The Role of Economic Policy

How does macroeconomic policy fit to the picture? Even though. the economic environment in the United States was favorable in the 1990s, there were still heated debates about macroeconomic policies. A major debate in the United States surrounded the large projected budget surplus. Democrats wanted to devote the funds to social security and health care, in effect keeping the funds for federal programs. Republicans favored cutting taxes and expenditures and reducing the size of the federal government.

How can macroeconomics contribute to resolving this debate? Economists’can provident scientific answer on the correct use of the budget surplus because it involves nominative issues of social and political values. But macroeconomists can analyze positive questions of macroeconomic impacts. Macroeconomists estimate the impact of cutting tax rates on tax revenues and the budget deficit; they attempt to determine the extent to which setting aside funds for future retirement programs will affect national saving and investment; and they help weigh the relative advantages of investing in people versus building new factories. -While answers to these macroeconomic questions cannot resolve all the issues. the study of macroeconomics arms us for the great debate.

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