MacroeconomicsI_working_version (1)

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Chapter 10
Macroeconomic policy represents a crucial and powerful instrument for influencing the
national economy. The way, how macroeconomic policy is designed and conducted, is a
cardinal determinant of country’s living standards. The classical economists, influential in
nineteenth and at the beginning of twentieth century paid a small attention on how to
stabilise economy in the time of crisis. They actually didn’t believe in positive impacts of
some governmental policy on a national economy. It was a pioneering theory by John
Maynard Keynes, which helped to understand the forces causing economic fluctuations in a
country. The works of Keynes and his successors suggested how to use macroeconomic
policies (influencing government spending, money stock, redistribution of national income
etc.) to smooth out the business cycle (economic fluctuations) and thus control
development of unemployment, inflation, trade balance and other main economic variables
in a country.
If we want to examine the economic performance, we must set the proper macroeconomic
indicators showing the objective results. In terms of evaluation of an overall performance in
the national economy we set the key indicators such as gross domestic product (GDP), the
unemployment rate, rate of inflation, and net exports. We use these indicators also as
measures judging the efficiency of a selected macroeconomic policy.
Table 11.1 includes the main goals and instruments of macroeconomic policy.
There are four areas of an economy examining by the economists to evaluate the success of
an economy’s overall performance: aggregate output, employment, price stability, and
international trade:
OBJECTIVES
Aggregate output:
High level
Sustainable growth rate
INSTRUMENTS
Fiscal policy:
Government expenditures
Taxation
Employment:
High level of employment
Low involuntary unemployment
Price level stability
under free markets
Monetary policy:
Control of money supply
affecting interest rates
Foreign economics:
Trade policies
Exchange-rate interventions
International trade:
Incomes policies:
Export and import equilibrium Controlling the wage-price setting process
Exchange-rate stability
Table 11.1 Goals (objectives) and instruments of macroeconomic policy. The left-hand column includes
the list of the main goals of macroeconomic policy. The major instruments or policies affecting economic
performance of a country are listed in the right-hand column.