Principles and Applications of Macroeconomics

This article discusses the principles and applications of macroeconomics, including the use of fiscal and monetary policies to improve economic welfare. It also covers economic systems, macroeconomic strategies, and the challenges faced by the UK government in achieving macroeconomic objectives.

Principles and
Applications of
Macroeconomic

Table of Contents
INTRODUCTION ..........................................................................................................................3
Uses of macroeconomic policies by government for improving economic welfare..................5
CONCLUSION ............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Macroeconomic is the branch of economy which studies the behaviour, performance,
decision making of a whole economy. Basically it deals in the government spendings, economic
structure, interest rate, taxes, GDP, employment rate, budgets and market structure, of a whole.
Microeconomics studies the overall scenario of the economy it main focuses what economy
performs as a whole. There are various kinds of different macroeconomic, but they studies the
behaviour of people how they act. There are some essential issues which must be take into
consideration while we study macroeconomic such as inflation and deflation, macro economists
sets various model which explaining the relationship between the factors such models are used
by the government to evaluate or construct the monetary, economic, and fiscal policies by
businesses to make business strategies in the global and domestic market (Sawyer, 2019 ). The
economy well-being is assign by the surplus or additions set by both of the consumers and
producers, and also analyse by comparing both the consumer and producers surpluses. The
macroeconomic theories and applications are very essential because it provides effective data for
the calculation of national income. Macroeconomics theory helps the investors and business to
make effective decisions by understanding the policies and effect of the economic trends. This
also concern with the economic welfare which helps in providing the wealth in an economy
among the people of economy. In the UK their economic welfare has a strong benchmark which
is also known as the “welfare state”. The UK economy is the highly developed market oriented
as well as social market economy. UK government sets strong focuses on welfare of its residents
and also on economic and social promotion. In this report we discuss about the challenges faced
by the UK government in past years which effects the overall working of the company.
Meaning and Objectives of Micro-economic Policies:-
Economics can be classified into two parts one is Micro-economic and second is
Macroeconomic. Macroeconomic is a branch of economic which studies the economy as a
whole. It deals with the structure, performance and decision making of the whole economy
whereas micro-economic is completely different from the macroeconomic. Microeconomic
studies the behaviour of an individual towards the resources utilization in effective and efficient
manner ( Anderson and Minarik, 2020 ).
 Sustainable Economic Growth: It refers to the development of economy which fulfil
humans needs but in that manner which sustains the environment and natural resources

for the future generation. There are various indicators helps to analyse changes in the
economy and that could be both positive or negative. If the distribution of wealth is equal
in every sectors of economy, then it do not create any kind of partiality and inequality of
distribution between different sections present in the economy. This step also enhance
the companies performance in a country and also helps to grow and expand in the other
countries.
 Inflation: Inflation refers to increase in the general price level of goods and services. It
refers to reduction in the purchasing power of currency over a period of time and also
decreases the money value. It can be due to the shifting of demand curve for product and
services provided. Increase in the rate of inflation shows the expansion and growth of a
country over a particular period of time ( Kashyap and Raghuvanshi, 2020 ).
 Balance of Payment: It indicated the transactions between the one country and rest of
the world over a particular period of time. It summarize and analyse transactions that a
company, government and individual do with the another countries company,
government and individual. Balance of payment includes major three accounts financial
account, current account and capital account.
Economic System of UK
Economic system refers to a system of production, allocation of resources and then distribution
of product and services with in a area, society. It regulates the production factors, involve land,
labour, capital and resources. Economic system are of three type followed by the different
countries in respect of their wants and needs. The country production level is decided by the
government of that particular country which helps them to set prices and must be involve at the
time of policies building because it can effect the system of economy. Socialist economic system
is implement by each country in respect of their policies which helps them to work for the
welfare of their country in a long run. Another capitalism system determines the output and price
by the private sector. They focuses later on the welfare of economy because their main motive is
to earn revenue and maximize the profit. In UK Mixed system used which means both the
socialist and capitalist system ( Nellis and Shirley, 2022 ).

