3.3.8  Macroeconomic Management and the Role of Central Banks

 (This is a current extract from the Patterns of Power Repository.  An archived copy of this page is held at http://www.patternsofpower.org/edition02/338.htm)

Macroeconomic policies are those that affect the economy as a whole.  In the words of Samuelson and Nordhaus:

“Thanks to Keynes and his modern successors, we know that in its choice of macroeconomic policies – those affecting the money supply, taxes, and government spending – a nation can speed or slow its economic growth, trim the excesses of price inflation or unemployment from business cycles, or curb large trade surpluses or deficits.”[1]

This definition of macroeconomics is useful, irrespective of whether one agrees with all of Keynes's recommendations.  Macroeconomics is a contested subject.  It is not possible to precisely calculate the impact of policy decisions: there are doubts about the accuracy of both current and historical data, there are disagreements about their interpretation, and the world is continually changing – which makes forecasting difficult.  Difficult judgements have to be made in choosing the best policy:

·      Managing government spending, taxation and borrowing (3.3.8.1);

·      Responding to the economic cycle (3.3.8.2);

·      Inflation (3.3.8.3);

·      Balance of trade and currency exchange rates (3.3.8.4).

© PatternsofPower.org, 2014



[1] Samuelson and Nordhaus, Economics, chap. 21, p.381.