Macroeconomics and Fiscal Policy

Study Notes

Study of economy-wide phenomena, such as:
- GDP (Gross Domestic Product)
- Inflation
- Unemployment
- Economic growth
- Business cycles
Macroeconomists focus on understanding the behavior of aggregate variables, such as:
- Aggregate demand and supply
- National income and output
- Price level and inflation rate

Use of government spending and taxation to influence the overall level of economic activity
Tools:
- Government expenditures (G)
- Taxation (T)
- Transfer payments (e.g. social security benefits)
Fiscal policy goals:
- Stabilize economy during recessions or booms
- Achieve full employment
- Reduce poverty and inequality
- Promote economic growth
Fiscal policy types:
- Expansionary fiscal policy: increase G, decrease T to stimulate economy
- Contractionary fiscal policy: decrease G, increase T to slow down economy

Use of money supply and interest rates to influence economic activity
Conducted by central banks (e.g. Federal Reserve in the US)
Tools:
- Open market operations (buying or selling government bonds)
- Reserve requirements (regulating banks' reserve levels)
- Discount rate (interest rate on loans to banks)
Monetary policy goals:
- Control inflation
- Maintain economic growth
- Stabilize financial system
- Achieve low unemployment
Monetary policy types:
- Expansionary monetary policy: increase money supply, lower interest rates to stimulate economy
- Contractionary monetary policy: decrease money supply, raise interest rates to slow down economy

Examines economy-wide phenomena, including:
- GDP (total value of goods and services produced within a country's borders)
- Inflation (rate of change in prices of goods and services)
- Unemployment (number of people unable to find work)
- Economic growth (increase in production of goods and services)
- Business cycles (fluctuations in economic activity)
Focuses on understanding aggregate variables, including:
- Aggregate demand (total amount of goods and services demanded by households, businesses, and government)
- Aggregate supply (total amount of goods and services produced by businesses)
- National income and output (total value of goods and services produced)
- Price level and inflation rate (general level of prices and rate of change)

Utilizes government spending and taxation to influence economic activity
Tools include:
- Government expenditures (federal, state, and local government spending)
- Taxation (levying taxes on individuals and businesses)
- Transfer payments (social security benefits, welfare, etc.)
Goals:
- Stabilize economy during recessions or booms
- Achieve full employment (when all available labor resources are utilized)
- Reduce poverty and inequality
- Promote economic growth
Types:
- Expansionary fiscal policy: increases government spending, cuts taxes to stimulate economy
- Contractionary fiscal policy: decreases government spending, increases taxes to slow down economy

Regulates money supply and interest rates to influence economic activity
Conducted by central banks (e.g., Federal Reserve in the US)
Tools include:
- Open market operations (buying or selling government bonds to increase or decrease money supply)
- Reserve requirements (regulating banks' reserve levels to influence lending)
- Discount rate (interest rate on loans to banks)
Goals:
- Control inflation
- Maintain economic growth
- Stabilize financial system
- Achieve low unemployment
Types:
- Expansionary monetary policy: increases money supply, lowers interest rates to stimulate economy
- Contractionary monetary policy: decreases money supply, raises interest rates to slow down economy