Macroeconomic Policy

Abstract

Previous chapters have focused on those aspects of economic behaviour which help to explain the functioning of the economy that is relevant to macroeconomic policy-making. The nature of economic policy-making considered in this chapter is macroeconomic in character although, in practice, the distinction between macro- and microeconomics becomes blurred. We distinguish between stabilisation policy which concerns the use of fiscal and monetary policies in the determination of output, prices, the balance of payments and associated economic variables, and industrial policies. The latter deal with the structure of the economy and have particular significance for the rate of economic growth in the long run. This chapter is concerned with stabilisation policy and the discussion of industrial policy will be taken up in Chapter 8. The application of industrial policies involves questions of social organisation which are conveniently discussed separately, and are important in determining the limits of government intervention in industrial affairs.