The document provides an overview of macroeconomic policy, discussing its objectives, definitions, and various concepts such as monetary and fiscal policy. It highlights the importance and weaknesses of macroeconomic policy, including its effect on aggregate demand and economic stability. The conclusion emphasizes the need for effective macroeconomic policies to reduce uncertainty and foster economic growth.

1. By Rida Zaman
Macroeconomic
Policy Tools

2. ●Objectives
●Definition
● Basic macroeconomic concepts
● Types of Macro economic Policy
✓ Monetary Policy
✓ Fiscal Policy
✓ Comparison between Monetary and Fiscal Policy
● Features of Macroeconomic Policy
● Effect of Macro economic Policy
● Importance of Macroeconomic Policy
● Weakness of Macroeconomics Policy
● Conclusion
Contents

3. • To understand the meaning of macroeconomics and macroeconomics
concepts
• To understand the meaning of Macroeconomic Policy
• Compare between Monetary and Fiscal Policy
• To understand the Importance and Weakness of Macroeconomics Policy
OBJECTIVES

4. DEFINITION
Macroeconomics is a branch of economics dealing with the
performance, structure, behavior, and decision-making of an
economy as a whole.
Macroeconomics is the branch of economics concerned with large-
scale or general economic factors, such as interest rates and national
productivity

5. Basic Macroeconomics Concept
Macroeconomics encompasses a variety of concepts and variables, but
there are three central topics for macroeconomic research.
Output Microeconomics
Concepts
Unemployment
inflation

6. Basic Macroeconomics concept
Cont’d
In economics output is the quantity of goods or services
produced in a given time period, by a firm, industry, or
country, whether consumed or used for further
production. The concept of national output is essential in
the field of macroeconomics. It is national output that
makes a country rich, not large amounts of money. The
total output of the economy is measured GDP per person.
Output

7. Basic Macroeconomics concept
Cont’d
Unemployment or joblessness is a situation in which the
able bodied people who are looking for a job cannot find a
job. The amount of unemployment in an economy is
measured by the unemployment rate, i.e. the percentage of
workers without jobs in the labor force. The unemployment
rate in the labor force only includes workers actively looking
for jobs. People who are retired, pursuing education, or
discouraged from seeking work by a lack of job prospects
are excluded.
Unemployment:

8. Basic Macroeconomics concept
Cont’d
A general price increase across the entire economy is called inflation.
When prices decrease, there is deflation. Economists measure these
changes in prices with price indexes. Inflation can occur when an
economy becomes overheated and grows too quickly. Similarly, a
declining economy can lead to deflation. Central bankers, who
manage a country's money supply, try to avoid changes in price level
by using monetary policy. Raising interest rates or reducing the
supply of money in an economy will reduce inflation. Inflation can
lead to increased uncertainty and other negative consequences.
Deflation can lower economic output. Central bankers try to stabilize
prices to protect economies from the negative consequences of price
changes.
Inflation

9. Macroeconomic
Policy
Macroeconomic policy is usually implemented through two sets of tools:
Monetary Policy Fiscal Policy

10. Basic Macroeconomics concept
Cont’d
• Both forms of policy are used to stabilize the economy, which
can mean boosting the economy to the level of GDP
consistent with full employment
• Macroeconomic policy focuses on limiting the effects of the
business cycle to achieve the economic goals of price
stability, full employment, and growth.

11. MONETARY POLICY
• Monetary policy is the process by which the monetary authority of a country,
typically the central bank or currency board, controls either the cost of very short-
term borrowing or the monetary base, often targeting an inflation rate or interest
rate to ensure price stability and general trust in the currency.
• Monetary policy is the use of interest rate and other monetary policy instruments
to influence the level aggregate demand. Other monetary instruments includes
money supply and exchange rates.

12. Monetary Policy cont’d
• Central banks implement monetary policy by controlling the money supply
through several mechanisms. Typically, central banks take action by issuing
money to buy bonds (or other assets), which boosts the supply of money and
lowers interest rates, or, in the case of contractionary monetary policy, banks sell
bonds and take money out of circulation. Usually policy is not implemented by
directly targeting the supply of money.
• Central banks continuously shift the money supply to maintain a targeted fixed
interest rate. Some of them allow the interest rate to fluctuate and focus on
targeting inflation rates instead. Central banks generally try to achieve high
output without letting loose monetary policy that create large amounts of
inflation.
• Central banks implement monetary policy by controlling the money supply
through several mechanisms. Typically, central banks take action by issuing
money to buy bonds (or other assets), which boosts the supply of money and
lowers interest rates, or, in the case of contractionary monetary policy, banks sell
bonds and take money out of circulation. Usually policy is not implemented by
directly targeting the supply of money.
• Central banks continuously shift the money supply to maintain a targeted fixed
interest rate. Some of them allow the interest rate to fluctuate and focus on
targeting inflation rates instead. Central banks generally try to achieve high
output without letting loose monetary policy that create large amounts of
inflation.

