#6: Macroeconomic Policy

1. Fiscal policy - the decisions the government makes in regards to its level of spending and level of tax rates.

The US is running a huge budget deficit for years.
The question becomes do deficits matter?
The US recently implemented a fiscal stimulus to jump start the economy, does this make good fiscal sense?

2. Monetary Policy - Either the rate of the growth of the money supply, or changes in short term interest rates that are engineered by the central bank.
Philosophy - rate cut leads to cheaper money, in which people will borrow, and when most people borrow money, they spend in most cases, and if people spend money, it will stimulate the economy.

As the current economic situation is unfolding, what effect will it have on the stock market, what is the central bank likely to do and what is fiscal policy likely to do as well.

3. Aggregation - Taking an aggregated view of the economy unlike Micro where it was a disaggregated view. Basically there are four agents:
1. Households (or consumers)
2. Businesses (all aggregated together). - Action of one business is unlikely to affect any other agents.
3. Government
4. Foreigners (or rest of the world) which reflects the international economic transactions.

So whatever one of the agents does will affect all the other agents. Micro is a partial general equilibrium analysis. Whereas Macro is a general equilibrium analysis.