Macroeconomics: Importance of Government Policies in Boosting Economic Condition

This report discusses the significance of macroeconomics and its policies in boosting economic conditions. It explores the effectiveness of UK administrations in the last 10 years and the obstacles they still face. The report also covers the advantages and disadvantages of monetary, fiscal, and exchange rate policies. It concludes with recommendations for the government to overcome the challenges.

Macroeconomics
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Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Define and illustrate why governments utilise macroeconomic plan to boost economic
condition, using examples. During last ten years, how effective have UK administrations
been, and also what obstacles do they still face?....................................................................3
Recommendations................................................................................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11
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INTRODUCTION
Macroeconomics deals with the issues such as unemployment, scarcity of resources and
price instability. Unemployment, hunger levels, taste, and other indicators of human wellbeing
are all indicators of macroeconomic and challenges in the international market (Ahmed Khan and
Siddiqui 2020). These are policies that are related to activities that take place across the entire
country, with the primary vision of attaining macroeconomic aims and outcomes through the use
of such policy tools. The macroeconomic policy is significant for the providing the stability in
the environment of the economy for fostering the sustainability and the economy growth of UK.
These enable the country to control the economic fluctuations in the economy.
The concept of economic welfare is also discussed in this report. Economic welfare or
community surplus is a concept of allocation of resources to the society in such a way that it
positively affects the society. The economic welfare is maintained by the government of UK by
improving the productivity of the nation by making and modifying new macroeconomic policies.
Also the objective is to provide a stability in term of employment and people become
independent in serving their country (Andréosso-O'Callaghan, Moon and Sohn 2021).
This essay contains the basic understanding of the macroeconomics and its significance. It
also entails the economic system followed by the UK for the welfare of the nation. Further, the
polices of macroeconomics are elaborated in the report by growing the sustainable behaviour of
UK. Moreover, the pros and cons of these polices are descries in the context of UK by effectively
using the 10 years’ quantitative data of these policies. Also, the challenges that are faced by the
government are elaborated and recommendations are provided on this basis at the end of the
essay.
MAIN BODY
Define and illustrate why governments utilise macroeconomic plan to boost economic condition,
using examples. During last ten years, how effective have UK administrations been, and
also what obstacles do they still face?
Economics is majorly divided into two categories: Micro and macroeconomics. Micro
economics is branch of economics that deals with the individual demand, supply, cost, revenue
and other factors of production. Whereas macroeconomics deals with the aggregate demand and
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supply of the complete market. Macroeconomics is the study of overall demand, supply and
several other factors of production. There is a significance of macroeconomics which helps in
maintaining the price stability of the economy. The application of macroeconomics is very broad
because it includes the estimation of Gross national product. The macroeconomics helps to settle
the fluctuations of the prices in the economy. The level of output produced in the economy can
also enhanced by applying the macroeconomic policies. The equilibrium level of balance of
payment can be attain by using the approach of macroeconomic policies. It is defined as the sum
total of all the goods and services produced in an accounting year. It is a field of economic
principles that analyses the entire country's economic efficiency and competitive placement on a
larger scale. The economic policies growth is further subdivided into fiscal, procurement, and
financial policies, and other federal policies that benefit these policies towards developmental
process, including such industrial, environment, and competitiveness policies. Macro
environment is indeed the part of economics concerned also with overall level of economic
activity. It shows how macroeconomic functions are performing and describes how income
distribution and jobs are measured using producers and consumers aggregate in the country.
Macroeconomic indicators aids in achieving the intended growth objectives for a country by
enhancing the amount of employment and economic growth, lowering output level and many
more. The impact of macroeconomic policy on the business in process of reaching aims and
targets is examined in depth in this essay. The categories of macroeconomic policy covered in
this essay include monetary, fiscal, and exchange rate policies. These programs have various
advantages and disadvantages that are explored in detail, demonstrating the relevance of
macroeconomic in a country's progress and expansion. Formulation of economic policies can be
done with the help of complete understanding of the macroeconomics (Anne and Purwono
2018). Every economy deals with problem of scarcity of resources. There are several uses of the
resources but it is limited. There are several purpose of macroeconomics which can be explained
as given below –
Increase the level of GDP: It can be termed as sum of products and services produced in an
accounting year. The macroeconomics helps to achieve the higher level of GDP of the economy
which contributes in growth of the economy. Fair income distribution: Every country faces the
issue of unequal distribution of wealth in the economy. It creates a problem of disparity because
poor are becoming more poor and rich are getting wealthier.
