INTERMEDIATE MACROECONOMICS - Essay Example

Intermediate Macroeconomics Intermediate Macroeconomics Chapter 10 The chapter discusses different issues related to the implementation of monetary and fiscal policies. The first policy is the expansionary policy which seeks to expand the money supply through different mechanisms. The author further discusses the problems related to the effectiveness of the expansionary policy that include inconsistency problem, liquidity trap, crowding out and the Ricardian Equivalence. After the expansionary policies, the author discusses the restrictive policies that are used to fight inflation.

Even though, restrictive policies are tools used to prevent or reverse inflation, they also reduce the aggregate demand. Tax-based policies employ tax incentives to encourage compliance with specified wage and price policies. The author then talks business cycles which allow the simultaneous pursuit of the steady price level and high employment policy objectives. Furthermore, the author indicates that the interest rate policies are determined by the macroeconomic coordination process in which a leniency in monetary policy can set off an MCP and lower interest rates, while expansionary fiscal policy can set off an MCP and raise interest rates.

The chapter then discusses the data problems and policy delays which include the recognition lag, implementation lag and the impact lag associated with the implementation of different policies (Ashby, 2009). Chapter 11 Chapter 11 deals with international issues related to the macroeconomic environment through balance of payments, pegged rates and domestic policy and flexible rate and domestic policy. The ratio domestic and foreign currency, in this case, dollar ($) and euro (€) is the exchange rate, that is, the international value of the dollar, stated as the euro cost of a dollar.

A rise in the international exchange value of the dollar (€/$ rises) results in a shift upward along the Dc and Sc lines. A shift upwards along the Dc line (demand for dollars by Europeans) results from a fall in U.S. exports. A shift upward along the Sc line (dollars being supplied to the foreign exchange market) results from an increase in U.S. imports. Hence, an increase in €/$ results in a decrease in aggregate demand. Similarly, a pegged rate system is in which countries are required by international agreements to buy or sell its currency in foreign exchange markets as needed to maintain the exchange value of its currency stable at some agreed-upon (pegged) level which restricts domestic macroeconomic policy alternatives.

On the other hand, in flexible rates and domestic policy aggregate demand will be far more reactive to modifications in interest rate levels. The increased responsiveness of aggregate demand to a change in interest rates will make the monetary policy stronger and deteriorate fiscal policy (Ashby, 2009). Chapter 12 Chapter 12 of this book deals with the development issues which will help countries improve their economy. The author suggests that usage of birth control measures will improve the economy of highly populated, low-income countries.

Similarly, in order to increase a country’s GDY, the country’s yearly production of goods and services need to be increased which needs improved use of the country’s resources such as education. Furthermore, high-income countries can provide support for poor countries by investing in various projects which will boost their economy. Sustaining growth through technological revolutions and innovation is also a significant development issue. Lastly, extralegal real estate referred to as dead capital can help the third world countries by providing them with the resources required to take improve their businesses and have access to resources to take their countries out of poverty (Ashby, 2009).

References Ashby, D. B. (2009). Macro mechanics: macroeconomics re-engineered. E-Book. Retrieved from http://home.teleport.com/~ashbyonline/winter2011intermediatehome.mht