Macroeconomic Policies or Instruments

To provide a stable economic environment is the goal of Macroeconomic

Policy/Instruments. There are three kinds of policies namely Fiscal Policy, Monetary
Policy, and International Trade Practices and Policies.

Fiscal policy is the use of government spending and tax policies to influence
economic conditions such as aggregate demand for goods and services, employment,
inflation, and economic growth. This policy is based on the ideas of John Maynard
Keynes, a British economist, he argued that deficiency in the consumer spending and
aggregate demand in business investment components causes the economic recessions
to which he believed that governments are able to stabilize the business cycle and
regulate economic output through adjusting and managing rationally the spending and
tax policies. The government handles this policy wherein its tools such as changing
the levels of taxation and government spending are managed by the government to
influence the economy. There are two types of Fiscal Policy: Expansionary and
Contractionary fiscal policies.

In Expansionary Policy, the government seek economic expansion especially

when an economy is experiencing a recession. The government issue is to increase
aggregate demand and fuel economic growth like increasing its spending like building
more highways. By building more highways, this could also increase employment in
the economy.

In Contraction Policy, it is used when there is an inflation and other

expansionary symptoms. In cases like this, the government uses this policy in order to
restore balance to the economic cycle by increasing taxes, reducing public spending,
or cutting public-sector pay or jobs.

Another kind of macroeconomic policy is the Monetary Policy. The quantity

of money in the economy and the channels where new money is supplies is being
controlled by this policy. This policy aims to promote sustainable economic growth
by controlling the overall supply of money that is available to the nation's banks,
consumers and business, in which the nation's central bank is set to be the proprietor.
In managing the money supply, factors such as inflation, consumption rate, economic
growth, and overall liquidity are being influence by the central bank. Monetary Policy
has also two types to be considered: Expansionary Monetary Policy, and
Contractionary Monetary Policy.

In Expansionary Monetary Policy, the monetary authority can select for an

expansionary policy to increase economic growth and expansion of economic activity
especially when there is a slowdown or recession in economy. Lowering the interest
rates, increasing the money supply in the market can be done in this policy.

In Contractionary Monetary Policy, the interest rates increases to slow down

the growth of the money supply and lower the inflation. This policy can slow the
economic growth and increase unemployment but this can be done if the economy
needs to cool down and monitor the prices.
 The International Trade Policy is determined by international economic
organizations to uphold the best interests for developed and developing countries'
economies and financial growth. This trade allows countries to expand their markets
and access goods and services that may not been available domestically. The
existence of international trade made the market even more competitive. However,
this trade is the key for the rise of the global economy. This is where imports and
exports are being executed in the market. International Trade increases the efficiency
and also allows the countries to participate in global economy to which the economies
grow more efficiently and become competitive economic participants more easily.
This can also give opportunity to other countries to be exposed to goods and services
that were not available to their county. However, there are some arguments that
international trade can be bad especially to smaller nations by putting them at a
greater disadvantage on the world market.