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Figure 1GDP growth (annual %) - United Kingdom
The above graph showcases the GDP growth rate of UK. It can be evaluated from the above
graph the GDP has grown a little bit of UK till 2014, then it is decreased consecutively till 2018
at almost a constant rate. The GDP growth rate in 2010 was approximately 2 which then decrease
till 1.47 in 2012 than it inclined till 2014 by 3.5 around. Further, it diminished to 1.8
approximately in 2019. After that, the GDP growth rate of the country UK declined very speedily
and now it resulted in negative GDP growth annual rate.
Economic welfare is the concept of allocating resources to the society in such a way that
citizens of the country get benefited by the minimising the cost of products and the concept of
economic welfare starts with the application of microeconomics. It takes the concept of utility
which is want satisfying power of the consumer. The optimum allocation of resources helps in
the completing the demands of the society. From continuing with the above graph, it can be
analysed that the declination in the GDP growth rate after the year 2019 is due to the impact of
Covid and Brexit. It means that the confidence of customers towards the products and services
has worsened which has resulted in lessening of the demand.
There are several economic policies which government are using to improve the
economic welfare. Monetary policy is a technique used to improve the value of currency in the
economy. There are several factors such as money supply and achieving sustainable economic
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growth. The monetary policy can be divided into two types: expansionary monetary policy and
contraction monetary policy. In case of expansionary monetary policy, the central bank of UK
decreases the rate of interest which improves the loans taken by the households and eventually
leads to increase the purchasing power of the economy. The economic welfare can be attained by
improving the consumption of the economy (ARIMORO, 2019). On the other hand, if central
bank of England increases the rate of interest and purchasing power of the household is declined.
It is framed by monetary policy committee and frame eight times a year. It includes quantitative
and qualitative measures. The quantitative measures include bank rate and repo rate. Repo rate is
the rate at which central bank charges some interest from commercial banks. It is called
repurchasing agreement or option. The qualitative method includes rationing of credit, change in
marginal requirement and moral suasion. Fiscal policy uses the policies of tax and spending of
the government to improve the macroeconomic conditions of the economy. There are two types
of fiscal policy: expansionary fiscal policy and contractionary fiscal policy. In case of
expansionary fiscal policy, the government of UK decreases the tax rate of the economy which
improves the consumption of the households (Deleidi and Mazzucato 2021). It will result in
increasing the economic welfare of the society and country will begin to prosper. The exchange
rate policy is defined as method in which a country arranges its currency with respect to foreign
currencies. There are three types of exchange rate policies: floating exchange, fixed exchange
and pegged float exchange. Currency value and exchange rate are impacted by the change in
interest rates. The debt of government also impacts currency value and exchange rate.
Fiscal policy relates to government expenditures that are spent in different citizenry
expenditures and taxes budgets that are used to fund other infrastructure projects which the
planning to conduct. The money is being spent at multiple levels, including municipal, state, and
federal, to assist various communities and programs. The government spends money on a variety
of programs, including teaching in school systems, transportation in the nation, security to
protect the entire nation, and interest payments to the Central Bank. The law sets aside a fixed
sum that it needs to heal from collecting taxes so it can fulfill its obligations.
Changes in the quantity of money, borrowing costs, and the currency value are all part of
monetary policy; nevertheless, some economists regard the exchange rate to be a separate
strategy. Alterations in interest rates are among the country's main monetary policies. As interest
rates go up, the government has implemented various a deflationary monetary system, which
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lowers the broad populace's spending and investment rates as the requirement falls. Households
will begin to invest much less than their buying power declines and loan costs rise, and that they
will begin to save their income. If the banking system finances, the institution will generate more
revenue and repurchase treasury securities, causing other corporate and non-commercial bank
lending more funds, and conversely (Goutte and Damette 2020). The corporation will indeed
make smaller investments as the broader wider public demand decreases. On behalf of the
nation, the monetary authority of that nation executed these significant macroeconomic variables.
