Macroeconomics And Monetary Policy


Macroeconomics and monetary policy have proved the two important strategies or tools that are utilized by the government policy makers to optimize the employment in an economy. These tools are also exercised for the sake of minimizing inflation and improving the overall standard of living of the people every year. However these techniques are not considered as an exact science to flourish the economy but these tools have become the central point of the government economic policies since the year of 1930.

What is called Macroeconomics?

It relates to the study of an economy and it is a theory that checks that how the national income moves in an economy. It is used to forecast the true national economic signs like inflation, gross national product and the rate of unemployment. Economists utilize the diverse and different calculating models and the computer replications to estimate these different indicators. These estimates are being provided to the government policy planners so that they could get help from these estimations in their decision making. It would help them how to push an economy.

What is called Monetary Policy?

This policy is based on the rules and the methods that are utilized by the government or money related authorities to have a check on the supply of money. When we talk about US, we come to know that their monetary authority is the Federal Reserve Board and the basic variable that is used to keep check on the supply of money is the interest rate. In a situation, when this board decreases the interest rate, the supply of money increases ultimately. Interest rate is actually known as the cost of the capital and with the low interest rate, the cost of capital also remains low. So when it happens, this situation gives birth to the rise in the supply of money. On the other hand, when rate gets rise then the situation gets opposite to it.

What are the applications?

The two policies macroeconomics policy and the monetary policy work side by side to assist the government officials. The policy making authorities take decisions on the basis of these policies and plan that how to expand the economy. Economists are the persons who use econometric policies to predict that how an economy will react to different interest rates.

What are the Economic benefits?

Capital is regarded as the life blood of the entrepreneurs of a society and the entrepreneurs are considered the life blood of the economic expansion. So monetary policies help in guiding the cost of capital of an economy and the macroeconomics help the monetary policies planners to take the appropriate and the best possible decision.

What are the Considerations?

Principles of monetary policies and the macroeconomics theory are not the true sciences. It is actually a guessing game where predictions are made. A lot of variables are needed to consider, if you want to apply it as an exact science. The prominent variable is the economic shocks. It can be a natural phenomenon or it can be a terrorist attack. These events have power to destabilize an economy fully.


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