Macroeconomic Policy

©2018. The Norrenberger Financial Group.
Norrenberger is an integrated financial services group licensed and regulated by the Central Bank of Nigeria (CBN) and the Securities and Exchange
Commission (SEC).
By :
Ezinne Akuma
MACROECONOMIC POLICY

Commission (SEC).
Our vision and mission
Our vision is to
simplify
wealth
creation
Our mission is
to positively
unlock the
opportunities
in society

Commission (SEC).
Contents
Objectives
Definition
Basic macroeconomic concepts
Types of Macro economic Policy
 Monetary Policy
 Fiscal Policy
 Comparison between Monetary and Fiscal Policy
Features of Macroeconomic Policy
Effect of Macro economic Policy
Importance of Macroeconomic Policy
Weakness of Macroeconomics Policy
Conclusion

Commission (SEC).
Objectives
• To understand the meaning of macroeconomics and macroeconomics concepts
• To understand the meaning of Macroeconomic Policy
• Compare between Monetary and Fiscal Policy
• To understand the Importance and Weakness of Macroeconomics Policy

Commission (SEC).
Definition
• Macroeconomics (from the Greek prefix makro- meaning "large" + economics)
is a branch of economics dealing with the performance, structure, behavior, and
decision-making of an economy as a whole.
• Macroeconomics is the branch of economics concerned with large-scale or
general economic factors, such as interest rates and national productivity

Commission (SEC).
Basic macroeconomics concept
• Macroeconomics encompasses a variety of concepts and variables, but there are
three central topics for macroeconomic research.
Macroeconomics
Concept
Output
InflationUnemployment

Commission (SEC).
Basic Macroeconomics concept Cont’d
• Output: In economics output is the quantity of goods or services produced in a
given time period, by a firm, industry, or country, whether consumed or used for
further production. The concept of national output is essential in the field of
macroeconomics. It is national output that makes a country rich, not large
amounts of money. The total output of the economy is measured GDP per person.
• Unemployment: Unemployment or joblessness is a situation in which the able
bodied people who are looking for a job cannot find a job. The amount of
unemployment in an economy is measured by the unemployment rate, i.e. the
percentage of workers without jobs in the labor force. The unemployment rate in
the labor force only includes workers actively looking for jobs. People who are
retired, pursuing education, or discouraged from seeking work by a lack of job
prospects are excluded.

Commission (SEC).
Basic Macroeconomics concepts Cont’d
• Inflation: A general price increase across the entire economy is called inflation.
When prices decrease, there is deflation. Economists measure these changes in
prices with price indexes. Inflation can occur when an economy becomes
overheated and grows too quickly. Similarly, a declining economy can lead to
deflation. Central bankers, who manage a country's money supply, try to avoid
changes in price level by using monetary policy. Raising interest rates or
reducing the supply of money in an economy will reduce inflation. Inflation can
lead to increased uncertainty and other negative consequences. Deflation can
lower economic output. Central bankers try to stabilize prices to protect
economies from the negative consequences of price changes.

Commission (SEC).
Macroeconomic Policy
• Macroeconomic policy is usually implemented through two
sets of tools:
Monetary Policy
Fiscal Policy

Commission (SEC).
Macroeconomic Policy Cont’d
• Both forms of policy are used to stabilize the economy, which can mean boosting
the economy to the level of GDP consistent with full employment
• Macroeconomic policy focuses on limiting the effects of the business cycle to
achieve the economic goals of price stability, full employment, and growth.

Commission (SEC).
Monetary Policy
• Monetary policy is the process by which the monetary authority of a country,
typically the central bank or currency board, controls either the cost of very
short-term borrowing or the monetary base, often targeting an inflation
rate or interest rate to ensure price stability and general trust in the currency.
• Monetary policy is the use of interest rate and other monetary policy instruments
to influence the level aggregate demand. Other monetary instruments includes
money supply and exchange rates.

Commission (SEC).
Monetary Policy cont’d
• Central banks implement monetary policy by controlling the money supply
through several mechanisms. Typically, central banks take action by issuing
money to buy bonds (or other assets), which boosts the supply of money and
lowers interest rates, or, in the case of contractionary monetary policy, banks sell
bonds and take money out of circulation. Usually policy is not implemented by
directly targeting the supply of money.
• Central banks continuously shift the money supply to maintain a targeted fixed
interest rate. Some of them allow the interest rate to fluctuate and focus on
targeting inflation rates instead. Central banks generally try to achieve high
output without letting loose monetary policy that create large amounts of
inflation.

Commission (SEC).
Fiscal policy
• Fiscal policy is the use of government spending and taxation to influence the
level of aggregate demand and economic activity.
• Fiscal policy is the use of government revenue and expenditure as instruments to
influence the economy. Examples of such tools are expenditure, taxes, debts.

Commission (SEC).
Fiscal Policy cont’d
• A government is capable of directly affecting economic activity in response to
fluctuations in macroeconomic growth via taxation and public spending, a
government can control price inflation, unemployment rates, and interest rate
levels.
• In taxes and expenditure, fiscal policy has for its field of action matters that are
within government’s immediate control. The consequences of such actions are
generally predictable: a decrease in personal taxation for example, will lead to
an increase in consumption, which will in turn have a stimulating effect on the
economy. Similarly, a reduction in the tax burden on the corporate sector will
stimulate investment.

