Principles and Applications of Macroeconomics: Challenges and Policies for UK Economy

This report discusses the concept, aim and purpose of macroeconomic policies, the system of UK economic, challenges faced by the government of UK in the past 10 years, and policies for bettering the economic welfare. It covers topics such as inflation, equilibrium in balance of payment, and maximizing financial involvement. The report also discusses the challenges faced by the UK government in the past 10 years, including Brexit and the COVID-19 pandemic.

Principles and
Applications of
Macroeconomics

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Concept, aim and the purpose of macroeconomic policies.........................................................1
System of UK economic.............................................................................................................2
Government use some macroeconomic policies for bettering the economic welfare.................3
How the Economy of UK can better achieve the success in the past 10 Years..........................4
Discussing the challenges that the government of UK deals with since last 10 years................5
Give some suggestions to solve the above challenges which are describes above: ...................8
CONCLUSION................................................................................................................................8
REFERENCES .............................................................................................................................10

INTRODUCTION
The branch of macroeconomics is mainly discussed about the government spending,
preparation of budgets, rate of interest, economy framework and the analyse the market
completely. Each and every economy face multiples changes of economics that consider in
account of the cyclic economy like Boom, depression and recession(Abubakar, 2020). It also
involves some another significant problems which need to be deliberated like inflation, deflation
which maximize the pricing scale. The overall sum of all goods and services can be elaborated in
gross domestic product which are move further during the accounting year. The models and
applications are useful in macroeconomics because it provide good help for computing the world
national income. In this case study it also included the society thoughts and welfare of economic.
The welfare of economic can be elaborated in the theory of economics which assists to share the
equal wealth among the individual in an economy and the uses of scarce fund in a very
productive and effectual manner. It also express the various of challenges that are faced by the
government of UK in last few years. Every issue that create an impact on the functioning and
working of the nation that need to addressed on time it would assist to determine the answer of
their issues and the problems which are related to the inflation and deflation which are to be
discussed below in this report.
MAIN BODY
Concept, aim and the purpose of macroeconomic policies
The concept of economics can be expressed by classified into two parts which includes
micro and macroeconomics. The concept of microeconomics include demand, supply, cost,
expenditures and examining the revenue and profit which are to created from the projects on the
ground of people and firm. This concept is mainly deals in the individual stage also in
macroeconomics concept they mainly deals in the overall sector which means carry projections
and tasks fully (Alekhina and Yoshino, 2019). Microeconomics assists to know the behaviour of
one individual also in macroeconomics it assists to know the nation behaviour on the basis of
higher scale. When they have good idea in relation to the changes of economic in prices and
index of price firms refer this in terms of macroeconomics. It is very significant for every
organization to create appropriate utilization of macroeconomics in every country. Which are to
be discussed as under:
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 Create better standard of living: when the nation gross domestic product is maximizes,
the residents of a nation anticipate the increase in their earning and income level also. It
will maximize the buying capacity which support to increase demand of qualitative
products for the individual people in the marketplace.
 Inflation: This can be described as the increase in the level of nation price. It can be
consider due to the movement of demand curve for the supplier of products and
services(Creel, 2020). The increase of reflective rate of growth and development of the
nation over a certain duration of time. Higher inflation show the limitations and would
create an impact on the development of market economy in a negative manner. It also
declines the buying power which are present for the individual and also reduce the worth
of money. So it clear the macroeconomics offers a source to achieve the p[point of
equilibrium in economy.
 Stage of equilibrium in balance of payment: It described about the dissimilarity among
the inflow and outflow of money from the nation(Çukur, 2020). It involves three
important accounts which includes: capital account, current account and financial
account. The planning of macroeconomic assist to achieve the balance of payment stage.
 Justifiable growth of economic: It includes some separate kinds of signals which assists
to measure the variations in economy which can be positive and adverse as well. If the
wealth is shared appropriately in each aspect, then it may be destruct the non-equalization
and incomplete distribution among the different divisions which are to be available in the
economy. It also support to better and improvise the results of firms which are already
setup in the nation it would also assist to develop and grow in another nations also.
