Macroeconomics: Government Policy Objectives and Fiscal/Monetary Policies

This article discusses the objectives of government policies in macroeconomics, specifically focusing on productivity improvement and high employment. It explores how fiscal and monetary policies in the UK contribute towards achieving these objectives. The article also evaluates the advantages and disadvantages of these policies and their effectiveness. Additionally, it highlights the factors influencing the success of policy objectives and provides recommendations for achieving them.

MACROECONOMICS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................4
Key government policy objectives..............................................................................................4
Fiscal or monetary policy contributing towards achievement of the policy objectives..............7
Advantages and disadvantages of the fiscal or monetary policy along with their effectiveness.9
Factors influencing the chances of policy objectives success...................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
There are various objectives of government policies such as stable low inflation, sustainable
growth improvements in productivity, high employment, rising living standards and a fall in
relative poverty, sound government finances and many more. The major two objectives of UK
macroeconomic policies are productivity improvement and high employment (Hantzsche and
et.al., 2021). Improvement in productivity is mainly designed for improving the competitiveness
and global trade performance. High employment objective deals in the ways in which
government supports increase in the employment which lead to a situation where all those who
are able and available can become able to find meaningful work (Macroeconomic objective and
macro stability, 2020).
The financial stability of UK became disturbed due to the Brexit and the pandemic of
COVID-19 which is why it is must to focus on the objectives of the government policies. The
productivity and the employment play a major role in enhancing or disturbing the economy of
the country because if the productivity of the companies is less then they will not be able to pay
the appropriate and sufficient taxes to the government and if the people become more employed,
this can help in filling the vacancies in the company with talented and skilled employees which
thereby increases the productivity of the organisation (Mason, 2020).
The monitory and fiscal policies in UK help in regulating the economic activity over the
time. These can also help in accelerating the growth when the economy begins to slow and also
helps in slowing or moderating the activity and growth when the economy begins to overheat
(Chand, 2021). Furthermore, the expansionary fiscal policies can be used for redistributing the
wealth and income. The government leaves the economic management to the Bank of England
and the monetary policies. On the other hand, the fiscal policy stabilisers play a major role to
moderate the economic cycle. In the case of recession, the government tends to receive lower tax
revenue and is likely to spend more on the unemployment benefits. The main goals of monetary
as well as fiscal policies are to maintain or achieve full employment, for stabilising prices and
wages and also to maintain or achieve high rate of economic growth (Thow and et.al., 2018).
This is how, it can b observed that the objectives of government policy and the monetary and
fiscal policies have the same goals which is why these policies help in achieving the above two
mentioned objectives of government policies.
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The report will shed light on the two government policy objectives and will also focus on
the monetary or fiscal policies which can help in achieving these objectives. The report will also
evaluate the merits and demerits of the monetary or fiscal policies and will also measure the
effectiveness of the same. The below section will also focus on the various other factors which
impacts the success of these policy objectives. Various recommendations will also be provided
for the achievement of these objectives of the governmental policies of UK.
MAIN BODY
Key government policy objectives
Economic stability is occurred when there is low volatility in the key indicators such as
prices, economic growth, jobs, investment, interest rates and trade. All the countries are likely to
experience and economic policy which helps in tracking the fluctuations in the rate of growth of
Gross domestic product of country. This can be experienced that some of the countries have
more volatile cycle than others (Jaelani, 2017).
Figure 1: Actual and Forecast Growth for the economy of UK
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Source: Macroeconomic objective and macro stability, 2020
This was stated by the government of UK that they have the developed the Plan for Growth
which aims at rebalancing the economy by motivating the growth in UK exports and FDI. The
main priorities to achieve the growth include the reforms to the tax system, measures which can
help in making UK more attractive place for starting the business. This also includes the creation
of more educated and more flexible workforce. The focus of the Plan for Growth is around the
supply-side reforms and also designing of the policy interventions which can helps in improving
the business competitiveness and also the flexibility of labour market. These objectives can also
be achieved by the business taxation changes. The corporation tax must be cut to a new level of
20% from 2015. The patent box (decrease in the taxes on the patented products) also helps in
stimulating the innovation. This can also be observed that these objectives if achieved can
contribute towards the economy of the country greatly. There can be range of policy measures
which can be operates for achieving the aims and objective and these are also judged on the
success (The Objectives of Government Economic Policy UK, 2020). The performance of the
economy of the government is not only impacted by the government policies and their objectives
but also by the dynamics of the other economies.
