Macroeconomic Policy for Economic Welfare: UK Government's Approach

This report discusses the concept of macroeconomic policy and its importance in maximizing the economic welfare of the UK. It examines the three economic policies used by the UK government, namely fiscal policy, monetary policy, and microeconomic policy, and their advantages and disadvantages. The report also measures the effectiveness of these policies in the last ten years and identifies the key challenges faced by the government in implementing them.

Outline and Explain,
with examples, how
Governments use
Macroeconomic policy
to increase Economic
welfare. How
successful have UK
Governments in 10 y

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK...............................................................................................................................................1
1. Determine and examine the three economic policy the UK government is implement to
maximise the welfare of economy..............................................................................................1
2. Advantages and disadvantage of economic policies...............................................................4
3. Measure their effectiveness in last ten years ..........................................................................6
4. Determine key challenges the government is facing to implement these policies..................7
CONCLUSION................................................................................................................................8
REFERENCES ...............................................................................................................................9

INTRODUCTION
In the report it discuss about the concept of macro economic policy and the importance of
this policy to maximise the economic welfare of the UK country. It can be define as as set of
government rules and regulation which control or create an impact on the overall signals of an
structural economy. It also include some aggregate signals which affect the company growth and
welfare of the economy such as money supply, inflation, rate of unemployment, rate of interest,
growth rate and national income and many more others indicators. Basically it main goal to
achieve the macro economic objectives and support the growth of economy (Trung 2019). Also
it express the importance of macroeconomic policy, it mainly helps the firm to study about the
economic development is shows the individual standard of living in UK country, Economy
performance measure through the GDP of the country by relating the manufacturing of products
and services and the another importance of importance is inflation and deflation these
macroeconomic policy help the country to determine and helps in understanding the impact of
inflation and deflation in the country. In another part it describe about the macroeconomic
policy which is used by the government for the economic welfare of the UK nation and the
policy which includes; Fiscal policy, monetary policy and microeconomic policy. These type of
policies help the firm to sustain the economic growth and assist in determining the standard of
living of people in UK country. Also is explain the advantages and disadvantages of these
policies which is used by the government for the supporting the economic welfare and measure
its last ten years effectiveness. At last it identify the challenges which are faced by the country at
the time of implementing these policies and give recommendation on that basis.
TASK
1. Determine and examine the three economic policy the UK government is implement to
maximise the welfare of economy.
For the better performance an sustainable growth and development of the country. UK
government use some policy which provide an assistance to the country and helps in maximising
the nation economic welfare (Ivanyna, Mourmouras and Rangazas 2021). The main aim of the
UK government is to create an impact on the welfare of economy, the budget of the country also
express the economic policy of the government. Basically the main goal of the government is to
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create the good standard of living for the people who work hard for their survival. Government
use these policy to provide help for those people who have low income groups, middle and lower
class of the people. They provide help by giving them subsidies, low interest rate and through
price control. Because market is unpredictable and government always try to reduce the poverty.
So, government prepare in advance for the type of factor which can affect the country and its
economic welfare (Xie, Wen and Choi 2021). The factors are inflation rate, unemployment rate
and the rate of economic growth these components of macroeconomic influence the performance
of economy and the income of individual. There are some policies which are use by the
government for the welfare of the country are discussed below:
 Fiscal policy: The government of the country mainly use fiscal policy to increase the
overall demand of the product in country through implement fluctuations in taxation
policy and its spending level. The main objective of the country behind the use of fiscal
policy is to achieve or want to keep full employment and stabilization in prices and
wages of the country. If country wants to develop and grow then it important for them to
provide full employment in the economy by introducing multiple schemes . It helps the
company to increase the national income and standard of living in the nation. Also in
another objective the main motto of the government is to maintain the prices of goods an
services. If the prices of the product is stable then it help the country to invest more on
goods and services. This policy is also help to protect from the inflation rate, if the prices
of the of the products is higher then its create inflation in the country and decrease the
level of spending of the people.
◦ Enlargement of fiscal policy: It increases the spending level of the individual in the
country and decrease the tax rate. If people of the country spend more on the products
then the taxes they paid for the goods and services will higher and maximise the
government borrowing (Hammermann and et.al., 2019). The main objective of this
policy is to maximise the overall demand of the country products in a deficit
economy.