System of UK economic
The system of economic can be described as a scheme which involves manufacturing,
finding of resources to the helpful fields and appropriate use of geographical location. It involves
some three kinds of economic system which are required to be implemented through individual
nations in context to their requirements and desires(Fang and et.al., 2018). The socialistic system
of economic is followed by every nation in context of their frequent approach in environment it
would assist to work in long run for the nation welfare. The nation level of production is decided
by the political party of a specific country which assist them to choose the prices which mainly
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involved at the time of creating policies because it mainly influence the system of economic also.
The other system which can be described as capitalist economy and identifies the price and
outcomes of private sector. The main goal is to increase the profit and revenue and mainly
concentrate on the economic welfare(Shirota, 2021). In the report of UK nation, the mixed
system in which it merges the characteristics of socialistic and capitalistic market. It open the
availability of both private and public sector. It declare the freedom in case of economic tasks
and involvement of government economic welfare.
 Steadiness in exchange rate: The rate of exchange discuss about the nation currency
rate which mainly deals in relation of another nations. The methods of
macroeconomics advises to proceed helpful track which could assist to create some
foreign investments of individual nations. It will assist to serve the development and
growth of market economy. Stabilization in the rate of international currency which
facilitate a source to analyse and measure the price of consumer index.
Government use some macroeconomic policies for bettering the economic welfare.
There are various approaches and policies by the aid of which the nations achieve the
economic welfare. Some of the policies and approaches for improving the economic welfare are
explained below-
 Heterodox approach- It aids the nation in maintaining the economy and improve the rate
of employment so that target of enhancing national income can be achieved in a
successful way.
 Monetary policy- It aids the nation in achieving the growth of economy. The policy is
fully controlled by the central banks in many nations(Ilich, 2021). They control the
money supply in the nation. It makes the decisions about rates of banks. If there is
recession in nation then the central bank cuts the rates by which public gets money form
banks at very low rate. As the result money will rotate in market again and products and
services demand gets increased. Central bank do opposite when the situation of inflation
is in the market, in the situation they increase the rates due to which public gets moneys
at more higher rate of interest. As its result inflation in nation gets in control and
government will be able in achieving the welfare of economy.
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 Fiscal Policy- It aids in situations of recession and inflation but this policy is in control of
government. Fiscal policy may be contractionary or expansionary which is used by
governments in comparison to contractionary(Irangi, 2020). Expansionary policy aids in
period of recession where government decreases tax on customers and start spending
money on social welfare so the period of recession may be impersonal. At the time of
contractionary
policy it mainly utilized at the time period of inflation because of this government
declines its spending on the community welfare and it also decline the wages of political
sector so that money supply of can be declined in the market.
How the Economy of UK can better achieve the success in the past 10 Years.
The country of UK is one of the most strongest along with the self-reliant nation and the
big part of the country is obtained by the country England. With the assistance opf tow
macroeconomic policies which mainly includes monetary and fiscal policy, it includes some
many economic welfare that can be achieved which are as discussed below:
 Differences in wage rate: It discussed about the inequality in the individual wages who
carry the similar skills and knowledge but belong from various different locations and
fields(Jiang and et.al., 2019). The planning of macroeconomic assist to reduce the
problems which are based upon the differences in recording the system of paid wages and
what could be the causes behind this so that it can bettered.
 Inequality in gender: Plan of government nations like monetary and fiscal policy in such
a manner which would assist to decline the disparity among the certain inclination and
favouritism which are faced by the individual of UK country in context of colour, caste,
creed, religion etc.
 Market labour: It is also known as the market job that included the demand and supply of
workers which importantly met with the assistance of market demand. It holds and that
would assist to better the chances of employment in the nation.
 Economic well-being and the GDP of the nation: Mostly, each and every nation products
and services are produced and manufactured in a several accounting period which would
assist to have the distribution of sharing in economy which would assist to better the
nation wealth, and manufacture desired outcomes and maximise the employment level.
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 Maximize in financial involvement: It can be described as a availability of financial funds
of each aspect in a nation's economy. It shows that every individual belonging of a
specific nation which has been available to the services and it would be cheaper in form
of expense and time(Makin and Layton, 2021). The applicability of macroeconomic plans
assists to better finance level which mainly influences the welfare of economic and the
position of residents available in a specific nation.
