people purchasing the product becomes low because people look at thebenefits of purchasing the product. If it is the benefit is not worth the money being spent thenthey are more likely not going to purchase it. This generally affects the economy because there isno profits or returns to the business (Holmgren 45).Discretion also poses a problem if it is in the hand of a bad Central Bank. In this case, thegovernment is unable to provide a market for the people. One of the economist principles is that‘government can improve market outcomes’ but if the Central Bank lays out policies that do not
End of preview
Want to access all the pages? Upload your documents or become a member.