Macroeconomic Policy Essay

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The main components of macroeconomic policy are monetary and fiscal policy. The main aims of macroeconomic policy are continued economic growth, high employment, stable prices (low inflation), an elevation in average living standards, and a maintainable stance on the balance of payments (Macroeconomics). Practically all governments apply macroeconomic policies to reach policy goals and to improve the workings of the economy. Economic growth is important for reducing poverty levels. Continued growth means the ability to meet the needs of the current generation without burdening future generations with debt (Macroeconomics). Low inflation rates are important because high inflation rates can damage the international competitiveness of a …show more content…
It can be defined as the usage of government spending and taxation to alter the state of the economy (Weil). Fiscal policy is essential to managing the economy since it can affect the total amount of output produced or the gross domestic product. If expenditures are increased and taxes are reduced, people will have higher incomes which requires additional output, and in turn, generates more income and spending. Initial increases in government expenditures or reduction in taxes led to a collective increase in Gross National Product (Pechman). Declines in spending or rises in taxes reduce GNP.
Tax policy, one division of fiscal policy, could lead to tax adjustments that could be used to restrict or stimulate demand and can be used to stabilize inflation. If the government purchases more goods and services, economic activity goes up. If the government cuts taxes, then consumers end up with higher incomes, after taxes are removed. This leads to a boost in spending and economic activity. According to Greg Mankiw from Harvard University, the four goals of tax policy should be efficiency, intergenerational equality, egalitarianism, and stabilization (Mankiw). The tax system should raise enough revenue so that future generations are not burdened with debt. Tax policy should also attempt to establish more equal after-tax incomes. Lastly, tax policy should help the economy maintain a relatively high level of
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