Macroeconomic policy instruments
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Macroeconomic policy instruments are macroeconomic quantities that can be directly controlled by an economic policy maker.Euro zone). Fiscal policy is conducted by the executive and legislative branches of the government and deals with managing a nation’s budget.
Monetary policy
Monetary policy instruments are used for managing short-term rates (the
inflation rate) or restrictive for the economy (short-term rates high relative to the inflation rate). Historically, the major objective of monetary policy had been to use these policy instruments to manage or curb domestic inflation. More recently, central bankers have often focused on a second objective: managing economic growth, as both inflation and economic growth
are highly interrelated.
Fiscal policy
Fiscal policy consists in managing the national
GDP growth. Lowering taxes and increasing the budget deficit is considered an expansive fiscal policy that would increase aggregate demand and stimulate the economy
.
History
The classification of some macroeconomic variables as instruments and some others as targets or objectives is originally due to Jan Tinbergen, who used these concepts in his books On the Theory of Economic Policy (1952) and Economic Policy: Principles and Design (1955).[3]