13. FISCAL POLICY
• Fiscal policy is the use of government spending and taxation to influence the
level of aggregate demand and economic activity.
• Fiscal policy is the use of government revenue and expenditure as instruments to
influence the economy. Examples of such tools are expenditure, taxes, debts.

14. FISCAL POLICY
• A government is capable of directly affecting economic activity in response to
fluctuations in macroeconomic growth via taxation and public spending, a
government can control price inflation, unemployment rates, and interest rate
levels.
• In taxes and expenditure, fiscal policy has for its field of action matters that are
within government’s immediate control. The consequences of such actions are
generally predictable: a decrease in personal taxation for example, will lead to
an increase in consumption, which will in turn have a stimulating effect on the
economy. Similarly, a reduction in the tax burden on the corporate sector will
stimulate investment.

15. Comparison Between Monetary And Fiscal Policy
Monetary Policy Fiscal Policy
Implementatio
n and
Management
Central Bank i.e Monetary
Policy Committee
Federal Government i.e
Legislation and executive
Instruments/Tools
Interest Rates
Money Supply
Exchanges rates
Government Spending
Taxation
Decision making Fast decision making Slow decision making

16. Features of
Macroeconomic
Policy
• A low and predictable inflation rate
• An appropriate real interest rate
• A stable and sustainable fiscal policy
• A competitive and predictable real
exchangerate
• Balance of payment that is regarded as
viable

17. Effect of Macroeconomic Policy
Fiscal policy affects aggregate demand through changes in government
spending and taxation. Those factors influence employment and
household income, which then impact consumer spending and
investment.
Monetary policy impacts the money supply in an economy, which
influences interest rates and the inflation rate. It also impacts business
expansion, net exports, employment, the cost of debt, and the relative
cost of consumption versus saving—all of which directly or indirectly
impact aggregate demand.

18. Importance of
Macroeconomics policy
• It helps us understand the functioning of a complicated modern
economic system.
• It helps to achieve the goal of economic growth, a higher GDP level,
and
• higher level of employment
• It helps to bring stability in price level and analyses
fluctuationsin business activities
• It helps to solve economic problems like poverty, unemployment,
inflation, deflation etc., whose solution is possible at macro level only
(in other words, at the level of the wholeeconomy).

19. Weakness Of Macroeconomic Policy
Inflexibility :
changes in direct taxes may take considerable time to implement and government spending is often inflexible
in a downwards direction; e.g. for political or moral reasons, it is usually difficult to reduce government
spending on pensions and benefits and once a capital project such as a motorway has been started, it is
difficult, if not impossible, to stop it in mid-stream.
Conflicts between objectives :
fiscal policy designed to achieve one goal may adversely impact on another. For example, reflationary fiscal
policy designedto stimulate AD and reduce unemployment may worseninflation

20. Weakness Of Macroeconomic Policy
Time lags:
it may take considerable time, perhaps up to 18 months, for monetary policy measures to influence aggregate demand.
For example, a change in the rate of interest is unlikely to immediately influence consumption and investment plans.
Conflict between policies :
a rise in the rate of interest, for example, designed to reduce inflation may lead to increased unemployment.
Discriminatory impact :
a rise in interest rates may increase business costs (it raises the cost of borrowing) and increase the exchange rate (it
increasesthe demand for the currency) thus making exports more expensive. Such a risemay therefore particularly
discriminate against manufacturing organizationsengaged in exporting, as well as borrowers in general.

21. Conclusion
• Macroeconomics policies include taxes, government spending and borrowing,
exchange rate determinants, and monetary and credit rules.
• The primary goal of effective macroeconomic policies is to reduce uncertainty
and risk in economic decision-making.
• A stable macroeconomic environment enhances prospects for growthand
improved living standards.

22. Sources
• https://tradingeconomics.com/nigeria/unemploym ent-rate
• https://en.wikipedia.org/wiki/List_of_African_coun tries_by_GDP_(PPP)
• https://en.wikipedia.org/wiki/Macroeconomics
• http://www.sanandres.esc.edu.ar/secondary/econ
omics%20packs/macroeconomics/page_55.htm
• http://statisticstimes.com/economy/african- countries-by-gdp.php

23. THANK YOU