(This is an archived page, from the Patterns of Power Edition 3 book. Current versions are at book contents).
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. Since the 1980s, for example, monetarism has been preferred to the Keynesian approach of using tax and government spending to control inflation. 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 with a stimulus (3.3.8.2);
· Inflation, monetarism and the role of central banks (3.3.8.3);
· Balance of trade and currency exchange rates (3.3.8.4);
· Macroeconomic policy can affect the balance of power between the major economic actors (3.3.8.5).