The full employment is the major objective which tends to impact the economy of the
country UK. The main aim of the government behind this is that the people who are willing and
can do the work can become able to find the employment. This is also examined that every
person is not able to work or wants to work but the main aim of this objective is focussed on the
people who want to work and are able to do the same. The people who do not want to do any
type of work are not included in the labour force. From the perspective of economics, they are
considered as inactive and also are dependent on the ones who are included in the labour force in
one way or the other, directly or indirectly. These include the people such as retired ones,
children, those involved in the full time education, homemakers or the people who are too
disabled or sick to perform any type of task or work (Economic Growth in UK-Government
Policies, 2021). It is not compulsory for the people to work for coming in the category of labour
force because the people who are unemployed but seeking job are also considered to be in the
labour force of the country UK. These people are also said to be economically active. The
calculation for the percentage of labour force is calculated as
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(Unemployed/ Labour force)* 100 (Canale and et.al., 2018)
This can be discussed by making use of an example that if 5 million people are unemployed and
the labour force in the country is 40 million then the unemployment rate can be calculated for
this is as follows:
(5m/ 40m) * 100 = 12.5%
This is also the fact that the full employment does not deal with the 0% unemployment rate. The
employment is considered to be full when the unemployment rate is less than or equal to 3%.
The main reason behind making the figure from 0% to 3% is that even if the economy is very
strong which means the demand of labour is equal to the supply of labour then also there will be
some people who change their jobs and due to this they become unemployed for shorter periods
and in that period, they are considered to be unemployed (Jones and Wilsdon, 2018).
Another objective of the UK government policy is the increased productivity which means
increase in the competitiveness in the market. This can be observed that when the industry or the
economy faces economic growth there is an increase in the output though in the short run. This is
considered to be the actual economic growth (The Objectives of Government Economic Policy
UK, 2020). If the country wants to increase the economic growth in the long run and to sustain
the growth, there must be a rapid increase in the productive potential of the economy. Such an
increase can only be seen by the rising in quality or the quantity of the production factors. The
difference between the potential and the actual economic growth can be presented through the
production possibility curve.
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Figure 2: Difference between Actual and potential economic growth
Source: Chand, 2021
In the above figure, the movement which is shown from A to B helps in representing the actual
economic growth which means more consumer goods and more capital is made. The potential
economic growth can be represented through the shift outwards in the production possibility
curve from YY to ZZ which means there is a capability of the economy to produce more. The
determinant of the possible economic growth of the country is considered to be the level of
output which means production in relation to the maximum possible output and the growth in the
capacity of production. This can be understood by an example that if the economy is growing at
2% below the maximum possible output and also its is expected that the productive capacity will
increase by 3% this year then the possible economic growth rate is 5% (Mohamed and et.al,
2018). The government of UK wish that their economy works at full capacity and also their
actual economic growth rate is likely to coincide with the potential economic growth rate.
Fiscal or monetary policy contributing towards achievement of the policy objectives
Fiscal policies deal in changing the level of taxation and the spending of government for
influencing the rate of economic growth. There are two major types of fiscal policies. These
include expansionary and deflationary fiscal policies. Expansionary fiscal policies help in
stimulating the aggregate demand and boosting up the rate of economic growth of the country
UK. This includes lower taxes, higher spending and also results in higher government borrowing
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(Larch and Braendle, 2018). The expansionary fiscal policies are used in the time of negative
output gap or the period of recession (Fiscal Policy, 2021). On the other hand, the deflationary
fiscal policy is used for reducing the aggregate demand and also reducing the inflationary
pressures. This includes the lesser government spending and also higher taxes. This will result in
the less government borrowing.
This can be observed that the expansionary fiscal policies help in contributing towards the
objectives of UK government policies. The main aim of expansionary policies is boosting the
growth to a healthy economic level which is required at the time of contractionary phase of the
cycle of business. The government wishes for reducing the unemployment, increasing the
consumer demand and also avoiding the recession (Anjum and et.al., 2018). Since, the
expansionary policies help in kicking start the economy during a recession, this helps in boosting
the aggregate demand which thereby increases the output as well as the employment in the
economy. In order to pursue the expansionary policy, the government needs to increase the
spending, reduce the taxes or a combination of both the practices. Fiscal policies helps in
increasing the AD (Aggregate demand) as well as rise in the real GDP (Gross Domestic Profit).
This increase in the economic growth will increase the demand for the workers and this demand
can be filled by employing majority of the people which can result in reducing the
unemployment (Economic Growth in UK-Government Policies, 2021). The government can
boost the demand by cutting the taxes and also enhancing the government spending. Lower
income tax can lead to increase in the disposable income and also encouraging of the consumer
spending. The higher spending of government can help in creating jobs and also providing
economic stimulus. The main aim of the expansionary fiscal policy is reducing the
unemployment. The changes in the tax rates and the government spending by Congress can help
in promoting the full employment, economic growth and the price stability. Therefore, the major
tools for increasing the employment can be the increase the spending of the government and also
the decrease in the overall taxes. Various initiatives are taken by the government for increasing
the employment under the expansionary fiscal policies such as training for self employment,
integrated rural development programme, Jawahar rozgar yojana, Nehru rozgar yojana etc.
