MACROECONOMIC MANAGEMENT

Macroeconomic Management

Macroeconomic Management

Introduction

An economy is the backbone of a country regarding its prosperity. It consists of the labor strength of that country, capital contained in an economy, land resources and the manufacturing, quantity of different products that it can produce, trade, distribution and last but not the least consumption of goods and services by the consumers.

An economy is the outcome of processes that consist of its history, technological evolution, and social organization; furthermore it includes the country's natural resources, geography and its ecological factors. All of these components provide content, context material, and set up a system and parameter in which the whole of the country's economy works (Homer & Sylla, 2005, pp.775-779).

There is a way of measuring economy size of the country. Through GDB (Gross Domestic Product) we can calculate the size of the economy of a country. Conventional Economic analysis of any country depends on the indicators like the Gross Domestic product- GDP and per capita GDP. GDP includes the economic activities in which t he monitory exchange is involved (Macht, 2001, pp. 1240-1243).

Discussion

Growth of the economy is depended on many factors. Primarily the consumer's power to consume good and services affect the most to the growth of the economy. Consumer's spending affects in both ways directly and indirectly to the hypothetical economy. At the moment hypothetical economy is facing recession because of the sustained decrease in consumer's spending. Government changes its different policies to increase the consumer demand. These policies are implemented by making changes in interest rates, government spending, income taxes and indirect taxes (Williamson, 2005, pp. 432-437).

All the policy changes which are made to change the interest rates, government spending, income taxes and indirect taxes in order to increase consumer spending have its advantages and disadvantages. Major advantages and disadvantages which are faced by these changes are thoroughly discussed below.

Interest rates

Interest rate is used to maintain lower inflation rate and stable economic growth. But interest rates can't achieve all the government's economic objectives (Grown & Valodia, 2010, pp. 205-209).

Advantages

Changes in interest rates have its advantages on both the consumers and as economic point of view. Increase in interest rates will encourage the consumers for savings. As because of higher return consumer will be interested in getting more and more interest on their investments, so this way they will start putting their money in bank to get higher returns. In simple words higher interest rates creates advantages for the lender. Because it gives the lender chance to earn more money on high interest rates. A rise in interest rates can reduce pressure of aggregate demand and also decreases the inflation rate. It can evade boom and out of order economic cycle (Victoria, 2001, pp. 140-143).

Similarly lower interest has also its advantages. When government lowers the interest rates it encourages the consumer to consume more than what they consume in higher interest rates. As the will not gain much in savings so they become inclined towards spending ...