Difficulties in Formulating Macroeconomic Policy :: Economics Policy Making Essays

Difficulties in Formulating Macroeconomic PolicyPolicy makers fork over to influence the behaviour of broad economicaggregates in order to amend the performance of the economy. Themain macroeconomic objectives of policy ar a superior and relativelystable level of employment a stable planetary price level a growinglevel of real income (economic growth) agreement of paymentsequilibrium, and certain distributional aims. This essay will go through what these difficulties atomic number 18 and examine howthese difficulties affect the policy maker when they attempt to build up macroeconomic policy.It is difficult to provide a single decisive factor for policyevaluation as a change in political and/or economic circumstances mayresult in declared objectives beingness changed or reversed. Economists can give advice on the feasibility and desirability ofpolicies designed to attain the ultimate targets, however, theultimate responsibility lies with the policy maker. Policy makers are continually trying to formulate policies that willhelp the economy come through these objectives. However, there arenumerous difficulties which policy makers are faced with.In a democratic society like the UK, the macroeconomic objectives are non under the sole control of the Government. For example, the levelof employment depends on the finales not only of the government(e.g. for employment in the public sector) but likewise of private firmsas to how many workers they wish to employ. Also, membership tointernational organisations (i.e. WTO or EU etc.) means that theinternational regulations and directives essential be adhered to and cannotbe altered. Therefore, the liberty of action of the policy maker isrestricted, as the new policy must function along side existinginternational policies.Most policies are designed against the background of a theoreticalmodel. However, there is no legitimate model and so antithetic policymakers and economists may have different views to cert ain economicvariables. Therefore, each policy maker will formulate differentpolicies based on their views in order to achieve the selfsame(prenominal) objective. For example, Keynesians view that consumption expenditure depends uponcurrent disposable income. Whereas Milton Friedman argued thatconsumption is link to permanent rather than current income. Hewas therefore more atheistical about he usefulness of a value change forstabilisation purposes than one who believes that consumption dependson current disposable income.Policy makers commonly use Fiscal policy to alter the level, timing or opus of government expenditure and/or the level, timing orstructure of tax payments. And they useMonetary policy to alter the supply of money and/or credit and also toalter interest rates.But some policies are not always successful a good example was thedecision to use monetary policy to solve the liquidity trap. Thispolicy aimed to stamp down interest rates and stimulate investment