Exchange rate policy refers to how a nation manages its currencies, which covers both
different reserves as well as the currency market. The pace during which two distinct currencies
are swapped in terms of money is known as the exchange rate. Modifications throughout this rate
have a direct impact on the manufacturing costs of those companies who trade and importing
of commodities. The rivalry of domestically produced goods and services has improved as a
result of the exchange rate, which regulates its pricing or value of the item correspondingly.
There are various advantages and disadvantages of the policies used in economic welfare.
The advantages of monetary policy are helps to promote the lower inflation rate; it is defined as
general rise in the price level of the economy which reduces the purchasing power of the
economy (Hassler, 2021). The monetary policy assist in stabilizing the prices of the economy
which reduces the inflation rate. when money supply improves and interest rates are lowered
then it gives rise to the portion of exports. When Monetary policy is framed, it takes times in its
implementation which disturb the economy at that point of time. The another disadvantage of
monetary policy is that it faces uncertainty for few players in the market. This tool tries to
provide equal opportunity to everyone but still people has to face risks of the financial markets.
There are several advantages of the fiscal policy which are reduction in the number of
unemployment, it can be attained by cut in the tax rates and it will lead to rise the demand for
goods and services. It simply means that government has adopted expansionary fiscal policy to
reduce the impact of unemployment. The fiscal policy helps to reduce the budget deficit. It is
condition in which expenditures of the economy exceeds revenue of the economy. The budget of
the government should attain its equilibrium or show the signs of progress. If the expenses of the
country are less than the income, in that case government is in a favorable position. To correct
the disequilibrium in the economy, government should decline its level of public spending and
raise the tax rates. In that case, government will be able to reduce the effect of budget deficit.
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The main motive of every economy is to foster the economic growth which can be possible by
framing effective fiscal policies in the country (Islam and O’Gorman 2019). There are certain
limitations of the fiscal policies as well, when there is conflict in the usage of fiscal policy. There
are certain doubts such as which fiscal policy to apply either expansionary or contraction. The
fiscal policy is applied to whole economy but it is not necessary that it is required by every part
of the economy. Therefore, it sometimes may adversely affect the economy. The fiscal policy of
the economy is rigid; it means that policy cannot be modified till a particular point of time. Thus,
the fiscal policy does not provide as much flexibility. A fixed exchange rate policy ensures the
flow of currency from one country to another. It enables the less developed countries to attract
foreign investment in the country. In case of floating exchange rate, when the deficit increases,
the country is required to take more currency from the other nations. The exchange rate policy
helps to improve the level of international transactions takes place between the different nations.
The transactions helps to remove the barriers of trade between the nations. It results into the open
economy through which various currencies of other nations can be attracted in the one's own
nation. It helps the different firms to invest in several securities which improves the foreign
portfolio investment in the country. The investment helps to avoids currency fluctuations. The
major significance of exchange rate policy is that it helps in avoiding the devaluation of the
currency. The reason for the devaluation of the currency is trade imbalance. Thus, the exchange
rate policy helps to combat the imbalances in the balance of payment of the country. It keeps the
level of inflation low because the aggregate demand of the country rises with the improvement in
level of import. The enterprises have less chance of cutting costs. The limitations faced by
exchange rate policy are: It is less flexible because it does not respond promptly with the
fluctuation of economic cycles. The speculations made in respect of future exchange rate
increases the risk of the economy. The two types of exchange rate are fixed and flexible. The
floating exchange rate is highly volatile which rises the risk of the economy.
Macroeconomic policy helps to foster the economic growth in a sustainable way. There
are various challenges which are to be faced by the economy while preparing its economic
policies (Parvin, RAMEZANZADEH and KHOSHKALAM 2019). There are certain factors on
micro level which affect the working of the policies framed to correct the level of equilibrium in
the economy.
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There have been various hindrances that United Kingdom faces in implementing reforms
on a greater scale, and that these issues will produce roadblocks for individuals and also the
corporations that operate throughout the country, as companies struggle to conduct all its
functional activities efficiently. Inflation and unemployment are two key problems that impact
individuals and businesses both intrinsically and extrinsically of UK.