Furthermore, this can also be observed that fiscal policies also deal in increasing the rate of
investment in private as well as public sectors (Introduction to Fiscal Policy, 2020). This helps
in accelerating the rate of economic growth of the country. If the government invests more in the
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capital and basic goods industries or the investment is more in the social overheads, then this is
considered to be the major pillar of the economic development in an underdeveloped economy.
This is how, the fiscal policies especially the expansionary ones helps in achieving the major
objectives of increased employment and production of the UK government policies (Kirkpatrick,
2019).
Advantages and disadvantages of the fiscal or monetary policy along with their effectiveness
Fiscal policies deal in the government’s use of the revenue generation and the strategies
of spending for controlling the public revenue and expenditure which ultimately influences the
economy of the nation. These policies can help in reducing the budget deficits, combating
unemployment and increasing domestic consumption. There are various merits as well as
demerits of the implementation of fiscal policies which are as follows:
Advantages
 Reduction in unemployment: When it is found that the unemployment is increased, the
government can employ the expansionary fiscal policy which can increase the spending
or purchasing and lowers the taxes. If there is cut in taxes then the disposable income of
the people increase thereby increase in products demand (Weir, 2020). For meeting the
growing demand, the private sector increases the production and for this hob
opportunities also increase.
 Budget Deficit Reduction: When the expenditures exceed the revenue, budget deficit is
faced by the country. It has various economic impacts such as increased public debt due
to which the country can pursue contraction in the fiscal policies. This will reduce the
spending of the public for products and increase the tax rates for raising more revenue.
This will lead to decrease in the overall budget deficit (Green, 2018).
 Increased Economic Growth: The various fiscal measures helps in facilitating the
expansion of the national economy. This can be evidenced by an example that when the
tax rates are reduced by the government, business and individuals have higher incentive
for the purpose of investing and steering the economy forward. For boosting the economy
of country during the recession 2008, the government of UK implemented the Economic
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Stimulus Act of 2008 which helped in providing variety of fiscal measures including the
tax incentives for encouraging business investment.
Disadvantages
 Conflicts of Objectives: There are majorly two types of fiscal policies including the
expansionary and contractionary. When the government make use of the combination or
mix of these two, then there are many chances of occurrence conflicts of objectives. The
government can also implement the strategy of issuing bonds to the public, if it wants to
raise greater amount of money for increasing it’s spending and stimulating the economic
growth. The government bonds are likely to provide various types of benefits to the
individuals, buyers and due to this the business buys them heavily (Pettinger, 2019). This
can be evaluated from the Michigan Institute of Technology that the private company
does not have greater money to invest and due to the reduced investment activity, the
economy slows down.
 Inflexibility: This can be examined that the implementation of fiscal policies takes a lot
of time because some measures of these policies need to go through the legislative
processes. The implementation delays can be evidenced by the Great Recession. This can
also be observed that the national economic research began in December 2007, but the
country became able to implement the Economic stimulus Act in February 2008. Even
when there is an increase in the spending by the government it takes a lot of time for
trickling the money to the people’s pockets (Hemerijck, 2018).
This is how; the advantages and disadvantages of the fiscal policies can be described.
Factors influencing the chances of policy objectives success
There are various factors which influences the ability of the government in achieving the
objectives of the policies and also ensuring the success of the government policies of UK. These
factors include productivity of the factors of production, availability of the factors of production,
technology, macroeconomic policies, amount of trade between UK and the other countries, laws
and legal systems and the geography.
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Recommendations
This can be recommended that the objectives of the policies must be achieved by
considering these above mentioned factors. The advanced technologies must be used for
implementation of the policies so that the outcomes can be recorded and maintained through
advanced software. The laws and the legal systems must be followed so that they can adhere to
the policies of the government and they can be ethically in the safe zone. The government must
strive hard to implement such policies which have objectives which can facilitate the individuals
as well as the economy of the country. This can also be recommended that the increase in the
employment must be focussed because it does not only help in increasing the productivity of the
private companies but also helps in filling the greater demand of the products by the public
(Frenkel, 2019). This also leads to the growth of the economy of the country. This is how; the
objectives of the policies must be facilitating the individuals by providing them employment
opportunities as well as satisfying their increasing demands along with contributing positively
towards the country’s overall economy.
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CONCLUSION
The above report shed light on the government policy objectives especially to increase
the employment and to enhance the productivity and competitiveness in the market of UK. The
significance of these policy objectives was mentioned and described. This was followed by
mentioning and describing the fiscal policies which can help in achieving these objectives. This
was concluded that the expansionary fiscal policies can help the government in achieving these
key objectives. The report also laid emphasis on the ways in which the expansionary fiscal
policies can help to achieve the policy objectives of UK government. Furthermore, the report
also examined and described the advantages and disadvantages of the fiscal policies of UK
government. Various positive and negative points were highlighted. Lastly, various factors were
mentioned which can influence the success of these policy objectives along with suggesting
some recommendations of using these factors for the objectives success.
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