Mechanisms That Would Bring About Macroeconomic Equilibrium Essay

Mechanisms That Would Bring About Macroeconomic Equilibrium - Essay Example How our currency fares in comparison and competition with those of other countries and its fluctuations and ups and downs are included in this category. However, in the floating exchange rate system the currency rate is determined by the forces of demand and supply and thus, central banks cannot help there. However, Government intervention could help bring macro-economic equilibrium in this case. Through the use of laws and regulations, it could prove to be a worthy and useful mechanism in this regard. Taxes and subsidies imposed by Government on producers of different commodities are one of them. Secondly, tariffs are another factor in this regard. They might take the form of quotas, embargos and other forms of tariff regimes. The state of economy also matters. Whether the economy is in a state of a boom [good economic period with high GDP] or in a state of slump [bad economic period with low levels of GDP] also affects the exchange rates.