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Macro Economics Policy

 Macro Economics Policy


“Macro economic strategy implies that government does such things as slow down or speed up the growth rate of the money supply, raise or cut tax rates and or the level of government spending and impose or withdraw controls on prices and wages.”

Policy Targets and Instruments

The strategy targets the specific values which a government attaches to its various objectives:

  1. To accomplish full employment rate of 6 percent redundancy

  2. To accomplish price stability at an annual inflation rate of 10 percent per annum and

  3. To attain the growth rate of 10 percent per annum for the fiscal system

Therefore the strategy objective of the government targets of the government is 6 percent redundancy rate, 10 percent inflation rate and 10 percent development rate per year.

Alternatively policy instruments are those exogenous variables that can be directly prejudiced by the government. The government can over power macroeconomics policies by such instruments of fiscal strategy as bank rate, variations in reserve ratios, open market operations, selective credit controls etc.

Likewise, it can use such financial system instruments as tax rates, budgetary strategy, compensatory economic policy etc.

Purpose of Macro Economic Policy

  1. Full Employment
    1. Full employment has been graded in the middle of the foremost goals of fiscal strategy. But there is no harmony of the opinions on the meaning of full employment.
    1. The classical economists always believed in the subsistence of full employment in the fiscal system was to mechanically offer full employment was a normal condition and they and any deviation from this was considered as something abnormal.
    1. As per Pigou, the inclination of the fiscal system was to mechanically offer full employment in the labour market.
    1. Redundancy consequents from the inflexibility in the wage structure and meddling in the functioning of the market system in the form of trade union legislation, minimum wage legislation etc.
    1. Full employment subsisted when everyone who at the running rate of remuneration wishes to be employed.
    1. Those of whom who are not ready to work at the subsisting remuneration rate are not redundant in the Pigovian sense for the reason that they are willingly redundant.
    1. There is nevertheless no feasibility of unwilling redundant in the sense that people are prepared to work however they do not find job.
    1. But this classical view on full employment is consistent with some quantity of frictional, willingness seasonal or structural redundancy.
  1. Price Stability
    1. One of the strategy aims of fiscal and economic strategy is to stabilise the price level. Both economists and laymen likes this strategy for the reason that variations in prices bring unconventional and unsteadiness to the financial system.
    1. Enhancing and dropping prices are both bad for the reason that they fetch unwanted loss to some and undue merit to others. Again they are related with trade cycles.
    1. Hence a policy of price stability keeps the value of money stable, avoids cyclical fluctuations fetches fiscal stability assists in decreasing discrimination of earnings and prosperity, protects social justice and promotes monetary welfare.
    1. Nevertheless there are definite complexities in continuing a strategy of stable price level. The first difficulty associates to the kind of price level to be stabilised.
    1. Must the associative price or common price level be stabilised the wholesale or retail of consumer goods or producer goods, there is no definite criterion with regard to the preference of a price level.
    1. Next, discoveries may diminish the cost of production but a strategy of constant prices may bring huger profits to manufacturers at the cost of consumers and remuneration earners.
    1. Yet again an open economy which imports raw materials and other by products at high prices the cost of manufacturing of home goods will increase.
    1. But a strategy of constant prices will diminish profits and hold back additional investment. Under these situations a strategy of stable prices is not only unjust but also disagrees with fiscal development.
    1. Despite these disadvantages the majority of economists would like a strategy of stable prices. However the problem is one of defining price stability.
    1. Price stability does not imply that prices stay unaffected indefinitely. Comparative prices will vary as varying tests amend the composition of demand as innovative commodities are developed and as cost diminishing technologies are commencing.
    1. Degree of difference price variations is required for assigning resources in the market economy.
    1. Since modern economists are likely to exhibit fairly unbending downward rigidity of prices.

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