Macroeconomic Policies for Increasing Economic Welfare

Government Use
Macroeconomic Policies for
Increasing Economic Welfare

Table of Content
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Monetary Policy.....................................................................................................................3
Fiscal Policy...........................................................................................................................4
How successful has the UK government been in the last 10 years?......................................6
What challenges remain?........................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Macroeconomic policies are developed with the aim to provide a stable economic
environment to a respective society that is conducive to foster a very strong and sustainable
economic growth. There are three pillars of macroeconomic policy that are fiscal policy,
monetary policy and exchange rate policy. The concept of macroeconomic policy is concerned
and concentrates over the processes of a respective economy as one rather than looking over
smaller aspects of it. Every Government have macroeconomic policies and there are only three
specific types which belong to it that are the three pillars of it. There are other governmental
policies as well like industrial competition and environmental policies dealing with different
aspect of a respective geographical location. The United Kingdom also revolves its economy by
using separate Macroeconomic policies (Ansell, 2014). The present essay will be discussing and
focusing upon the fiscal and monetary policy of the United Kingdom. Moving along two major
questions will be answer in the entire report. The first aspect which will be examined is how the
Government of the United Kingdom use the macroeconomic policies to increase the economic
welfare of the country and the second question is referring to the success rate the Government of
the United Kingdom have been achieved in the last 10 years. More over the project also covers
the identification of different challenges that are being faced by the government while doing so
over past A decade and other relevant factors which impact their performance.
MAIN BODY
Monetary Policy
Monetary policy defines the actions and decisions that a countries Central bank what the
government takes in order to influence the flow of money in the economy as well as the costs to
borrow it. Monetary policy in the United Kingdom is managed by the bank of England where
they have a target to control the inflation and also focus upon the economic growth. The central
bank of the United Kingdom uses to main monetary policy tools. The first tool is where this set a
respective interest rate which is charged by the central bank to the other banks for borrowing
money from them. This rate of interest is known as bank credit. The second tool which is used by
the central bank of the United Kingdom is creating money digitally to buy corporate and
Government bonds. This phenomenon is known as asset purchase for quantitative easing.

The bank of England makes use of interest rates with the focus of influencing the flow of money
being supplied in order to appropriately implement the monetary policy. Another aspect by
which monetary policy is seen as it used the interest rates and other monitoring tools with the
focus of influencing the level of consumer spending and aggregate demand. That is the monetary
policy is used for imposing control over spending of people by managing their demands. In
simple words of very simple in of monetary policy is to stabilize the economic cycle and to focus
upon keeping the inflation no and keep the economy out of recession (Wiggan, 2012).
The Government of the UK and the Central Bank of England have a targeted low
inflation rate that is 2%+/-1. Low inflation is very important aspects for economic growth as it
automatically influence investments in the long term. Stability of the economy is an important
aspect for its growth and does the MP is focused towards enabling the country to work with a
stable rate of economic growth and keeping unemployment in the economy at very low rate.
In the United Kingdom the monetary policy is set and developed by the monetary policy (MPC)
of the bank of England. The bank is the independent party who is involved in setting interest
rates but they have to keep their focus and needs to maintain and meet the government inflation
target. It is the responsibility of the bank of England to set the base rate of borrowing and any
fluctuations taking place in this bank rate will automatically influence all interest rates in the
economy such as mortgage, Savings and lending rates.
The bank of England in the united kingdom’s studies the influence reactions of the
economy and while doing so they looked over several aspects such as unemployment, consumer
confidence, house prices, economic growth, exchange rate index and spare capacity in the
economy. According to these different variables of the economy the bank of England decides the
rise or fall in the inflation rate during the respective period in the United Kingdom. If the bank
expected a higher inflation and higher growth situation in the economy the increase the interest
rates which automatically impacts upon other rates. On the other hand if the bank expects low
growth as well as fall in the inflation rate they cut the interest rates (Fang, 2011).
Fiscal Policy
Fiscal policy is defined as the attempt for influencing the level of economic activity by
changing taxation and government spending. In simple words fiscal policy keeps its focus and
influence on the level of government borrowings. As same as monetary policy there are certain
aims and objective of fiscal policy as well. These objectives are to keep the inflation low, to