Editing Macroeconomic Policy (section)

== <span style="color: #FFFFFF;">Understanding</span> ==
Macroeconomic policy aims to "smooth out" the business cycle.

'''The Two Levers''':
1. '''Monetary Policy (Central Banks)''': When the economy is slow, banks lower interest rates. This makes it cheaper for businesses to borrow and for people to buy houses/cars, stimulating activity. If the economy is "overheating" and inflation is rising, they raise rates to "cool it down."
2. '''Fiscal Policy (Governments)''': When demand is low (recession), the government can spend more (on infrastructure, etc.) or tax less to put money in people's pockets. This is "expansionary" policy. "Contractionary" policy (spending less) is used to pay down debt or reduce inflation.

'''Keynes vs. Hayek''':
* '''John Maynard Keynes''': Argued that "markets can remain irrational longer than you can remain solvent." During a recession, there is a "lack of demand." The government must step in as the "spender of last resort" to kickstart the economy.
* '''Friedrich Hayek''': Argued that government intervention causes "malinvestments" and that the market should be allowed to correct itself naturally, even if it is painful in the short term.

'''The Phillips Curve''': Traditionally, there was a seen "trade-off" between inflation and unemployment. If you want lower unemployment, you might have to tolerate higher inflation. However, the "stagflation" of the 1970s (high both) showed that this relationship is not always stable.
</div>

<div style="background-color: #8B0000; color: #FFFFFF; padding: 20px; border-radius: 8px; margin-bottom: 15px;">