◦ Tight fiscal policy: In this type of policy government of the UK country reduce the
spending and increase the taxes. The main objective of the country in this point is to
decrease the pressure of inflation or decline the lacking of budget. Which lead to
create the less growth of economy.
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 Monetary policy: It mainly create an impact on the supply and demand of money by
fluctuating the rate of interest and the supply of money. This type of policy is basically
handled by the central bank, through which government have supervision and fix the
target of inflation. The main objective of this policy is to control the rate of inflation, it
handle the level of employment and keeping the long term rate of interest (Tam 2018). It
also decline the liquidity to secure the inflation. Central bank of the UK nation use rate of
interest, bank reserves and the multiple of government bonds that banks of the country
must hold. All these tools usually create an impact on how much banks can lend and the
amount of loans effect the supply of money.
◦ Enlargement of monetary policy: This policy is mainly use to cut the rate of interest
to create the low borrowings and maximise the spending. The main goal to implement
this policy is to become the higher rate of economic growth. This policy mainly
helpful for those people who take a loan from the bank because it reduces the interest
rate and create borrowing more cheaper and it encourage the people to spend higher.
◦ Tough monetary policy: If the rate of interest in the country is higher to create
borrowings more costly and decline spending and pressure of inflation. Sometimes
country use this policy to maintain the level of spending of the individual by
increasing interest rate. If bank maximise its rate of interest then the people borrow
less and it decrease the people level of spending and also control the inflation in the
economy.
◦ Quantitative relief: This policy also helps to making the money by central bank and
utilizing it to purchase bonds. The main aim to implement this policy is to maximise
the supply of money and support to decline the rate of interest (He and Zhang 2020).
If creation of money is higher in central bank then it create higher money supply in
the economy and people of the country borrow less money through which bank
reduce its interest rate and encourage borrowing.
◦ Helicopter money: This type of policy involve creation of money and put directly the
money into the UK nation economy.
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 Microeconomic policy: This policy support the people in a form of subsidies and taxes,
competition policy, environmental policies and control the prices. This policy mainly
provide the relaxation in taxes and give them a subsidy to those people who have a lo
income and those who cannot spend more (Caraiani and et.al., 2020). Also it provide an
assistance in environmental policy also if any firm or industry want to established their
business in UK country who create pollution in the environment or harm it then this
policy create restriction for their establishment because they harm the air, sea and rivers.
In another point it this policy it also control the prices of the goods and services and
maintain the prices of the commodity. It secure the country from the inflation , if the
prices of the goods increases then it decreases the demand of the commodity and reduce
the standard of living in the UK country.
2. Advantages and disadvantage of economic policies
Monetary policy:
Advantages:
 Monetary policy boost higher level of economical operations: Monetary policy
encourage Consumer activities based upon present position of the economy. A boost in
the economy is important for the growth and expansion, than Financial institution
decrease the interest rates on leading product to promote additional outflow and it
decrease the product prices which aid to sending at a invariant level.
 Support lesser inflation rates: It is a important advantage that policy provide constant
prices. When consumers know how much their desirable product and service cost (Razin
2021). Than only they are more interested to invest or purchase such product. This
process states pricing structure constant.
Disadvantage:
 Do not provide assurance economic growth: The execution of such policy did not
provide assurance of results. People are free to choose more spendings while rate are
lesser, or they may be hold the cash in their hands because interest rates are generally low
all time.
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 They can drawn-out production: Economy is enhanced by production. An increase in
the production can lead economy towards growth. If production is slow than the growth
in the economy also falls. This policy impose adverse impact on the production sector.
Fiscal policy
Advantages:
 Unemployment Reduction: If the unemployment is higher than government uses fiscal
policy to reduce unemployment (Falagiarda, Prapiestis and Rancoita 2020). This policy
consider increase in consumer spending, increasing purchasing power and decreasing the
taxes. This also help in accelerating the production and job opportunities.
 Economic Growth Gain: The several fiscal measures help to boost the economy of the
country. When the taxes are reduce than the individual more interested to invest because
they earn more in such circumstances. Fiscal policy increase the spendings of individuals
or companies which lead economy towards growth.
