Macroeconomic policy – What it is, definition and concept

Macroeconomic policy is that set of provisions aimed at managing inflation, unemployment, economic growth or the exchange rate; in addition to establishing the trade policies of a particular country.

In other words, macroeconomic policy is the one that focuses mainly on controlling prices, promoting economic growth and promoting job creation. It is also responsible for setting barriers or opening trade with other countries.

We must point out, in this sense, that macroeconomic policy includes a wide range of measures that can be taken by different government agencies.

It is also important to emphasize that macroeconomic policy, unlike microeconomic policy, does not focus on a single sector or specific market, but on an aggregate or macroeconomic variable.

For example, the well-known Gross Domestic Product (GDP), which is how we usually measure production in an economy and economic growth, is an aggregate variable because it considers the set or aggregation, in this case, of all the individual producers of a economy.

It should be noted that macroeconomic policies respond to a certain objective. For example, if it seeks to control the rise in prices, the monetary authority could increase the reference interest rate to curb the growth of credit and liquidity in national currency (This is what is known as restrictive monetary policy).

Types of macroeconomic policy

Some types of macroeconomic policy are:

  • Monetary politics: It is that policy directed by the central bank or monetary authority of each country. This, mainly to control inflation, that is, seeks price stability. Another variable in which it also influences is the exchange rate (between national and foreign currency). It usually uses instruments such as the reference interest rate or the reserve requirement rate.
  • Fiscal policy: It is the one that is exercised mainly through the administration of State resources, defining how they are going to be used, and whether or not it is going to increase public spending. Likewise, it manages the collection of taxes, defining the tax rates.
  • exchange policy: These are the actions carried out by governments with respect to the exchange rate. For example, establish a flexible exchange rate. It is a part of monetary policy.
  • commercial policy: It is the set of regulations that determines how the economic relations between local companies or individuals and foreign agents will be developed. This, through measures such as, for example, tariffs. These are taxes on foreign trade operations, normally on imports.
  • Measures to promote employment: The Government can establish policies to encourage the generation of jobs, for example, job fairs where employers and currently unemployed youth can meet.
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Example of macroeconomic policy

An example of macroeconomic policy could be a reform of the tax system. This, so that more taxes can be collected and thus the State would have more resources.

To achieve this goal, the only alternative is not to increase tax rates. On the other hand, the tax base can be expanded, that is, the number of people (individuals or legal entities) that are subject to the payment of a certain tax. For example, if before only people who earned more than 40,000 pesos per year paid income tax, now those who earn more than 38,000 per year will do so.

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