Commission (SEC).
Comparison between Monetary
and fiscal policy
Monetary Policy Fiscal Policy
Implementation and
Management
Central Bank i.e Monetary
Policy Committee
Federal Government i.e
Legislation and executive
Instruments/Tools Interest Rates
Money Supply
Exchanges rates
Government Spending
Taxation
Decision making Fast decision making Slow decision making

Commission (SEC).
Features of Macroeconomic Policy
• A low and predictable inflation rate
• An appropriate real interest rate
• A stable and sustainable fiscal policy
• A competitive and predictable real exchange rate
• Balance of payment that is regarded as viable

Commission (SEC).
Effect of Macroeconomic Policy
• Fiscal policy affects aggregate demand through changes in government spending
and taxation. Those factors influence employment and household income,
which then impact consumer spending and investment.
• Monetary policy impacts the money supply in an economy, which influences
interest rates and the inflation rate. It also impacts business expansion, net
exports, employment, the cost of debt, and the relative cost of consumption
versus saving—all of which directly or indirectly impact aggregate demand.

Commission (SEC).
Importance of Macroeconomics policy
• It helps us understand the functioning of a complicated modern economic
system.
• It helps to achieve the goal of economic growth, a higher GDP level, and
higher level of employment
• It helps to bring stability in price level and analyses fluctuations in
business activities
• It helps to solve economic problems like poverty, unemployment,
inflation, deflation etc., whose solution is possible at macro level only (in
other words, at the level of the whole economy).

Commission (SEC).
Weakness of Macroeconomic policy
• Inflexibility - changes in direct taxes may take considerable time to implement
and government spending is often inflexible in a downwards direction; e.g. for
political or moral reasons, it is usually difficult to reduce government spending
on pensions and benefits and once a capital project such as a motorway has been
started, it is difficult, if not impossible, to stop it in mid-stream.
• Conflicts between objectives - fiscal policy designed to achieve one goal may
adversely impact on another. For example, reflationary fiscal policy designed to
stimulate AD and reduce unemployment may worsen inflation
• Time lags - it may take considerable time, perhaps up to 18 months, for
monetary policy measures to influence aggregate demand. For example, a change
in the rate of interest is unlikely to immediately influence consumption and
investment plans.
• Conflict between policies - a rise in the rate of interest, for example, designed to
reduce inflation may lead to increased unemployment.
• Discriminatory impact - a rise in interest rates may increase business costs (it
raises the cost of borrowing) and increase the exchange rate (it increases the
demand for the currency) thus making exports more expensive. Such a rise may
therefore particularly discriminate against manufacturing organizations engaged
in exporting, as well as borrowers in general.

Commission (SEC).
GDP (Nominal)
Country/Ec
onomy
GDP (billions of $) Share in 2018 (%) Rank
2017 2018 Change Africa World Africa World
Nigeria 376.361 397.472 21.111 17.0 0.469 1 31
South
Africa
349.299 376.679 27.380 16.1 0.444 2 32
Egypt 236.528 249.471 12.943 10.7 0.294 3 45
Algeria 167.555 188.342 20.787 8.06 0.222 4 54
Morocco 109.326 118.178 8.852 5.06 0.139 5 60
Angola 126.506 114.504 -12.002 4.90 0.135 6 61
Kenya 79.223 89.591 10.368 3.83 0.106 7 67
Ethiopia 80.874 83.836 2.962 3.59 0.0988 8 68
Tanzania 51.758 55.645 3.887 2.38 0.0656 9 81
Ghana 47.015 51.815 4.800 2.22 0.0611 10 85
GDP of Top 10 African Countries

Commission (SEC).
GDP (PPP)
Country/E
conomy
GDP (billions of Int. $) Share in 2018 (%) Rank
PPP/Nom
2017 2018 Change Africa World Africa World
Egypt 1,203.736 1,296.973 93.237 19.2 0.959 1 21 5.199
Nigeria 1,121.033 1,169.148 48.115 17.3 0.865 2 24 2.941
South
Africa
767.167 790.934 23.767 11.7 0.585 3 30 2.100
Algeria 629.992 660.757 30.765 9.76 0.489 4 36 3.508
Morocco 298.622 315.441 16.819 4.66 0.233 5 56 2.669
Ethiopia 200.635 220.681 20.046 3.26 0.163 6 64 2.632
Angola 193.626 197.889 4.263 2.92 0.146 7 68 1.728
Kenya 163.650 177.441 13.791 2.62 0.131 8 73 1.981
Sudan 177.360 177.251 -0.109 2.62 0.131 9 74 5.331
Tanzania 162.510 175.929 13.419 2.60 0.130 10 75 3.162

Commission (SEC).
Unemployment rate in Nigeria

Commission (SEC).
Conclusion
• Macroeconomics policies include taxes, government spending and borrowing,
exchange rate determinants, and monetary and credit rules.
• The primary goal of effective macroeconomic policies is to reduce uncertainty
and risk in economic decision-making.
• A stable macroeconomic environment enhances prospects for growth and
improved living standards.
• Unemployment Rate in Nigeria increased to 23.10 percent in the third quarter of
2018 from 22.70 percent in the second quarter of 2018. Unemployment Rate in
Nigeria averaged 12.31 percent from 2006 until 2018, reaching an all time high
of 23.10 percent in the third quarter of 2018 and a record low of 5.10 percent in
the fourth quarter of 2010.

Commission (SEC).
Sources
• https://tradingeconomics.com/nigeria/unemploym
ent-rate
• https://en.wikipedia.org/wiki/List_of_African_coun
tries_by_GDP_(PPP)
• https://en.wikipedia.org/wiki/Macroeconomics
• http://www.sanandres.esc.edu.ar/secondary/econ
omics%20packs/macroeconomics/page_55.htm
• http://statisticstimes.com/economy/african-
countries-by-gdp.php

Commission (SEC).
Questions

Commission (SEC).

Macroeconomic Policy

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