Question

why it is impossible to talk about the best macroeconomic policy ? (200-300 words)

Answer 1

Macroeconomic policy in a nutshell is stabilizing and inducing economic growth through expenditure changing policies like fiscal and monetary and also exchange rate policy. These policies come with their own pro and cons as there is a sense of uncertainty with these policies and the authorities using the policies try to instill confidence among consumers, investors, and businesses so that they function normally. The result of the policies cannot be predicted in advance and the other problem is to identify which strategy of the policy to use that is to increase or decrease tax by keeping expenditure constant or even changing both. This is also due to the experience from the past crises which has provided mixed results like current COVID shock, which is a supply shock-induced to a demand shock. Based on experience the governments know how to deal with a demand shock but not supply. For instance tax cuts or increasing, government spending is introduced to improve the economy's demand and supply but may be used to pay off debts and government spending may have an implementation lag hence forcing consumers and businesses to take a back seat. Hence there can be no fixed or prescribed best macroeconomic policy.