Principles and Applications of Macroeconomics ECO 4012

Principles and
Applications of
Macroeconomics ECO
4012

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Meaning and objectives of macroeconomic policies..........................................................1
2. Use of macroeconomic policy by government to increase the economic welfare.............3
3. Describing the challenges faced by the UK government...................................................4
4. Elaborating the solutions of the challenges addressed above.............................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Macroeconomic is branch of economics in which considers the interest rate, government
spending, budgets and structure of the economy as a whole. Every economy has to face several
phases of economic cycles such as depression, boom and recession. There are certain issues such
as inflation, deflation which increases or decreases the price level. GDP is the sum of all
products and services produced during an accounting year (Bai, 2022). The macro economic
theories and its application in the real world assists in estimating the national income of the
whole country. This report includes the concept of economic welfare or community surplus.
Economic welfare is a concept of economic well being provided to the citizens of country for
equal distribution of wealth and optimum utilisation of resources. It also includes the challenges
faced by the UK government in last ten years. Every problem required to be addressed and for
the same UK has taken some initiatives to correct the situation of global pandemic and other
macroeconomic problems such as inflation and deflation are also being discussed in the given
report.
1. Meaning and objectives of macroeconomic policies.
Macroeconomics definition: The branch of economics which deals with large scale economic
factors such as inflation, price level, rate of economic growth, national income, gross domestic
product and changing levels of unemployment.
Economics is divided into mainly two parts which is micro economic and macroeconomics. The
concept of micro economic includes the demand, supply, cost and revenue analysis on individual
level whereas macroeconomics is the study of aggregate demand, supply, interest rate of whole
market. Macroeconomics deals with the study of problems of economy such as unemployment,
fluctuation in prices and consumer price index (Greenwood-Nimmo, Nguyen, and Shin, 2021).
For understanding the economic fluctuation due to several financial and non-financial factors. It
is necessary to apply the concept of macroeconomics in the nation.
There are some objectives of macroeconomics which can be elaborated as given below-
 Maximising standard of living –With the increase in the gross domestic product of the
country, the citizens of the country demand there should be increase in the price level of
income.
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 Decreasing Inflation – It is termed as general rise in the price level in the country. It
happens due to the increased demand for the goods and services. The rise in the prices
indicates growth in the nation. However, excess inflation can adversely impact the
growth of the economy. It results into decreasing the purchasing power of the economy
and depreciate the value of the currency. Therefore, application of macroeconomic
principles helps to attain the equilibrium in the economy.
 Decreasing Unemployment – It is the situation when citizens does not get job, this
circumstance is created when there are unfavourable things happening in the economy.
Disturbances in the GDP, monetary and fiscal policies result in the decreasing jobs
(Hojjat, Mehrara, and Taiebnia, 2021). However, application of macroeconomic theories
helps in allocating the budgets to each sector properly. Therefore, the level of
employment in the economy can be increased to some extent.
 Sustainable economic growth – There are various indicators of the economy which
denotes the positive and negative changes. By distributing the wealth to each sector
properly, the partiality between the rich and poor section is minimised and results in the
boost of economic performance.
 Equilibrium in Balance of payment- It is defined as the difference between the inflows
of the currency in country and outflows of the currency from the economy. It consists
three major accounts such as: Capital account, current account and financial account. The
macroeconomic policies help to attain the level of balanced BOP.
 Stable exchange rate – Exchange rate relates to the rate of own currency in rate to the
price of other currency (Komarek, 2020). The macroeconomic tools help to attract
foreign capital from several countries which improves the growth of the economy.
International currency rates stabilisation is necessary against the another yardstick of
consumer price index.
 UK economic system:
Economic system is a system in which production, resource allocation and its usage
across various geographic regions is included. There are three types of economic system
which are followed by the distinct countries. The socialist economic system is regulated
by the government of specific country which works for the welfare of the economy. The
price and level of output are decided by the government of a particular country. Another
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