Macroeconomic and Microeconomic Policy (1 Viewer)

[Bimbo]

Can anyone briefly tell me what the objectives of these are?

 

[-=«MÄLÅÇhïtÊ»=-]

macro policy promotes long term sustained growth with minimal inflation. Plays around with the amount of $$$ flowing in the economy.

micro policy tries to limit prices increasing through structural reform involving resourse allocation. Increased prices leads to inefficiency. I'm using "prices", because as we've learnt in week1 uni micreconomics, prices affects everything =p

 

[gnrlies]

Originally posted by Bimbo
Can anyone briefly tell me what the objectives of these are?

Ok well macroeconomic policy is specifically focussed on the demand side. That is aggregate demand. The two instruments monetary and fiscal policy each have their own different objectives, but in simple terms macro policy is aimed at internal and external balance (internal refering to stable prices and low unemployment ; external refering to sustainable CAD, foreign liabilities and exchange rates).

Generally fiscal policy is used to maintain internal balance and monetary policy is used to maintain external balance, but that thought it really outdated to Australia in 2003. Currently the government does not view external balance as an economic outcome (even though weve had CAD's at around 6% we are still achieving eco growth and our exchange rates have been increaseing which suggests that it isn't a concern) so monetary policy is most effectively used for internal balance to solve problems of unemployment and inflation.

Microeconomic policy is primarily aimed at economic growth. It is a process of making the economy more efficient, so it is really a supply side policy. The advantage of it as an instrument of economic growth over macro-policy is that there are no conflicting factors (like having expansionary policy to increase eco growth but suffer high inflation). But without a doubt the sole factor that has resulted in our strong economic performance of the last 10 years has been through the reforms in the 80's and 90's.

So to sum that up:

Macro = internal and external balance (as per HSC course, not necessarily the case)

Micro = economic growth

Micropolicy is primary concerned with the supply side.

 

[BunJai]

As for macro....... it's basically:
As gnrlies mentioned.....achieve internal + external balances
Internal Balances:
1. Promote sustainable (must have this in exam.....as a former economics student) economic growth at around 3.5%-4% without triggering inflationary nor unemployment problems
2. Keep inflation in the RBA target of 2%-3%.... anything outside of this would trigger stability problems
3. Keep unemployment rate low.... but too low (economic activity rocketing) would trigger inflationary pressures.....
External Balances:
4. Keep CAD stable and not causing any blowouts.... triggered by strong economic growth and deregulations in tariff policies...
5. Stabilise the exchange with no sudden fluctuations like the Asian Financial Crisis in Asia....
6. Keep our level of foreign debt in check.... caused by CAD..

As for micro...
1. Achieve efficient allocation of resources... as a result of tariff reduction.... causing domestic industries to become more efficient in their production in order to compete with foreign competitors.
2. Keep unemployment around the NAIRU range
3. Prove the economy in the long term...

Policies involved:
Monetary - controlled by RBA.... alterations of the interest rate would affect the level of economic activity. increasing IR would slow down the economy...... lowers inflation but increases unemployment..... lowering the IR would increase economic activity....therefore economic growth improves..... unemployment falls but inflation rises.....
Fiscal - our Federal Budget... Expansionary stance would increase economic activity.... but CAD worsens as we had to borrow overseas to finance the costs.......Contractionary stance would decrease economic activity..... but improves CAD

Automatic stabilisers - discretionary stance to eliminate fluctuations in the business cycle...

As from above..... there's some conflicts between each objections and policies applied......

I'm not 100% sure if i'm right or not coz i haven't touched economics since my HSC!