This theory was unpopular with most Keynesian because of their belief that velocity was unstable and the economy would not return to potential output without help. However, the Monetarism theory relies on the ability to predict the velocity rather than stabilize it. Because Monetarists believed the economy was stable, they viewed the Aggregate supply curve as a steep slope. Another idea Monetarists believed was that the Fed should have a strict set of rules, which they should tie in monetary policies, including one of the most popular: the Money Growth Rule. The Money Growth Rule stated “The Feds should be required to target the growth rate of money so it equals the growth rate of real GDP.” However, Monetarists saw fiscal policy as useless, and believed government should not intervene, because the only thing that comes out of government intervention is interference with the free market.
1999) and as a crucial source for increasing the capital stock of a country (Barro and Sala-i-Martin, 1995). An increase in the level of aggregate export is also a significant policy towards the reinforcement level of economy (Tyler, 1981). The study adopted Structural Vector autoregression (SVAR) method to examine the effect and long run interaction of oil price fluctuation on foreign direct investment (FDI) and economic growth in Nigeria and finds
First, he explains that the so-called “poverty trap” is not the cause of poor nations’ slow or nonexistent growth, despite the claims of foreign aid organizations. Easterly argues instead that bad governments and their interference with their economies may be the reason for many countries’ slow growth. To fix this problem, many aid organizations attempt to assist poor nations by restructuring their economic institutions from the top down. However, Easterly claims that these attempts have shown to be futile time and time again. He argues that this is because restructuring an entire economy from the top down is almost always bound to fail.
aggregate output/income. And another reason-being that, Central bank will attend to bring down inflation by rising interest rate, which will lead to a decline in consumer spending and investment spending. As a result, we will have a recession. On the other hand, Inflation can be damaging to the economic growth since it induces economic agents to divert away their funds from productive activity and productive investment in an attempt to avoid the inflation effects on income (small 1998:37). During inflationary period people get confused and become uncertain about what spend to their money on or where to invest it.
However, this theory cannot take into account the fluctuations of forex rate. Hence, another theory called overshooting model by late Rudiger Dornbuschis was proposed. This theory explains that a currency appreciates more in the short-run than in the long-run. This can take into account the fluctuations of the forex rate. However, predicting the short-run is complicated and this is viewed by economists as a random walk.
The first and foremost aim of the Central Bank is to maintain the inflation level to the minimum. The Quantitative Easing policy is differing and very inflationary since it uses money for both lending and keeping as reserves. Nevertheless the economic policy on the other hand states that the effect of inflation will be good when Quantitative Easing is used, when the economy goes down as it will encourage the economy as a whole initially. But it will create problems in the longer run as the effects of such a simulation will be an extreme challenge to deal with when the economy gradually recovers. Secondly, quantitative easing can lead to a fall in the interest rates in the short term and an increase in the rate of inflation in the longer run, hence causing an instability in the financial system as well as an increase in the interest rates, therefore it is essential for the central banks to keep the interest rates
Fiscal policy generally refers to the empirical role of the government to achieve the macroeconomic goals such as stability of economic growth, full employment, increasing amount of aggregate demand and stability of price level in the market. There are two main instruments of fiscal policy which are adjusting the amount of taxation uses and government expenditure to regulate the aggregate level of economic activity. This policy is based on Keynesian economic fiscal policy should be used to stabilize the level of output and unemployment. Specifically, Keynes believed the government should cut the taxes and raise their government expenditures which called expansionary fiscal policy or deficit budget automatic fiscal policy (if it is from the perspective of business cycle) to overcome the problem of economic recession. The Malaysian government influences the economy by adjusting the amount of taxes, transfer payments and purchasing in transfer policy.
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
Monetary policy is the use of interest rates or control on the money supply by the government or central bank to influence the economy. The Central Bank of every country is the agency which formulates and implements monetary policy on behalf of the government in an attempt to achieve a set of objectives that are expressed in terms of macroeconomic variables such as the achievement of a desired level or rate of growth in real activity, the exchange rate, the price level or inflation, the balance of payment, real output and employment. Monetary policy works through the effects of the cost and availability of loans on real activity, and through this on inflation, and on international capital movements and thus on the exchange rate. Its actions
1. Introduction Macroeconomics is an analysis of a country’s economics structure and performance and the government’s policies in affecting its economic conditions. Economists define macroeconomics as a field of economics that studies the relationship between aggregate variables such as income, purchasing power, price and money. This means macroeconomics examines the function of the economy as a whole system, looking how demand and supply of products, services and resources are determined and factors that influence them. Macroeconomics is concerned primarily with the forecasting of national income, through the analysis of major economic factors that show predictable patterns and trends, and of their influence on one another.