Macroeconomic Policy around the World
Geography, demographic, industry structure, and economic institutions impact the standard of living countries enjoy. What do we mean when we classify countries as low-income, lower-middle, upper-middle, and high-income? This reading also explains how we measure international living standards using GDP and gross national income (GNI).
Introduction to Macroeconomic Policy around the World
Figure 19.1 Looking for Work Job fairs and job centers are often available to help match people to jobs. This fair took place at a college in the United States, a high-income country with policies to keep unemployment levels in check. Unemployment is an issue that has different causes in different countries and is especially severe in low- and middle-income economies around the world.
Bring It Home
Youth Unemployment
Chad Harding, a young man from Cape Town, South Africa, completed school having done well on his exams. He had high hopes for the future. Like many young South Africans, however, he had difficulty finding a job. "I was just stuck at home waiting, waiting for something to come up," he said in a BBC interview. In South Africa over 60% of young adults are unemployed. In fact, the problem is not limited to South Africa. Seventy-three million of the world's youth aged 15 to 24 are currently unemployed, according to the International Labour Organization.
This chapter will look at macroeconomic policies around the world, specifically those related to reducing unemployment, promoting economic growth, and stable inflation and exchange rates.
There are extraordinary differences in the composition and performance of economies across the world. What explains these differences? Are countries motivated by similar goals when it comes to macroeconomic policy? Can we apply the same macroeconomic framework that we developed in this text to understand the performance of these countries? Let's take each of these questions in turn.
Explaining differences: Recall from Unemployment that we explained the difference in composition and performance of economies by appealing to an aggregate production function. We argued that differences in productivity explain the diversity of average incomes across the world, which in turn were affected by inputs such as capital deepening, human capital, and "technology." Every economy has its own distinctive economic characteristics, institutions, history, and political realities, which imply that access to these "ingredients" will vary by country, and so will economic performance.
For example, South Korea invested heavily in education and technology to increase agricultural productivity in the early 1950s. Some of this investment came from its historical relationship with the United States. As a result of these and many other institutions, its economy has managed to converge to the levels of income in leading economies like Japan and the United States.
Similar goals and frameworks: Many economies that have performed well in terms of per capita income have – for better or worse – been motivated by a similar goal: to maintain the quality of life of their citizens. Quality of life is a broad term, but as you can imagine, it includes but is not limited to such things as low levels of unemployment, price stability (low levels of inflation), and the ability to trade. These seem to be universal macroeconomic goals, as we discussed in The Macroeconomic Perspective. No country would argue against them. To study macroeconomic policy around the world, we begin by comparing standards of living. In keeping with these goals, we also look at indicators such as unemployment, inflation, and the balance of trade policies across countries. Remember that every country has had a diverse set of experiences; therefore, although our goals may be similar, each country may well require macroeconomic policies tailored to its circumstances.
Source: Rice University, https://openstax.org/books/principles-macroeconomics-3e/pages/19-introduction-to-macroeconomic-policy-around-the-world
This work is licensed under a Creative Commons Attribution 4.0 License.