Macroeconomic Concepts & Policies Session Objectives: l Explain the purposes of macroeconomic policies l Critique the flaws of macroeconomic policy making.

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Presentation transcript:

Macroeconomic Concepts & Policies Session Objectives: l Explain the purposes of macroeconomic policies l Critique the flaws of macroeconomic policy making

Session Agenda l Macroeconomic concepts/objectives l Macroeconomic policies l Critique of macroeconomic policy making l Discussions

Macroeconomics l Macroeconomics studies the determinants of a country’s overall level of economic activity l Overall level of economic activity influences the goods and services available to society, income, and jobs l Macroeconomics also describes policy instruments that government can use to influence those determinants in order to achieve macroeconomic objectives l Output growth with low inflation and high employment are the main objectives l Major policy instruments: fiscal, monetary, FDI, trade, and exchange rate policies

Macroeconomic Objectives l Output growth with low inflation l High employment

Overall Economic Activity l GDP: market exchange value of goods and services produced for final consumption in a given period l National income: wages, rents, interest, profits generated from the current production plus net income from abroad

Determinants of GDP l Consumption l Investment l Government spending

Level of GDP C+I+G GDP (C+I+G)’

Macroeconomic Policy Instruments l Objective: to influence determinants of GDP l Fiscal instruments: government spending and taxes l Monetary instruments: change interest rate l FDI instruments: encourage or discourage FDI l Trade instruments: remove or increase trade barriers l Exchange rate instruments: change the value of currency

Level of GDP C+I+G GDP (C+I+G)’ (C+I+G)’’ Recession Full Emp Inflation

Critique l GDP growth does not automatically lead to equitable distribution of wealth l GDP growth  more jobs if growth is capital intensive l GDP growth conceals the loss of natural resource l Macroeconomic policies & their implementation do not take into account their social and environmental impacts l Macroeconomic policies & their implementation do not take into account the institutional context, which influence the outcomes of these policies