Disadvantage:
 Inflexibility: Implementation of fiscal policy is a very long process because some of the
analysis have to face or go through the procedures of legislative. Its applicability shows
better presentation and delays is explained through the high recession period. When the
government maximise their level of spending.
 Goals of conflict: if government utilizes a mixture of enlargement and shrinkage fiscal
policy then the conflict of goals can arise. If the country government have a desires to
raise high money to maximise its paying and affect the growth of economy. They can
issue bonds for the public. Since the bonds of government serve a scope of advantages to
purchasers and companies will purchase them difficultly.
Micro economic policy
Advantages:
 It mainly helps in business decision making: In UK, every business face difficulty to
perform the task if any economic factor affect its working, then the economic policy of
the country help the firm to take business decision regarding the factors which influence
the business of the organization (Casey 2020). These economic policy lead to stabilize
the performance of economy.
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 Efficient use of resources: In microeconomic concept it assume that the consumer and
producer perform rationally. The producers investigate the most possible part of activity
it analyses and anticipated the advantages and expenses of each course of task. The
behaviour of consumer is rational and support the better utilization of funds. The theory
of microeconomics teach about to create better use of funds.
Disadvantage:
 Estimations of complete employment is untrue: One of the biggest disadvantage of
microeconomic policy is unrealistic information of employment in the country (Reardon
and Mad 2019). Sometimes the data of employed and unemployed people of the nation is
not true and it misguide the government of the country. Which tends to create less
employment and increase the number of unemployed people.
 It focuses on small parts of the economy: The microeconomic policy mainly focuses on
the very small parts of the overall economy like; it researched about the individual
demand and price and many other components also. Microeconomics policy does not
provide skill about the functioning of overall economy. The skills of the economy is very
important to understand in a correct manner.
3. Measure their effectiveness in last ten years
The government of UK nation use economic policy to sustain the growth and provide full
employment in the country with the help of monetary , fiscal and microeconomic policy and
government use some effective measure to analyse the performance of the nation. One of the best
measure which is used by the government by examining the GDP (gross domestic product). It
mainly helps to relate the standard of living of one nation to another along with the wealth of the
one nation over time mainly utilize through gross domestic product. They have a pattern to
analyse the worth of a nation's manufacturing of products and services (Akramovich 2022). It
provide a critical structure to support policy decisions which mainly create an impact on the
individuals standard of living. But there are some problems like the environment and wealth
dissimilarity attain the political importance, there are some economist which argue upon the
failure of GDP in account of important components like social well-being its not directly merged
to the production of economic it includes; quality in air and water, education and health. Also the
various economists use multiple techniques to trace the development of economy. One of the
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best and significant method to track the gross domestic product(GDP) of the nation. It mainly
analyse the worth of products and services along with the income of foreign investor. It basically
used in a broader sense but it does not express the growth of the economy. It is very significant
because of its logical expansion of measuring the growth of economy in form of monetary
expenses. If statistician desires to know the efficient outcomes of the steel industries for
example: They only requires to track the worth of dollar of all the steel that comes into the
market during a particular period of time. It merge the outcomes of all the companies, which are
mainly analysed in a form of dollar spent or invested, and it get overall production. The theory
describe about those expenses which are equally sold-production does not exactly analyse the
relative efficiency. The efficient capability of an economy does not develop because more dollars
rotate around. The economy of UK efficient when funds are utilized more productively.
Somehow, the growth of economy requires to measure the comparison between the overall fund
stimulation and overall outcomes of economy.
Gross national product
It mainly used to know the overall income of the nation's individuals within a particular period of
time and how the residents of the country utilize their income. GNP measures the total income
which occurring to the population over certain period of time (Moiseev 2019). But its different
from the GDP, it does not consider in account that income accruing to the no-residents in the
nation's territory such as GDP it only analyse the efficiency, and its not mainly utilized as
examine of happiness and welfare of the nation.
