Macroeconomic Policy Tools

Macroeconomic Policy Tools

Monetary and fiscal policies are two tools that are used to manage the economy in attempts to achieve macroeconomic policy goals. Monetary policy is used more frequently to manage the economy because it has a smaller political bias than fiscal policy.

Monetary policy is the management of the nation’s money supply, interest rates, and banking system to promote economic growth, low unemployment, and low inflation.

Fiscal policy is taxing and spending by the government.

Macroeconomic Policy

Part II of this blog focuses on macroeconomic policy.

Macroeconomic policy refers to the government's attempts to promote economic growth, low unemployment, and low inflation through the use of monetary and fiscal policies.  Monetary policy is the central bank's use of the money supply, interest rates, and the loans generated by the banking system to influence the overall level of spending in the economy.  The U.S. central bank is the Federal Reserve System (the Fed).  Fiscal policy is the use of taxation and government spending to influence the overall level of spending in the economy.

Macroeconomic Policy Goals:
* Economic Growth
* Low Unemployment
* Low Inflation

Macroeconomic Policy Tools (to achieve the goals):
* Monetary Policy
* Fiscal Policy