Uses of macroeconomic policies by government for improving economic welfare.
 Fiscal Policy: Fiscal policy is one of the most essential macroeconomic policy. It is used
as allocation of resources, as a way of redistribute income. It is basically a strategy which
main aim to increase demand, increase spending and lower taxes. Lower taxes because of
low tax rate consumer have more amount of money to fulfil or spend on their desire need
by this technology type consumer spending will encouraged.
 Monetary Policy: Monetary policy is also the important macroeconomic policy.
Activities of economy and control are majorly influenced by this policy. Monetary policy
refers to the tools that the central bank undertaken to control the whole supply of money
and can achieve the sustainable economic growth. Monetary policy tools are lending cash
to banks directly, stability in interest rate or changes in requirements of bank reserve. Th
main aim of monetary policy is to keep the economy stable at the rate which is either too
hot or nor too cold. Central bank discourages the spending by force up the rate of interest
on the borrowings or encourage more spendings and borrowings by force down the rate
of interest ( Lovering, 2018 ).
 Low Income Taxes: Low income tax enhance the economy by boosting the spendings.
The sector of economy is at high risk due to the inflexible market nature. It majorly
depend on the supply policy. It refers to direct correlation between the employment
growth opportunity at low interest rate and the government inflammation.
There are some Macroeconomic Strategies that framed for enhancing the economic
welfare of the country:
 Conservative Approach: Some of the issues in the economy are uncontrollable in nature
such as deficiency in budget and inflation Solution for this issue can be solved by the
various government policies and that are Fiscal policy and monetary policy.
 Heterodox Approach: Heterodox approach refers to the non-traditional method which
supports to generate employment level and help to establish the economy.
 Standard Keynesian: Standard Keynesian indicated that there are so many issues and
that issues can be solve with the support of expansionary monetary policies and fiscal
policy and there main aim is to up the margin of the public saving which helps the
economy to expand and grow effectively ( Cecchetti and Krause, 2022 ).

In relation to above Case UK is well-established independent country and it's major part are
acquired by the England with the help of Fiscal and monetary policies there are some numerous
economic welfare that are given below:
 Gender Disparities: Monetary and fiscal policies are planed by the government of
countries which helps then to reduce the gap between among the various discrimination
and partialities faced by then on the basis caste, religious, colour.
 Wages Differentials: Wages differentials refers to the partialities in the wages of people
by same skills but related from different location and areas. These strategies of
macroeconomic supports to decrease the problems belongs to different records in wages
paid and what are the major situation behind that so, that all these issues can be solved
( IMPACT, 2018 ).
 Economy GDP: In a certain accounting period, every country manufacture and produces
their goods and services which supports to have its share of contribution in the economy
and that increases the level of employment which improves the wealth of the country.
 Increase in Financial Inclusion: Increasing in financial inclusion refers to the
accessibility of the financial resources of each sector in economy. It indicates that each
and every person belonging to a specific country has the right to access the services
which are affordable in terms of time and cost.
 Labour Market: Labour market is also known as the Job market and that major concern
on the demand and supply of labours which should be done with the help of demand in
the market and that helps to improve the various employment opportunities in an
economy ( Vecchi, Brusoni and Borgonovi, 2019 ).
With the help of these macroeconomic strategies the level of finance improve which effects the
status of citizens and economic welfare.
Hurdles faced by United Kingdom in accomplishing the macroeconomics objectives:-
In previous ten years, UK government and population has experienced numerous economic
hurdles:-
 Brexit:- In the previous decades, there were many political battles arises between
different countries and due to these battles after referendum held in June 2016, UK leave
the European Union on 2020, 31 January. Following that, a transition time period of 11

