3.3.8 Macroeconomic Management

Macroeconomic policies are those that affect the economy as a whole.  Samuelson and Nordhaus, in chapter 21 of Economics, explain both the scope and importance of macroeconomics:

“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.” [p. 381]

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 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).

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