Answer to Question #252450 in Macroeconomics for G6ix

Question

2. What is a Macroeconomic Policy Instrument? Describe four macroeconomic policies of the Ghanaian economy.

3. Distinguish carefully between Marginal Propensity to Consume and Marginal
propensity to Save.

Answer 1

(1)

A macroeconomic policy instrument is a macroeconomic quantity that can be directly controlled by an economic policy maker.

macroeconomic policies:

• monetary policy- the monetary policy impelemented by the Bank of Ghana is aimed at promoting favourable investment atmosphere through appropriate stabilization of interest rates, lending rates, inflation rates and exchange rates to promote and ensure economic growth, stability, sustainability and development in Ghana.
• Fiscal policy- this refers to the changes in government expenditures and taxation. The government sets out the amount it plans to spend and raise in tac revenue in a budget statement.
• Supply side policy- this is designed to increase aggregate supply and hence increase productive potential. It seeks to increase quantity and quality of resources and raise efficiency of markets. It involves improved education and training, cutting down direct taxes and benefits, privatization. Improvement in education and training is designed to raise labour productivity.

(2)

Marginal Prospensity to Consume refers to the amount of an additional dollar in income that will be spent on consumption. It is the ratio between the change in income and the corresponding change in consumption.

On the other hand, marginal propensity to save refers to the amount of additional dollar in income that is saved. It is the ratio between the change in income and its corresponding change in savings.