MACRO - Macroeconomic objectives & policies

Objective - 1. Increase economic growth

Policies the government can use?

• Expansionary fiscal policy

  1. Increase government spending - more job opp. - less unemployment - more income tax revenue/better standard of living

  2. Decrease tax - More disposable income - more purchasing power - better standard of living

• Expansionary monetary policy - decrease interest rates & buy financial assets - more money supply - disposable income - purchasing power

• Supply side policy - tax breaks, subsidies etc.

Objective: 2. Control inflation

Policies the government can use?

• Contractionary fiscal policy - decrease gov spending & increase tax

• Tight monetary policy - increase interest rates & sell financial assets

Objective: 3. Reduce unemployment

Policies the government can use?

• Expansionary fiscal policy

• Loose monetary policy

• Supply side policy

Objective: 4. Manage BOP current A/C

Policies the government can use?

• Impose tariffs & quotas

• Supply side policy - encourage more domestic production

Objective: 5. Environment protection

Policies the government can use?

• Relocate factories

• Charge tax on petrol to encourage public transportation

• Subsidies for renewable energy

Objective: 6. Reduce poverty & inequality

Policies the government can use?

• Expansionary fiscal policy - reduce unemployment

• Government spending on health & education

• Increase min wage

• Loose monetary policy

Conflicts between macro objectives: 1. Economic growth & environmental protection

• When a countries production increases - more factories - more pollution

• When people r rich - use of vehicles & electronics increase - global warming

• Causes depletion of natural resources

Conflicts between macro objectives: 2. Growth & inequality

• Rich people - more capable of earning high income than poor - increase gap of inequality

However,

• Proper mechanisms help reduce inequality - better democracy - improve education etc. - helps reduce inequality

Conflicts between macro objectives: 3. Growth & inflation

• Growth increase - income levels increase - more purchasing power - more AD - demand pull inflation

However,

• If country has enough productive potential to meet AD - inflation will be less

• If growth supported by supply side measure (subsidies etc. - more production) - no inflationary pressure

Conflicts between macro objectives: 4. Unemployment & inflation

When unemployment fall - increase in households income - increase AD - demand pull inflation

Conflicts between macro objectives: 5. Economic growth & BOP current A/C deficit

• Income increase - household & business buy more foreign brands - increase living standard - more imports - worsen BOP current A/C balance

However,

• Production & tech improving - increase exports - better BOP current A/C balance

Conflicts between macro objectives: 6. BOP & inflation

To reduce current A/C deficit - impose tariffs & quotas - import expensive - import inflation

Conflicts between macro objectives: 7. Economic growth & budget balance

• If gov wants to maintain healthy fiscal budget balance - try to reduce expense - increase tax - decrease AD - decrease in GDP

However,

• High econ growth - earn high income tax - help gov maintain healthy balance

• high econ growth - unemployment low - less spending to take care of poor/unemployed