Question

1) Discuss the macroeconomic policies and connect them with one another?

2) how can all policies can be aligned to fine-tune the economy, let us say any dire time like ours?

Answer 1

The three macroeconomic policies that are fiscal policy, monetary policy and supply side policy play a crucial role functioning of an economy.

Fiscal policy deals with government expenditure and taxation (basically revenue). Every government spends in the form of projects and development programs and to facilitate them they raise the money via taxation. So in case there is budget deficit then expenditures are more than revenue and budget surplus means revenues are higher than expenditures.

Monetary policy includes change in money supply and rate of interest. A government can manage inflation and deflation by changing rate of interest which effectively impacts the money supply. So in case it needs to tackle inflation than Central Bank of a nation will increase the rates which will lead to less money for consumption and investment. For tackling deflation it does the opposite.

Supply side policies are policies which are aimed to improve aggregate supply thereby increasing productivity. It deals with FDI norms, direct taxes, competitiveness policies, etc.

So, in a situation like what is been experienced right now a government generally lowers rate of interests as the consumption has already gone down and to facilitate the economy the pump more money along with reducing taxes so to create favorable supply side policies which will inculcate people to work rather than collecting benefits and it will implement public welfare projects like development of medical facilities which ultimately will impact fiscal policy.