Discuss the principal instruments used to achieve the object of Macroeconomic Policy?

The Macroeconomic policy is made up of two main instruments, which are the Fiscal policy and the monetary policy. The instruments of policy that are used are there to regulate the economy. They are designed in such a way so that they are able to give the government a level of control of the behaviour of the economy. When markets have failed this will give the government reason to intervene. Once the government have decided …

…on the macroeconomy have already been discussed on the previous pages, but it is also important to consider the effects at a micro level. If interest rates are cut then this should increase the level of investment, but by how much? The amount by which investment increases depends on the interest elasticity of demand for investment. If investment is interest elastic then there will be a large increase in investment following an interest rate cut.