4. Determine key challenges the government is facing to implement these policies
The various kind of challenges government is facing to implement the economic policies it
described as below:
 Inflexible resource cost: Basically, the cost of resources is not variable and flexible most
of the deposits are contractile at fixed value. Also, the rate of interest on little savings
which are remained constant at overhead stages related to the banks. It also tends to show
the reduction in deposits with the bank. The deficit in resources has created it nearly not
possible for the banks to lend at lesser rate.
 Rate of policy not connected to the market: Repo rate is the type of policy rate, which is
managed by the monetary policy committee and thereafter, it can't be treated as a rate
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which is identified by the market (Velarde 2022). Banks are mainly asked to connect
their lending rate with repo rate, without any cite to the cost of lending funds.
 It create bad impact on public spending: It basically decline the spending of government
to reduce the pressure of inflation it create an opposite impact on public services which
includes transport and education reason in failure of market its social inefficiency.
 Deficiency in budget: Increasing in fiscal policy reduce taxes and maximising
government spending it will cause and maximise in the deficiency of budget. Which has
multiple opposite impacts (Harting 2021). A more deficiency in budget will need more
taxes in the upcoming future and may cause crowding extinct.
 Employment and unemployment: Unemployment express the unconscious inactivity of
funds involving manpower. If this issue presents, communities actual outcomes ( or
Gross national product) will be less that their capable outcomes. So the main goals of
government policy is to check the complete employment which include absence of
unconscious non-employment of any kind.
CONCLUSION
In the above report, concepts of three microeconomic policies such as fiscal policy,
Monitory policy and microeconomic policy are explained thoroughly with the importance of
these policies to maximize the welfare of the economy to the greater extent. Monetary and fiscal
policy helps the government to boost the economy. These policies help to reduce the
unemployment situation in the country and increase the overall country's growth. These policies
help to create more opportunities and provide a better infrastructure. Afterwards, several
advantages and disadvantage of these policies are discussed comprehensively referring the
objectives of these policies why these policies are required to follow by the government along-
with measuring their effectiveness with reference of the UK government. Concepts of gross
national products are explained. Further key challenges that the UK government is facing in the
smoothly implementation of these policies.
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REFERENCES
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global VAR approach. The North American Journal of Economics and Finance. 48,
pp.90-110.
Ivanyna, Mourmouras and Rangazas, 2021. Fiscal Policy in the Overlapping-Generations
Model. In The Macroeconomics of Corruption. (pp. 151-184). Springer, Cham.
Xie, Wen and Choi 2021. How the SDGs are implemented in China——A comparative study
based on the perspective of policy instruments. Journal of cleaner production. 291,
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Hammermann and et.al., 2019. Taking stock of the Eurosystem’s asset purchase programme
after the end of net asset purchases. Economic Bulletin Articles. 2.
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pp.3718-3734.
He and Zhang 2020. How does economic policy uncertainty affect corporate Innovation?–
Evidence from China listed companies. International Review of Economics &
Finance. 67, pp.225-239.
Caraiani and et.al., 2020. Effects of conventional and unconventional monetary policy shocks on
housing prices in the United States: the role of sentiment. Journal of Behavioral Finance.
pp.1-13.
Razin 2021. Globalization and the Welfare State: Macroeconomics. In Globalization, Migration,
and Welfare State. (pp. 47-81). Palgrave Macmillan, Cham.
Falagiarda, Prapiestis and Rancoita 2020. Public loan guarantees and bank lending in the
COVID-19 period. Economic Bulletin Boxes. 6.
Casey 2020. Do macroeconomic forecasters use macroeconomics to forecast?. International
Journal of Forecasting. 36(4), pp.1439-1453.
Reardon and Mad 2019. Suggestions for incorporating sustainability into the macroeconomics
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Routledge.
Akramovich 2022. HISTORY, SUBJECT AND OBJECT OF FORMATION OF"
MACROECONOMICS". Galaxy International Interdisciplinary Research Journal. 10(1),
pp.209-210.
Moiseev 2019. Hype around (non) monetary (non) theory. Voprosy Ekonomiki. (9), pp.112-122.
Velarde 2022. The Challenges for Central Banking for the Next Years. Ensayos
Económicos. 1(79), pp.199-205.
Harting 2021. Macroeconomic stabilization and long-term growth: The role of policy
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