Macroeconomic Policies and Economic Growth

Introduction

There are two categories of economic growth that has been defined by scholars and policy makers. The first category is termed as actual growth, which is the ratio between yearly addition in national input and that of actual output expressed as a percentage. A good illustration of actual economic growth can be described in available statistics that are normally released detailing on the growth rates. The second category of economic growth is termed as potential economic growth and this is defined as the pace at which any economy is poised to grow assuming optimum conditions are maintained. It can be calculated by taking the percentage yearly increase in the economic capacity of any country to come up with products and services and dividing it by the rate of yearly increase in prospective output. Both categories of growth are affected by numerous factors which have a bearing to how world economies will be rated against each other (Brue, 2007).

Factors affecting Economic Growth

Potential economic growth of any country can be influenced by two main factors namely, increase in assets which could be in the form of natural resources such as minerals, labor resources which is represented by the number of people who can be able to work and produce more products and services for the country. Assets could also be in the form of capital that the country could be having. Another factor that could influence potential economic growth is an augmentation in the level of efficiency in the way that the resources are utilized. Augmentation could be through development in the level of technology, better labor skills or enhanced organization. Actual growth can also be realized through enhanced rates of entrepreneurship (Brewster, 2004).

Macroeconomic policies affecting Actual and Potential Economic Growth

Macroeconomic policies are necessary for any country as they assist countries in regulating and forecasting economic growth for their countries. The government is able to regulate and keep the necessary checks and balances through macroeconomic policies. It is through macroeconomic policies that governments are able to develop their economies while at the same time achieving their goals (Truger, 2006). The major objectives of introducing macroeconomic policy are for the government to maintain constant economic growth while keeping inflation to low levels, increasing employment levels and raising the living standards of the population. All these results in economic growth in any country. One advantage is that the government is also able to realize a better position in terms of Balance of payment. Macroeconomic policies are a way of government to influence the macro economy, however interference can also affected by some factors that can lead to disastrous outcomes. Examples of these factors are like erroneous economic data. Macroeconomic policies are drafted with the assistance from statistical data, when this data is erroneous, the possibility of macroeconomic policy being negative are highly likely (Baumol, 2008).

The second factor that can affect macroeconomic policy is contradictory policy goals. A policy of enhancing combined demand may reduce unemployment in the short run but may lead to initiation of a duration lof high inflation in the long term. Higher inflation will result in an exacerbation in the current accounts of balance of payment. This is just an illustration to show how clear cut choices have to consider. The other factor that can influence macroeconomic policy is choice of the precise policy instrument. Every macroeconomic goal calls for a particular policy instrument. There is an assumption that each key policy is assigned to a policy instrument. A good example can be illustrated by when interest rates are allocated as the basic instrument for ensuring control of inflation. This is done while fiscal policy instruments are such as reforms to the tax system may be assigned in order to achieve goals such as developing the labor capacity and increasing investment and improve productivity. The third factor that may affect macroeconomic policy is

Vague Time Delay in conducting the policy. Reforms in macroeconomic policy are subject to uncertain time delays such as changes in interest rates (Denison, 2009).

External Shocks: There are unforeseen external shocks to the general health of the economy such as events immediate to the terrorist attacks of September eleventh 2001 or instability in exchange rates. The goals of the government can be altered following a change in commodity prices. The government of the day may tend to undervalue or overstate the potential effect of an economic shock which may result in in the application of either a great deal or a modest of policy response.

Policy decisions may result in changes in either direct opr indirect taxes. It could also lead to an impact on other individual’s disposable incomes. This may also lead to an general effect on the wider economy (Gillespie,2009).

Main policies of within Macroeconomic Policy

Fiscal Policy

  • Fiscal policy entails the utilization of government expenditure, taxation and borrowing to control both the pattern of activities and also the level and increase of combined demand, yield and employment.

Monetary Policy

  • Monetary policy entails the utilization of interest rates to influence the level and speed of growth of combined demand.

The Central Bank of any country or regulating body is tasked with the responsibility of sustaining the integrity and assessment of the currency. The regulating body tracks this goal through utilizing monetary policy. It also involves preserving price stability, as identified by the set inflation aims, as a prerequisite for accomplishing a greater objective of continued economic growth and soaring employment. Monetary policy also includes the outcomes of changes in the exchange rate which is defined as the external worth of a currency against another – on the international economy (Fulton, 2009).

The effects of Monetary and Fiscal Policy on the economy

There are some variations in the economic results of monetary and fiscal policy, on the compilation of output, the efficiency of the two categories of policies in achieving the macroeconomic goals, and also time delays entailed for both fiscal and monetary policy reforms to succeed. We will consider each of these in turn:

In comparison, fiscal policy can be aimed at influencing some certain groups for example an increase in means-tested remuneration designed for individuals from low income families, decreases in the rate of corporation tax for SME’s or investment allowances for comanies in particular areas.

Considering an illustration where the results of utilizing any monetary or fiscal policy to attain a particular augmentation in national income as actual Gross Domestic Product lies lower than potential Gross Domestic Product meaning that there is a negative output gap.

Monetary policy expansion

Lower interest rates often lead to a rise in consumer and business capital expenditures which boosts national income. While investment expenditures lead to a bigger capital stock,potential revenues will also be high.The impact of improved government expenditure is felt almost immediately as spending occurs and cuts in both direct and indirect taxation However, substantial time may pass between the choice to take on a government expenditure program and its execution (Agénor, 2008).

Economic growth between Countries

The difference in growth between countries is attributed to the difference in capacities between capital and other resources such as natural resources been only 174 suspects who have been exonerated and 90% of these cases were not even related to murder at any one point. This is a drop in the ocean when compared to the number of innocent lives that are taken away through acts of murder. Many nations have taken a backseat in upholding the right of its citizens by ignoring the moral duty of defending the rights of its citizens who abide by the law. The nations don’t see this as a priority of defending a human right.

Conclusion

In finishing, I would like to add that it can be conclusively said that handling of criminal offense is crucial in ensuring justice. The process of punishment should be done swiftly in order to ensure that such crimes are not repeated. It has also been shown that murder rates would have even been higher in countries that enforce the death penalty, if they had neglected this mode of punishment in the first place. Death penalty plays a pivotal role in ensuring that such crimes are mitigated or completely eliminated. A life free of such crimes is the aim of all countries in the world.

References

  1. Agénor, C. (2008) The economics of adjustment and growth. London: Oxford Publishers.
  2. Baumol, J. (2008) Economics: Principles and Policy. New York: Cengage Learning.
  3. Brewster, V. (2004) Regional Economics and Policies. London: Sharpe Publishers
  4. Brue, L. (2007) Economics: principles, problems, and policies. London: Sharpe Publishers.
  5. Denison, E. (2009) Accounting for United States economic growth. Perth: OceanView Publishers.
  6. Fulton, G. (2009) Trends in American economic growth. New York: Cengage Learning.
  7. Gillespie, A. (2009) Foundations of Economics. London: Oxford University Press.
  8. Truger, Z. (2006) Money, distribution and economic policy: alternatives to orthodox macroeconomics. Bombay: Warsha Publishers.