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  • Evaluation Tool For Macroeconomic Policies

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    Benjamin Wong
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    The document outlines 7 criteria for evaluating economic policies: 1) Budget, 2) Expectations, 3) Nature of the Economy, 4) Time Period, 5) Root Cause of the Problem, 6) Underlying State of the Economy, and 7) Macroeconomic Trade-Offs. It examines each criterion, providing examples of how different economic conditions may require different policy approaches, such as whether a country has a large or small budget, expectations for growth are strong or poor, the economy is largely domestic or international in nature. It also emphasizes adopting multi-pronged policy approaches to address different timeframes and trade-offs between macroeconomic goals.

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    The document outlines 7 criteria for evaluating economic policies: 1) Budget, 2) Expectations, 3) Nature of the Economy, 4) Time Period, 5) Root Cause of the Problem, 6) Underlying State of the Economy, and 7) Macroeconomic Trade-Offs. It examines each criterion, providing examples of how different economic conditions may require different policy approaches, such as whether a country has a large or small budget, expectations for growth are strong or poor, the economy is largely domestic or international in nature. It also emphasizes adopting multi-pronged policy approaches to address different timeframes and trade-offs between macroeconomic goals.

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    11 views3 pages

    Evaluation Tool For Macroeconomic Policies

    Uploaded by

    Benjamin Wong
    The document outlines 7 criteria for evaluating economic policies: 1) Budget, 2) Expectations, 3) Nature of the Economy, 4) Time Period, 5) Root Cause of the Problem, 6) Underlying State of the Economy, and 7) Macroeconomic Trade-Offs. It examines each criterion, providing examples of how different economic conditions may require different policy approaches, such as whether a country has a large or small budget, expectations for growth are strong or poor, the economy is largely domestic or international in nature. It also emphasizes adopting multi-pronged policy approaches to address different timeframes and trade-offs between macroeconomic goals.

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    of 3

    7 Different Criteria To Evaluate Policies

    (BENTRUM)
    1. Budget (Fiscal & SSP which requires budget vs Monetary
    which doesn’t)
    2. Expectations (Fiscal/SSP which is direct or Monetary
    which is indirect)
    3. Nature of the Economy (Size, openness and level of
    Development)
    4. Time Period: Short-Term/Long Term
    5. Root Cause of Problem
    6. Underlying State of the Economy
    7. Macroeconomic Trade-Offs

    1. Budget
    - Healthy Budget Positions: Able to use the direct method of fiscal
    policy (government spending) and supply side policies
    - Weak Budget Positions: Unable to use the direct method of fiscal
    policy (government spending), must turn to exchange rate policy, interest
    rate policy or market-based supply-side policies instead of increasing
    government spending

    2. Expectations
    - Strong Expectations: Indirect measures of increasing Interest
    Rates/Tax Rates are ineffective, require more direct measures such as
    lowering government spending
    - Poor Expectations: Indirect measures of lowering Interest Rates/Tax
    Rates are ineffective, require more direct measures such as increasing
    government spending
    3. Nature of Economy
    - Large and Less Open Economies: A bigger domestic economy
    would result in fiscal and interest rate policies being more effective
    due to heavy reliance on domestic trade
    - Small and Open Economies: A smaller domestic economy would
    result in exchange rate policies and trade policies being more
    effective due to low reliance on domestic trade and higher reliance on
    international trade
    - Developing Economies: Weak and underdeveloped domestic sectors
    are often reliant on trade and FDI, hence exchange rate or trade policies
    are more effective.

    4. Time
    - Short Run Policies: Fiscal, Interest Rate and Exchange Rate policy
    - Long Run Policies: Supply Sides policies and Free Trade Agreements
    - Multi-Pronged Approach: Long-run policies take a long time and thus,
    should be complemented with short-term policies

    5. Root Cause of the Problem


    - The appropriate policy to be used depends on the root cause of the problem
    - The government might identify the root cause to determine which policy is
    the most appropriate policy to use to achieve their macroeconomic
    objectives
    - Multi-Pronged Approach: A country facing multiple problems should
    use multiple different policies to solve each problem, since one policy
    cannot solve different types of the same problem

    6. Underlying State of the Economy


    - The supply-side effects are not appropriate if the state of the economy is at
    the level of full employment as it will lead to short-term demand-pull
    inflation

    7. Macroeconomic Trade-Offs
    - Multi-Pronged Approach: Policies need to be used in tandem to
    complement each other due to macroeconomic trade-offs
    - Since policies meant to solve one macroeconomic problem can lead to
    another macroeconomic problem occurring, multiple policies should be
    used such that that the country can achieve all its macroeconomic aims.

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