Chapter 9: Perspective — Fiscal Policy Reforms for the Future

Economic activity reflects a balance between what households, firms and governments want to buy and what they want to sell. It is usually monitored across short- and long-run timescales, as each macroeconomic indicators translates to meaningful information to economic experts. The short run is usually associated with substantial aggregate demand. The long run, however, hands supply the primary role in determining economic potential. Productive capacity depends on the size and skills of the workforce; the amount and quality of machines, buildings, vehicles, computers and other physical capital that workers use; and the stock of knowledge and ideas. In other words, aggregate supply is a mirror reflection of the optimum utilization of all factors of production economies possess. Based on this, governments harness their macroeconomic policies to efficiently administrate the latter’s respective tools, in order to achieve their macroeconomic objectives. This usually boils down to maximizing output, and hence GDP; maintaining price stability, and fighting unemployment; just to name a few.