Macroeconomics Objectives of Governments Essay Example | Topics and Well Written Essays - 1500 words

Macroeconomics Objectives of Governments - Essay Example This paper offer a comprehensive review of the relative effectiveness of the different tools of macroeconomic policy, adopted by a different country`s governments, in attaining main macroeconomic objectives. The various theories, that suggest priority in utilization of specific tool, often interrelate and are applied by governments primarily to achieve sustainable economic growth. Generally, fiscal policy and monetary policy are used by the government to achieve the macroeconomic objectives. Whereas, fiscal policy is implemented by government through spending and taxation, monetary policy is essentially the responsibility of the central bank, through the controls of interest rates and the supply of currency. Both policies are implemented to reduce inflation rates and joblessness. Whereas, each macroeconomic goals can have repercussions on economic factors if they spiral out of control, a number essentially have a more significant impact on citizens. High rate of joblessness not only translates into lost revenue for the government, but can signify a permanent reduction in an individual’s chances of securing employment through loss of expertise. Low inflation rates is not a big issue, and as long as the citizens are in employment positions with adequate earnings; low rates of inflation will not result in any economic problem. Most people’s earnings, student endowment funds as well as pensions, are modified in line with commodity prices, and therefore, controlling inflation below the 2% level is not a major government concern. (Kiefer 2000). Nonetheless, increases in inflation may reach a point where its side effects reduces international competitiveness, dampens the hope of foreign inward investors, and shifts redistribution of income from savers to borrowers to a point that it is harsh economic impacts turns out to be a key government concern (Nayyar 2011). Fig 2. Aggregate Expenditure According to Jin (2007), a current account shortfall on the balance of payments may be of less significance to government organizations, especially if the capital markets and the national currency are stable. Conversely, this may imply that an economy’s expenditures have stretched past its revenue collection, and at a given point the expenditure will have to be countered by substantial inflows. The United Kingdom, for instance, has massive foreign investments with substantial revenue potential, which may imply the shortfall will be checked if the economic condition is left to take its own course (Fig 2). According to Kiefer (2008), whereas, governments should not attempt to correct current account shortfalls with demand management practices: policies leaning toward supply have shown better results in regard to the restoration of permanent competitiveness of the economy. According to Froud, Moran, Nilsson and Williams (2010), the most controversial of government objectives is the policy of imposing more taxes on the higher-end population and handing it to the lower-end, in order to bridge the gap between the two economic segments. Kiefer (2000), point out that redistributing revenue from the moneyed to the poor via