The purpose of macroeconomic policies is to keep the country's economy operating at a steady pace so it can maintain its standard of living. The term “macro” refers to the overall scope, including national scope. So macro policy encompasses national scope, national economies, and the countries involved. In broad terms, the topic also covers the financial policies of a country.
The major effects of macro policies occur on a national level. For instance, when tax rates are increased, savings and investment are lost. The same is true for government spending. When government agencies are reduced, employment is affected, interest rates rise, and trade flows decrease. In all cases, macro policies have adverse effects on the domestic economy.
On the other hand, macro policies can have positive effects on the domestic economy. For instance, when unemployment is too low and inflation is low, then the central bank can use its printing power to make purchases, thereby lowering the cost of goods and services for consumers. The central bank can also loosen its fiscal policy, which lowers the cost of borrowing money by businesses. These beneficial effects of macro policies occur because the supply of money falls and the demand for it increases.
All these factors have important domestic and international implications. On a national level, a low-rate policy encourages saving, which leads to more investment and employment generation. Thus, in the long run, such a measure results in more employment generation and more investment, both of which contribute to macro policy stability. At the global level, a flexible monetary policy facilitates international capital mobility, which reduces the barrier to economic growth. This can potentially boost global economic growth by putting pressure on currencies of other countries, especially the major ones like the U.S. dollar, which depresses growth in emerging markets.
At the political level, macro policies can either support or undermine freedom. When they are introduced in an economy through a coordinated effort from the central and local governments, the freedoms of citizens are protected against encroachment by some extra-regulatory measures. However, when they are implemented in the market through the direct intervention of the central bank, it usually results in competitive disadvantages for certain firms, which may have been protecting themselves against excessive competition due to lower barriers to entry.
A key decision maker in any economy needs to understand the relationship between macro policies and the growth of the economy. More importantly, this decision maker must be aware of how each measure affects various aspects of the process. A central bank can use interest rates to control inflation. However, it cannot base its actions on arbitrary principles, . . . . . . such as price stability. In addition, central banks have to balance their efforts with respect to the limits of their powers.