MACROECONOMIC THEORIES AND POLICY

Macroeconomic theories are the basis for macroeconomic policy. Macroeconomic policy refers to any policy intended to influence the behavior of any important macroeconomic variables, especially unemployment and inflation. Macroeconomic policy is concerned with how the agencies responsible for the conduct of economic policy manipulates a set of macroeconomic variables in order to achieve some desired objectives.
Macroeconomic policies include monetary and fiscal policies, but also such things as price control and incentives for economic growth. Macroeconomic theories are valuable predictive devices. An accurate prediction is required if we want to alter economic events or outcomes in a desired direction. For instance, if a country is faced with the problem of unemployment or inflation, and these variables can be predicted or understood through economic theory, we may then be able to control or influence the event.
These are various policy tools at the disposal of the makers of macroeconomic policy which are usually manipulated in order to achieve desired goals or objectives. We usually refer to them as instruments of macroeconomic policy. The major tools of macroeconomic policy are fiscal, monetary, exchange rates, and external debt policy instruments.
FORMULATING MACROECONOMIC POLICY
The basic steps involved in policy formulation are as follows

1. STATING GOALS: The first and most important step is to make is to a clear statement of a goal. If what is desired is full employment, does this mean that everyone between the ages of 16-65 years should have a job? Or it means that everyone who wants to work should have a job? Is there any need to allow for some normal unemployment caused by inevitable changes in the structure of the industry and workers voluntarily changing jobs?
2. POLICY OPTION: there also the need to state and recognize possible effects of alternative policies designed to achieve the goal. This requires a clear understanding of the economic impacts, benefits, costs and political feasibility of alternative programs. The question here is whether fiscal policy which involves changing government spending and taxes or monetary policy which involves altering the supply of money should be used to achieve and/or maintain full employment.
3. EVALUATION: having chosen and implemented the appropriate policy or mix of policies, it is important to review our experiences with chosen policies and evaluate their effectiveness. It is only through this evaluation that we can hope to improve policy applications. Did a specific change in government expenditure or money supply alter the level of employment to the extent originally predicted?
   GOALS OF MACROECONOMIC POLICY
   The goals of macroeconomic policy refer to a broad national objective which can change overtime depending on the economic conditions of a particular country. These objectives include
4. Attainment of high rate of, or full employment
5. Maintenance of domestic price stability
6. Achievement of a high rapid and sustainable economic growth
7. Maintenance of balance of payment equilibrium
8. Exchange rate stability
   Apart from these macroeconomic objectives the government may have other minor objectives such as
9. Reduction of inequalities in the distribution of wealth and income,
10. Improvement in the allocation of resources and regional development
    It is only when these objectives are fulfilled that we can say tha macroeconomic stability has been realized.