months was given to all parties so that they could negotiate with accord of everyone on
every type of agreements which were signed for trade. While Brexit, UK was only a
remaining part of some custom unions and single market of European union due to
restrained by their rules. After the arduous time has been passed and long negotiation
combative, the country signed a deal of commerce and collaboration on 24 December,
2020 which came in effect from 31 December, 2020 onwards. Boris Johnson (the prime
minister of UK) declared a deal of £660 billion ($885 billion) as his gift to people of
British on eve of Christmas. He claimed that this deal will permit UK to retake the
authorities of controlling its own administration or legislation and eliminated all custom
duties from trade ( Hoang and Weber, 2018 ). In second quarter of 2016, sensors of
investment did a analysis of UK's economic health in terms of determining effect of
European union referendum. UK's GDP reported a growth of 14.3% between time period
of quarter 2 of 2016 to quarter 3 of 2021. These figures are published by OECD. This is
slowest growth rate of GDP in comparison to the other four countries GDP growth rate in
European union. Outcomes of Brexit on UK's economy is rise in inflation rate more in
recent 13 years which cause in various economic frustrations. Industries were already
suffering from lack of development and financial crisis while Covid-19 hits boundaries
of country and made things worst. In fiscal year 2020-21, estimation of country's GDP
rate is very low ( Croucher and Tiwari, 2020 ).
 Pandemic:- Covid-19 impacts the UK's economy badly, economy suffers from monetary
instability. GDP rate reported loss of 19% in second quarter of 2020. This is the worst
situation UK has ever seen before and biggest declined in GDP rate of UK. Cutbacks
utilisation and cumulative outcomes from considerable ventures were main reasons of
this decline. Due to Covid-19 pandemic, subsidised uses of resources by government
which are not enough to recover this declination in investment rate and over utilisation.
Afterwards, Great UK's trade profit has positively impact GDP but with declination rate
in second quarter of 2021. In this loss suffered by UK economy, Chronic unemployment
was perform as major microeconomic variable. Unemployment arises continuously from
4% in January 2020 to 5% in December 2020 while GDP showed significant reduction.
Whenever government tries to recover from financial crisis, there was always some risks
arises such as crucial growth, these risks needs to be considered because of suppressed

return which resulting in dipping economic literacy and also indicates risk of inflation. In
other words, pandemic and shutdown which imposes restrictions on all economic
activities has been negatively impact economy of United Kingdom. Usage reduction and
divination were became major offenders defending growth. Government strategies results
in shrinking GDP growth rate brutally while unemployment has rises continuously. UK
government imposed lock down on 23 march, 2020 with the expectation to stop virus
transmission, this helps in saving people lives at some level but downs economic
activities. This shut down leads to temporarily and permanent closing of many
businesses. Around 60% businesses continued their trades with falling revenues.
Approximately, 50% people lost their jobs ( Araf, Sarkar and Ullah, 2020 ).
Suggested solution for above mentioned economic problems:-
As reasons of economic issues are determined. Below are few possible ways are discussed
through which UK's government can improve worst condition help due to concerns addressed
above:-
 Optimum utilization of resources:- Resources are scare, this is fundamental. Nation
needs to utilize them in efficient manner. This also indicates that country's have limited
monetary funds and financial budget is always less than the requirements. As an effect, if
nation frame policies and plans with wisely investments and efficiently use of assets then
this will result in higher yield ( Helm, 2019 ).
 Contractionary financial policies:- Whenever an economy is reported experiencing
issue of rise in prices of commodities, monetary policies are only options to be
considered. These policies help in controlling money flowing in market by rising the
interest rates which causes reduction in purchasing power of the economy. These policies
ultimately results in decreasing the supply of money. Government has the authority and
responsibility to control rising prices for preventing inflation with in economy.
 Demonetisation of currency:- For combating corruption and removing black money
from the economy, a country's government needs to ban old currency and announces
issue of new currency of change in currency patterns. This will leads to improve
economic living standards and increases the value of money ( Rahmato, 2018 ).
 Corrections in disequilibrium:- When situation of exceeding cash amount more than
equilibrium occurs, this is disequilibrium. Evaluation can be done with two different

