GOVERNMENT ECONOMIC POLICY

Government Economic Policy

Government Economic Policy

Economy at macro-economic level:

Economic can be described as the study of how the scarce resources are distributed in a society in order to satisfy contradictory interests. Macroeconomics is a branch of economics that studies the economic activities at the collective level.

Money is used a medium of exchange for services and goods in the economy. It is divided into various levels that are based on liquidity. In economics, M1 presents the paper money, coins and checking of accounts that are easily and readily exchangeable. M2 represents checking of accounts plus M1 with the money market accounts and is less in liquidity than M2. (Heikensten, 2000, 10-16)

Monetary policy is one of the important aspects of macroeconomics which deals in with the actions of Federal Reserve systems in order to regulate the supply of money, rates of interests or both. (Heikensten, 1999, 5-17)

Functioning of the economy: macroeconomic view

In any economy, production, employment and economic growth may experience large fluctuation under the influence of both economic policies, as external shocks. (Fischer, 1996, 10-13)

In the following scheme, we will provide an overview of macroeconomics, on one hand, we collect the variables or outcomes, and on the other determinants.

1. Macro-economy - Factors: results or objectives:

- Internal forces of the market - Growth

- External shocks - Inflation

- Macroeconomic Policies - Employment / Unemployment

* Deficit

* External deficit

* Interest rate

* Exchange rate

The variables are the growth objectives of the national product, inflation, unemployment, trade deficit, exchange rate, interest rate. From this group of variables, especially the first three, summarized operation of the economy, and therefore define the economic, measured by the volume of production, its growth, and the number of jobs created and of price stability. Logically, any economy will also aim to a certain balance in their finances and their commercial and financial relations with the rest of the world. (Chari, 2006, 36)

- The different forces that determine or affect macroeconomic outcomes fall or fall into three categories:

The internal forces of the market: population growth, investment spending, technological innovations

2. Market external shocks: wars, weather conditions, natural disasters, political instability (Geraats, 2006, 1-21)

3. The instruments of economic policy, taxation, public expenditure, increase or decrease in the amount of money, interest rate control, rate control

The results achieved by the economy will be the result of the interplay of the three selected macroeconomic previously mentioned.

4. Supply and demand in the macroeconomic performance.

The relationship between the significant macroeconomic variables can be grouped into two broad categories, those that affect aggregate demand and that affect aggregate supply. This division is essential to understand the factors that determine the level of production, prices and employment. (Bernanke, 2004, 12)

5. Aggregate demand components:

Aggregate demand is determined by the total private consumption expenditure, investment, government spending and exports.

Private consumption:

It is the largest component of national product and can be divided into three categories of goods:

* Television durables, car, home

* Perishable food, clothing, etc.

* Transport services, education, communication, health

The income received by the families ...