Macroeconomics: Fiscal Policy
Fiscal policy is actions taken by federal and state governments to accomplish varying means of making specific groups of citizens' lives better. Everyone in society wants to improve it. The trouble is deciding how and where to make improvements. What makes good fiscal policy is when it helps only me, and anything that doesn't is, therefore, a bad policy! Depending on whether you benefit directly or what the political forces tell you often decides good from bad policies. With a good fiscal policy, there are spillover benefits for everyone in a country. The problem is they are just in areas that are hard to notice.
The market is here to provide solutions to people's needs and problems, but not every solution gets the job done adequately. This is where government steps in to correct market failures, such as providing free public education and healthcare assistance. To do this, governments must rob their citizens of their hard-earned money and give it to, in some cases, people who desperately need healthcare. We'll discuss all these topics in more detail and with recent data points, like in the pie chart below which shows sources of the United States federal government tax revenue.
Fig. 3 - The United States Tax Revenue 2021. Source: Datalab1
Macroeconomics: Monetary Policy
Have you ever heard about the mystical invisible hand that controls the market? Well, the witches and warlocks at the Federal Reserve (commonly referred to as "the Fed") use economic magic to keep the economy in balance. They have sworn a sacred oath to do their best for the long-run economy, even if its short-run effects appear bad. The economy is like an unstable tall tower, swaying from recession on one side to run-away inflation on the other.
The Fed can alter the amount of money flowing through an economy with of flick of its wand, manipulating interest rates, money supply, and the exchange rate. This is shown on the graph below where the market for loanable funds is at point A, and the money supply is represented by S1. The Fed deems it necessary to spur investment, so they work their money printing magic by buying bonds, increasing the total money available (from S1 to S2) in the economy.
Fig. 4 - Federal Reserve increases money supply to grow the economy
Macroeconomics: Unemployment
If you are reading this to prepare for your college classes, or if not, then this section may be crucial. Finding a job can be an excruciating nightmare full of misery. Why is it like this? Many factors affect the number of available jobs. Did you know that the minimum wage reduces the number of jobs available? Surely, now you'll be happy to work once the minimum wage is out of the way! While it's true the minimum wage restricts the number of available jobs, it doesn't mean the minimum wage should be removed. Did you know there are several types of unemployment, and not having a job doesn't actually make you unemployed? People who are not employed, nor seeking a job, are considering non-labor force participants. Ya hear that one, dad? Get off my back! I'm not unemployed; I'm a non-labor force participant.
Fig. 5 - USA Unemployment rate 2012-2021. Source: Bureau of Labor Statistics2
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Macroeconomics Revision Guide
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Macroeconomics Summaries
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Macroeconomics Flashcards
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