Functions of the economy are determined by the level of variable factors of macro economy and the time taken.
There is a number of macro – economic variables in an economy.
Production
Rate of employment
Price level
Consumption
The level of macro – economic variable factors and how they change with time are determined by internal & external factors.
When macro – economic variable factors do not change in a positive manner the economy will not function well.
Macro economic Problems
The problems arising as a result of the economic activities in the entire economy are called macro economic problems.
Ex:
Unemployment
Increase in inflation
Declining foreign exchange rates
These problems can be solved by bringing macro economic variable factors to a favourable position.
Macro economic Management
Managing the economy towards achieving macro economic objectives is known as macro economic management.
Macro economic Policies
All the activities of macro – economic management are known as macro economic policies.
Ex:
Monetary policy
Fiscal policy
International trade policy
Fiscal Policy
Influencing macro economic variables through the control of government revenue and expenditure is called fiscal policy.
Main instruments of fiscal policy:
Taxation
Government expenditure
Government debt
Demand Management Policy
As the fiscal policy influences aggregate demand, fiscal and monetary policies are known as demand management policy.
It is difficult to achieve all the macro economic objectives at the same time as conflicts between these objectives may arise when different measures are taken to achieve them . Therefore, attention has to be paid to minimize reasons that lead to such problems.
So it is important to put the fiscal policy in a way to ensure that these conflicts are minimized.
