Macro Economic Policy Essay

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CHAPTER THREE 3. OVERVIEW OF GOVERNMENT EXPENDITURE AND ETHIOPIAN TRENDS 3.1 Types and Classification of Government Expenditure The economy of a country is greatly influenced by the level of government or by the amount of government expenditure. It is one of the main processes by which the welfare of the people is ensured and it is a vital aspect of a government’s budget. It is an important tool in the hands of government that can be utilized for the maximization of public satisfaction. Again, it helps in overcoming the inefficiencies of the market system in the allocation of economic resources. It also helps in smoothing out cyclical fluctuations in the economy and ensures a high level of employment and price stability. In 19th Century governments follow laissez faire economic policies & limit their role only to defending aggression and maintaining law and order. The size of government expenditure was very small during those days. It was in the early 20th Century that John Maynard Keynes came with the idea of advocating the role of government expenditure in determining the level and distribution of income. Classification of…show more content…
National income, money supply, unemployment rate, growth rate, inflation, interest rate, etc are some of the aggregate indicators. In short, macroeconomic policy can be understood as policy framed to meet the macro goals. There are two main regulatory macroeconomic policies mostly impolyed by governments of every country. They are fiscal policy and monetary policy. Monetary policy takes care of changes in money supply or changes with the parameters that affects the supply of money in an economy while fiscal policy is a tool used by the government to make changes in government spending or tax with the intention of promoting

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