A coherent approach to macroeconomic theory and economic policies

Abstract

Philip Arestis, in this chapter entitled ‘A Coherent Approach to Macroeconomic Theory and Economic Policies’, offers a new approach to macroeconomics, which focuses on the notion that there is often inadequacy of aggregate demand relative to what would be required for full employment of the factors of production. The level and distribution of productive capacity can often be inadequate to underpin full employment. Consequently, and under such circumstances, distributional effects are paramount and should be seriously taken on board in the analysis and policies; and such effects are actually considered in this contribution. Economic policies are thereby very relevant and important. We briefly summarise the theoretical framework that underpins the relevant economic policies before we turn our attention to the latter themselves. We suggest that in addition to the well-known economic policies, namely, fiscal and monetary policies, and of equal importance, co-ordination of them, two new, relevant and important policy dimensions emerge as paramount: distributional effects and financial stability. We also discuss briefly current ‘unorthodox’ monetary policies.