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Macroeconomics concerns the understanding of economic factors that result to fluctuations of national income in the short-run and in the long run. There the field involves an aggregation of Gross Domestic Product (GDP), price indices and unemployment levels in the country.
Since macroeconomics has the national income as its basis, the government plays a key role in providing an enabling or disabling environment for other sectors of the economy.
The president who appoints a qualified and loyal team to help run it leads government. They include treasury and departmental heads of various government institutions. The government affects business cycles that alter the national income in two ways, by fiscal policy and monetary policy.
The president of the United States plays an important role in formulating the government’s strategy of fiscal policy, which is the main source of government revenue and impacts directly to the aggregate demand in the economy. The government uses fiscal policy to direct spending in a certain sector of the economy.
For example, reducing taxes charged on certain products will theoretically result to an increased consumption of the product, all other factors remaining constant. While the tax policy affects the level of demand, government may also alter the focus on spending in the economy and how resources are allocated.
In order to reduce the unemployment rates in the economy, the president may direct his government to take actions that lead to a reduction on capital expenditures in favor of labor-intensive investments. This achievable using tax rebates for economic sectors and corporations employ a large number of workers in the economy such as the Detroit motor industry.
The U.S. government spends money it collects from the economy by financing several national and regional sectors such as public education, healthcare, infrastructure development and security. The amount of spending for a given in the specific sector of the economy depends on the directive of the president as the leader of government.
Massive spending on infrastructure inspires innovation in the private sectors as introduces costs of doing business and increases the competitiveness of the given sector. On the other hand, an increased military spending at the expense of other development sectors of the economy drains aggregate demand in the economy and leads to a stagnation of most industry that may even cause a recession on the overall economy.
Other than taxes, the state will obtain funds from deficit financing and this impact on the available money in the economy that is left to finance other development and trade of the private sector.
When deficit financing is through borrowing from bonds and treasury-bills then it serves as a withdrawal of funds from other uses in the economy to finance government spending.
When the withdrawal is excess, it leads to a decreased supply of money in the economy and therefore the price equilibrium of the cost of credit shifts upwards. It becomes increasingly expensive to obtain credit that forms the lifeline of business transactions.
The president leads the government intention of providing a robust environment for the private sector to thrive and as a result increase the national income. Monetary policy of the government determines the rate of money supply in the economy.
The president will seek to increase the supply of money in the economy is in a recession to prompt businesses to expand and thus reduce the levels of unemployment. The money supply in the economy may be increased by lowering interest rates. This mandate is given to the federal reserve bank that works in close relationship with the state headed by the president.
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