Difficulties in Formulating Macroeconomic Policy :: Economics Policy Making Essays

Difficulties in Formulating Macrostinting PolicyPolicy makers try to fix the behaviour of broad economicaggregates in order to improve the military operation of the economy. Themain macroeconomic objectives of policy are a high and comparativelystable level of employment a stable general charge level a growinglevel of real income (economic growth) balance of paymentsequilibrium, and sealed distributional aims. This essay will go through what these roughies are and attempt howthese difficulties affect the policy maker when they attempt toformulate macroeconomic policy.It is difficult to provide a single decisive factor for policy military rank as a change in political and/or economic circumstances mayresult in declared objectives being changed or reversed. Economists can give advice on the feasibility and desirability ofpolicies designed to hit the ultimate targets, however, theultimate responsibility lies with the policy maker. Policy makers are continually trying to formulate policies that willhelp the economy achieve these objectives. However, at that place arenumerous difficulties which policy makers are faced with.In a democratic society like the UK, the macroeconomic objectives arenot to a lower place the sole control of the Government. For example, the levelof employment depends on the decisions not just now of the government(e.g. for employment in the public sector) but also of underground 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 must be adhered to and cannotbe altered. Therefore, the freedom of work of the policy maker isrestricted, as the new policy must extend along side existinginternational policies.Most policies are designed against the background of a theoretical vex. However, there is no true model and so diametrical policymakers and economists may have different facets to veritable economicvariables . Therefore, each policy maker will formulate differentpolicies based on their views in order to achieve the same objective. For example, Keynesians view that consumption expenditure depends uponcurrent disposable income. Whereas Milton Friedman argued thatconsumption is related to enduring rather than current income. Hewas therefore more sceptical to the highest degree he riding habitfulness of a tax change forstabilisation purposes than oneness who believes that consumption dependson current disposable income.Policy makers usually wont Fiscal policy to alter the level, timing orcomposition of government expenditure and/or the level, timing orstructure of tax payments. And they delectationMonetary policy to alter the supply of money and/or cite and also toalter affair 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 reduce interest rates and stimulate investment