Macro Economic Analysis

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The state of an economy can be judged via the state of its macroeconomic objectives. These macroeconomic objectives are, the maximization of the national income and economic growth; on a primary level and on a secondary level: sustainability, productivity increase, price stability, income and wealth equity, and full employment. In order to achieve these objectives the economy needs to have macroeconomic policies with instruments which will help achieve those objectives. These macroeconomic policies and their instruments are 1. The fiscal policy: This involves all intentional efforts by the government to use changes in government expenditure, government taxation, and government borrowing to influence aggregate expenditure so
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When the government increases its expenditure above taxes there is an effect of a budget deficit and the opposite results in a budget surplus, increased government expenditure stimulates the economy by increasing aggregate expenditure which leads to another increase in production and income increase; these all happen in the primary effect where as in the secondary effect it is believed that as income increases it increases money demand which leads to an increase in interest rates that put a downward pressure on investment and as this happens aggregate expenditure is then decreased but not back to the starting point, the same applies to production, income and prices. But when there is a decrease in government expenditure, the opposite is…show more content…
I think both the fiscal and monetary policy instruments are all effective in steering the economy in their own special kind of way as they all work differently but those that can be regarded more effectively should be those that have a greater impact on the expenditure multiplier, interest responsiveness of the money demand, interest responsiveness of investment and income responsiveness on money demand; and those are increase or decrease in government expenditure and the increase or decrease in money supply.
So both the government should take very cautious steps when dealing with these two policy instruments in order to achieve their desired outcomes or else there may be unwanted results achieved which might hurt the economy by not reaching the set objectives or even making further damage on the current situation like unsustainability, decreased production, increased inflation, inequity in wealth and income, high unemployment rate and increased
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