Question

Question 5.

1. Why do macroeconomist require tools to bring forth policies? What are these tools? (10 pt)
2. Why can’t macroeconomist, perform experiments like chemist to test their hypothesis? How do they try to overcome this obstacle? (10 pt)

Answer 1

Answer-1) Macroeconomist policies are often implemented through two sets of tools namely fiscal and monetary policy. Monetary policies are the actions taken by macroeconomist to control the monetary as well as financial status with the goal of attaining low inflation and sustainable growth in the economy. To achieve this the macroeconomist require tools such as the reserve requirements, discount rate, and the open market operations to alter the money supply. Similarly macroeconomists adjust spending with fiscal policy to stimulate production or taxing used to influence and monitor the economy.

Fiscal policy can be used to close the (a) recessionary gap and (b) inflationary gap. Fiscal policy can be used to close the (a) recessionary gap and (b) inflationary gap. Expansionary fiscal policy eliminates the recessionary Gap with an increase in government purchases, decrease in taxes, or both. Contractionary fiscal policy eliminates the inflationary gap and behaves opposite of expansionary fiscal policy with a decrease government purchases, increasing taxes, or both.

As per policy we have to answer first question