Inflation is among the most serious problems which the government of UK faces, because
it impacts in cost of products and services significantly, posing a dilemma for both households
and businesses. As when the rate of inflation rises, the amount of debt which the government is
providing decreases, and the taxation profits on the money held to recoup from this era rise.
Inflation is intrinsically linked to financial success and development, as a greater rate has a far-
reaching impact on the entire economy (Zhou, Zhang and Liu, 2020). It destroys the supply of
currency by encouraging people to invest on items that are less likely to depreciate in value.
When a company's revenue grows in parallel with the market, it begins to invest
thousands on the numerous products it consumes, as well as ancillary activities. Through all the
formation and regularisation of monetary and fiscal policy, there really are numerous ways to
reduce or manage inflationary pressure. In exchange for monetary policy in UK, tax policy can
manage inflation through affecting the amount of salaries paid to the employee, demand and
supply balancing, and increasing the currency value to favour the country's economic own
currency, among other things (Shahzad, Hurley and Ferrer 2021). As the level of inflation rises,
the cost of essential necessities rises as well, affecting people from all walks of life. Such
policies are governed with the goal of lowering costs while also keeping inflationary at a
reasonable level such that businesses and the sector may continue to operate.
For centuries, unemployment has been viewed as a burden in UK since it separates
community into several stages and groups. It is seen as a difficulty to for the UK government to
handle them, as well as the societal implications. Apart from unemployment, there are a number
of things that the government should handle. Nevertheless, joblessness is a significant issue to be
solved. It also leads to the waste of valuable resources, increased strife among diverse
communities, and an increase in poverty levels, among other things (ÜLGER DANACI, 2020).
These would be the problems that the government of UK must address using fiscal,
monetary, and macroeconomic variables policies. Monetary policy aids the government in
controlling the amount of money in circulation, allowing wealth to be dispersed more equitably
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and deprivation to be contained. Likewise, fiscal policy aids the country in keeping costs as low
as possible and has an impact on both the market and economic growth at the same time. Such
policies give a variety of methods for controlling resources reusing and recycling, as well as
appraising the integrity of labour generated by individuals from lower socioeconomic groups
(Wang and et.al., 2020).
Recommendations
There still are various methods that the administration may solve jobless, although it is
critical to first tackle the sort of joblessness that the community is experiencing. The authorities
can use structural reforms to lower or manage the rate, hence increasing job possibilities, that
could be accomplished through improving budget schemes and plans. Structural unemployment
seems to have a greater rate since existing labour does not provide a diverse set of knowledge
and skills, thus they do not even have other options once they are jobless. To address this issue,
multiple training exercises at multiple levels must always be implemented in order to take
control of the situation.
In time to retain inflation under control, cost containment regulations must be implemented,
and pay rates should be adjusted in response to changes in market dynamics. The administration
can alleviate this problem by raising interest rates and tightening control of the money
distribution chain in the business. In a rather context, monetary policies are seen as one of the
most effective tools for increased steadily over the years at a manageable level. If indeed the
government implements such policies, hyperinflation and joblessness may be controlled from of
the ground surface.
CONCLUSION
This essay discusses how the administration has used monetary stability to improve
economic wellbeing as well as the issues they have faced over the last ten years, including what
has been resolved as well as what remains unsolved. The relevance of macroeconomic
management and its significance have been emphasized in this essay, as well as its application
towards the administration. At the culmination of such a report, various suggestions have been
provided to the government's handling critical problems that the nation should address. Including
the impact of unemployment and higher inflation rates, as well as how to address these issues
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appropriately. It is critical is for government to implement management over all these aspects to
an acceptable degree in order to promote social fairness and also for citizens to have faith in the
nation's policy judgments.
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REFERENCES
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Covid-19 Crisis: The Macroeconomic Response in the US, Europe and East Asia.
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DEVELOPMENT IN LAGOS, NIGERIA (2000-2017) (Doctoral dissertation, FEDERAL
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Zhou, X., Zhang, K. and Liu, H., 2020. Systemic Risks, Macroeconomic Shocks, and Financial
Security in China. In CHINA’S RISE AND INTERNATIONALIZATION: Regional and
Global Challenges and Impacts (pp. 177-209).
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