Macroeconomic policy

Macroeconomic policy is concerned with the use of the instruments of fiscal policy and monetary policy to counter the destabilising effects upon the economy of an economic shock such as commodity price surge, a banking panic or the bursting of an housing price bubble. It is about decisions taken in anticipation of, or in response to, a downturn in economic activity, and it is also about decisions concerning the fiscal consolidation measures needed to correct an increase in the budget deficit resulting from such a downturn. The decisions required in both cases concern the selection of instruments and the determination of the magnitude and timing of their application.

Overview

The major influence upon macroeconomic policy is the understanding of the workings of the economic system that has been brought about by the study of macroeconomics, but its conduct tends also to be influenced by political ideologies, by attitudes to public debt, and by reflexive and analytical responses to the outcomes of previous policy applications.

Historical background

Recessions and lesser fluctuations have punctuated the growth of the major economies from time to time since the 18th century. There was no policy response to any of the recessions of the 19th century or before