Macro Economics Policy

Definition
“Macro economic strategy implies that government does such things as slow down or speed up
the growth rate of the money supply, raise or cut tax rates and or the level of government
spending and impose or withdraw controls on prices and wages.”

Policy Targets and Instruments

The strategy targets the specific values which a government attaches to its various objectives:

1. To accomplish full employment rate of 6 percent redundancy

2. To accomplish price stability at an annual inflation rate of 10 percent per annum and

3. To attain the growth rate of 10 percent per annum for the fiscal system

Therefore the strategy objective of the government targets of the government is 6 percent
redundancy rate, 10 percent inflation rate and 10 percent development rate per year.

Alternatively policy instruments are those exogenous variables that can be directly prejudiced by
the government. The government can over power macroeconomics policies by such instruments
of fiscal strategy as bank rate, variations in reserve ratios, open market operations, selective
credit controls etc.

Likewise, it can use such financial system instruments as tax rates, budgetary strategy,
compensatory economic policy etc.

Purpose of Macro Economic Policy

1. Full Employment

a. Full employment has been graded in the middle of the foremost goals of fiscal
strategy. But there is no harmony of the opinions on the meaning of full
employment.

b. The classical economists always believed in the subsistence of full employment in

the fiscal system was to mechanically offer full employment was a normal
condition and they and any deviation from this was considered as something
abnormal.

c. As per Pigou, the inclination of the fiscal system was to mechanically offer full
employment in the labour market.

d. Redundancy consequents from the inflexibility in the wage structure and

meddling in the functioning of the market system in the form of trade union
legislation, minimum wage legislation etc.
 e. Full employment subsisted when everyone who at the running rate of
remuneration wishes to be employed.

f. Those of whom who are not ready to work at the subsisting remuneration rate are
not redundant in the Pigovian sense for the reason that they are willingly
redundant.

g. There is nevertheless no feasibility of unwilling redundant in the sense that people

are prepared to work however they do not find job.

h. But this classical view on full employment is consistent with some quantity of
frictional, willingness seasonal or structural redundancy.

2. Price Stability

a. One of the strategy aims of fiscal and economic strategy is to stabilise the price
level. Both economists and laymen likes this strategy for the reason that variations
in prices bring unconventional and unsteadiness to the financial system.

b. Enhancing and dropping prices are both bad for the reason that they fetch
unwanted loss to some and undue merit to others. Again they are related with
trade cycles.

c. Hence a policy of price stability keeps the value of money stable, avoids cyclical
fluctuations fetches fiscal stability assists in decreasing discrimination of earnings
and prosperity, protects social justice and promotes monetary welfare.

d. Nevertheless there are definite complexities in continuing a strategy of stable

price level. The first difficulty associates to the kind of price level to be stabilised.

e. Must the associative price or common price level be stabilised the wholesale or
retail of consumer goods or producer goods, there is no definite criterion with
regard to the preference of a price level.

f. Next, discoveries may diminish the cost of production but a strategy of constant
prices may bring huger profits to manufacturers at the cost of consumers and
remuneration earners.

g. Yet again an open economy which imports raw materials and other by products at
high prices the cost of manufacturing of home goods will increase.

h. But a strategy of constant prices will diminish profits and hold back additional
investment. Under these situations a strategy of stable prices is not only unjust but
also disagrees with fiscal development.
 i. Despite these disadvantages the majority of economists would like a strategy of
stable prices. However the problem is one of defining price stability.

j. Price stability does not imply that prices stay unaffected indefinitely. Comparative
prices will vary as varying tests amend the composition of demand as innovative
commodities are developed and as cost diminishing technologies are
commencing.

k. Degree of difference price variations is required for assigning resources in the

market economy.

l. Since modern economists are likely to exhibit fairly unbending downward rigidity
of prices.

3. Balance of Payment

Another purpose of macro economic policy is to sustain symmetry in the balance of

payments. The accomplishment of this goal has been required by the extraordinary
development in the globe trade as against the growth of international liquidity.

It is also identified that insufficiency in the balance of payment will retard the achievement
of other purposes. This is for the reason that an insufficiency in the balance of payments
tends to dimensional outflow of gold.

However it is ambiguous what comprises a contended balance of payments position.

Unambiguously a nation with net debt should be at an excess to repay the debt over a
reasonably short phase of period. Once any debt has been repaid and a sufficient reserve
obtained, a null balance sustained over phase would meet the strategy purpose.

However in practice, a nation whose current reserves of overseas conversion are insufficient
will have to a mild export excess as its balance of payments target.

However when its reserves become contended it will aim at the parity of imports and exports.
This is for the reason that an export excess means that the nation is collecting overseas
conversion and it is manufacturing more than it is consuming. This will tend to low standard
of living of the people.