ways non-monetary and monetary. Economic indicators involves exchange of currency,
devaluation and deflation. Non financial plans and strategies includes imports and taxes.
Government policies of controlling price imposes restrictions on import quantity that is
bring into the country by setting highest level which is carried in. Liberalization of trades
enables businesses and government produce goods and services that customer would buy
from manufacture. In the pandemic, UK started manufacturing those products also which
they import earlier so that restriction of epidemic could not affect them. It enables them
to make adjustments in balance of payment level of difference ( Bordo and Kydland,
2021 ).
 Increase in investment:- In terms of initiating more trust between businesses and
investors, United Kingdom government had began incorporating a series of development
and training programs. This exchange of funds and ownership helps in boosting
economic growth and increases GDP.
 Aggressively focuses on enhancement of aggregate market forces:- Balance of
demand and supply in market can be maintained with some adjustments in political and
monetary systems. Awareness among households towards importance of investing their
money and funds wisely can become a great source in boosting the growth volume in
economy. Purchasing power of a country's consumer shows economic wealth of nation,
because it reflects flow of money in the economy, higher level of public expenses by
people of a country have power of increasing customer spending. When central
government remove restrictions from money supply control such as decrease in interests
and taxes from market, individuals began their expenditures and spent more on
commodities and services, which facilitates economic growth and aggregate demand
( Drakopoulos, 2020 ).

CONCLUSION
Above report concludes, that Macroeconomic policies plays a vital role in economic
stability of country. Governments used these policies to enhance economic conditions. It deals
with supply and demand of country as whole. Macroeconomics have numerous factors that is
used by administration of country for growth and development in a particular time period. Its
policies and frameworks helps in tackling or even solving various economic issues that arises on
nation level and can become national crisis, if not solved at right time. Also helps in forecasting
future or predicting problems that are unpredictable by nature and provide ways to find better
solutions with their implementation that can help country in retaining its purchasing power for
long term. It helps businesses in maintaining sustainable growth and success in industry and
with help of analysis concerning macroeconomic strategies they can stand against competition
prevailing in market. There are many measures available in macroeconomics which helps in
tackling each kind of situation that would impact negatively a country's growth. Such as,
financial and non-financial measures helps in controlling inflation or deflation both and also
ensures price stability. In recent time, world faced a global crisis which was covid-19. Pandemic
restricted every countries development and global exchange, which leads to decrease GDP rate,
rise in inflation and arise of other issues. But, with help of macroeconomics policies and
strategies based on these helps government in recovering with effect of pandemic and countries
starts growing. This article mainly focuses on two aspects. Most part discusses about concern of
macroeconomics with how functions of economy and people's behaviour towards one factor
affects overall structure of another. This puts some limitation on economic expansion rate with
combining tax rates, interest rates and expenditure for public welfare. Macroeconomic concepts
covers a wide range of economic variables such as different unemployment rates, GDP, inflation
impacting differentiated prices of goods and services and other indicators. Diverse and wide
range of difficulties can be addressed with macroeconomics field. As UK is the leading country
in economic powerhouse. Social welfare become a difficult and important issue to be solve in
United Kingdom. UK government spend a huge amount on welfare of society to settle down
social and political conflicts. With combining of welfare programs, improvement in living
standards, controlled GDP and management of fiscal responsibilities together contributed in

stabilizing inflation rate. Social and financial welfare metrics helps in assessing sustainable
growth.

REFERENCES
Books and Journals
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Araf, Y., Sarkar, B. and Ullah, M.A., 2020. COVID-19 pandemic burden on global economy: a
paradigm shift.
Bordo, M.D. and Kydland, F.E., 2021. The gold standard as a rule: An essay in
exploration. Explorations in Economic History, 32(4). pp.423-464.
Croucher, J.S. and Tiwari, P., 2020. Long-term and short-term house price dynamics in China’s
first tier and second tier main 13 cities. The Chinese Economy, 53(1), pp.62-81.
Drakopoulos, S.A., 2020. SATISFICING AND SEQUENTIAL TARGETS IN ECONOMIC
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Economy, 23(1). pp.49-64.
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assessment. Oxford Review of Economic Policy, 25(3). pp.307-326.
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Rahmato, D., 2018. The peasant and the state. Custom books publishing.
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Cecchetti, S.G. and Krause, S., 2022. Central bank structure, policy efficiency, and
macroeconomic performance: exploring empirical relationships. Review-Federal
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Lovering, J., 2018. Globalization, unemployment and ‘social exclusion’in Europe: three
perspectives on the current policy debate. International planning studies, 3(1). pp.35-56.
Vecchi, V., Brusoni, M. and Borgonovi, E., 2019. Public Authorities for Entrepreneurship: A
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