Macroeconomic Policies in the US Essay.
Macroeconomic Policies in the US
Macroeconomic Policies in the US
Macroeconomic policies are particular instruments in economics applied to grip and direct the scope of a market or a system viewing to operate in a large area. It deals with all attributes of the market in terms of tendencies and structural behaviour instead of microeconomics. These policies aim to integrate new standards in a market and ensure the prevalence of the existing ones. These are measures by the government in the view of ensuring the growth and sustainability of the economy. This paper takes on analysing the Policies in the US about the IS-LM-BOP model or Mundell -Fleming and propose viable applications
The IS-LM-BoP model or the Mundel- Fleming model is a standard of evaluation and analysis method that considers the partisan elements to a countries economy in an open market. This model accounts for the balance of goods, financial markets and balance of payments. The elements of analysis in the method are; the IS curve, which shows the equilibrium in the market on demand of goods, identified in exports, consumption, investments and public spending; the LM curve, which shows the connections between the flow of money and liquidity, identified by the equilibrium curve of supply and demand, and the BP curve that shows the balance of payments regarding interest rates and net production in a country, such as exports (Gallego, 2017). With this model, analysis of government macroeconomic policies in a free market can be advanced.
Macroeconomic policies in the US about IS-LM-BOP model
The US is mainly engaged in three forms of macroeconomic policies that have set the bedrock of the American economy through economic issues over time. These are the Fiscal policy, the Monetary policy and the Economic policy, which are discussed further about the IS-LM-BOP model.
Fiscal policy refers to how the government conducts spending and taxation to promote economic growth and sustainability. The elements of this policy are expansionary fiscal policy or contradictory fiscal policy. In this context, the expansionary method is applied and has been for many years, from the great depression to the recent recession in 2007. The expansionary method involves increased government spending and tax cuts to boost the economy(Itsuptous, 2020). Relating the expansionary policy to the IS-LM-BOP model, spending and taxation in the expansionary policy must conform to the balance of payments(Gallego, 2017). This policy should ensure that money circulation does not affect currency exchange rates or devalue the country’s economic capability.
This policy refers to the US Federal reserves and the central bank’s actions regarding money and credit in the economy. This policy includes inflation and the cause effects such as purchasing power and exchange rate prices. The monetary policy employs the standards of a free market that allows for unrestricted transactions and entries(Federal Reserve Education org, 2020). The IS-LM-BOP model directive on this issue dictates that the country should be particularly concerned with the interests rates and supply, drawing on the need to ensure a balance that could not derail the economic progress, such as reduced exchange rate prices which could immensely affect the balance of payments(Gallego, 2017). These measures ensure the economy is sustainable and the market is in equilibrium
The economic policy is a combination of several policies made through constitutional means within the branches of government aimed at implementing economic growth within an organised context. The most relevant US economic policy is the budget. The budget is a joint contribution between the legislative and executive arms. Through the stipulated legislation on spending and taxation, it creates an oversight, that is, the economic policy involved in keeping all bodies in policymaking and implementation compliant. The budget contains several relevant principles with regards to federal programs, changes needed and discretional spending. It offers checks and balances to the economy of the country(UniversalClass.com, 2020). The IS-LM-BOP stipulates that balances should be kept above the equilibrium to ensure surplus In the market, contributing to a reasonable fairing foreign exchange rates, better purchasing power, better interest rates, investments and productivity in the free market economy. (Gallego, 2017)
Policy suggestion and outcomes about IS-LM-BP model
Adopting the IS-LM-BOP model can help create a suitable macroeconomic policy to create a better environment in the free market economy. A policy applied poses a unique limitation that is countered by the other. In this case, using these policies together would take in the strengths each present and Improve on the weaknesses. According to the IS-LM-BOP model, the sustainability of the economy is heavily reliant on its performance regarding equilibrium. Such a unitary policy would involve ensuring the goods demand and supply are balanced, the circulation of money is within the balance of payments and enabling the free flow of investments and capital(Gallego, 2017). With this policy, the government is expected to rip extensive benefits within the free market
The macroeconomic policies implemented in the US are an element that seeks to ensure market stability at all levels of the economy. Without this policy in place, the checks and balances in the country can be unstable and result in economic problems such as the great depression in the 20th century and the recession in 2007. A unitary macroeconomic policy is proposed to ensure continued free-market stability and economic growth in the country.
UniversalClass.com. (2021). An Overview of the U.S. Economic Policy. UniversalClass.com.https://www.universalclass.com/articles/business/understanding-the-us-economic-policy.htm.
Federal Reserve Education Org. (2020). Monetary Policy Basics. https://www.federalreserveeducation.org/about-the-fed/structure-and-functions/monetary-policy.
Itsuptous. (2020). Fiscal Policy: An introduction to the U.S Fiscal Policy. U.S Fiscal Policy: An Introduction to Our Fiscal Policy | 2020. https://www.itsuptous.org/US-fiscal-policy.
Gallego, L. (2017). IS-LM-BP model. Policonomics. https://policonomics.com/is-lm-bp/.