The above line diagram express that UK nation have maintain the rate of GDP form 2011 to
2019. It show the decrement in the rate of GDP in the year 2020 because of the world pandemic
which affect the various of countries along with the UK. Because of all the causes the
government of UK keep their GDP in last 10 years which already shown in the chart. The world
pandemic and many more challenges face by the country UK in last 10 years which are already
explained above in this case study.
Discussing the challenges that the government of UK deals with since last 10 years.
In this report it already discussed that UK country is one of the most strongest economy
in the whole globe(Miletić, 2018). But it also deals with multiple challenges since last 10 years
to meet the better growth and welfare of the economy, since 2008 it shows the bad efficiency
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development, production sectors, housing market of economy express the high price and it force
the inflation cost. These are the challenges face and controlled by the government of UK since
last 10 years but there are some two big challenges which influence the complete economy of the
nation which are as discussed below:
Brexit: The name Brexit is come in existence when the UK nation become individual from the
European union. It is mainly created with the help of two words which includes Britain and
exit(Niepelt, 2019). This case was completed on 31st January 2020 but before its happening of
this event the voting of public work conducted in June 2016 by the government of UK in which
there are various of questions arises in front of residents and the question was “ UK should still a
part of the European Union or left the European Union?” and 541.89% of the residents selected
for leave the European Union.
As a member of European Union(EU), the country UK having a great benefits in trade
challenges as comparison to another nations because the country European union have a good
bargaining power and in a group they have a large scale economy. In that case, after the Brexit
come into existence it's not simple for the YK country to deals in trade with another nations
because another nations did not trade with them in terms of outdated terms and conditions. The
other discrimination of Brexit In terms of UK is that they do not have independent contract of
trade with European nations and it also shows the outputs that they have to spend them all the
obligations of tariff and customs which mainly supports to maximize in the expense and reduce
in the national income of UK. Brexit uncertainty can also harm and create confusion in the
execution of business projected task(Ronan, 2021). Which also supports to the closure of the
business tasks of the companies. If the voting outcome came into the pound and relinquish to 31
year less. It also influences the foreign investors decisions who invest their amount of money in
the UK market. The reduction in the rate of FDI (foreign direct investment) is 22 % for the
upcoming time period in the UK market through the effect of Brexit.
COVID -19 pandemic in world
The upcoming big problem or challenge face by the government of UK at the time of getting the
welfare of economy is the global pandemic. At the time of pandemic most of the nations exploit
the policy of lockdown and all the companies and service aspects have to finish their projections
task. Also it express the companies and firm outcomes which start facing losses to support and
reduce in GDP and the country national income for the Government of UK which are now
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capable to meet the welfare of economy(Treppner, 2022). As per the correct figures for the
economy of UK the gross domestic product of the nation in the year 2020 get reduce for almost
10% in relation to the year 2019 GDP.
The effect of pandemic and Brexit on the economy of UK helps to understand clearly with the
assistance of below chart:
The above chart helps in understanding the impact of Brexit and covid19 in the nation of UK
economy and they have been faced a lot at that particular point of time. It shows the decrement
on the import and export of the commodities. There is only one sector in economy which doesn't
have any effect on the above two challenges and the sector is petroleum goods. There are some
natural resources which involves the agricultural sector of the nation. Overall export were
reduced by £6.9 billion (adverse 66.8%) and import were reduced by £11.1 billion ( adverse
80.6%) in quarter 2021 related with quarter 2019.
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Give some suggestions to solve the above challenges which are describes above:
They indicates some solutions which helps the UK government to deal with that
challenges and meet the welfare of economic .
Adequate use of resources: one of the important solution is the UK government need to utilize
their resources in case of its natural and monetary so that it increment in their level of
manufacturing and deduce the expenditures which supports to maximise in the GDP and it also
show the outcomes to maximise in the country national income.
Contraction in Fiscal policy: The UK government have decline the money supply in the economy
of market after the COVID pandemic and Brexit which create the demand of the goods and
services which maximise the price of the goods and also show increment(Tsyplakov and
Melnikova, 2021). Also it show the outcomes of inflation difficulty which are to increases so,
government have mainly handle the inflation in the UK nation by maximising the bank and
declining the wages and salaries of governmental workers and employees. With the assistance of
this plan the buying capacity of individual money get decline and also decreases the demand of
goods.
It includes some another paths and it create a cause from the government of UK to deal with the
challenges, the another solutions were highly reducing, corrections in disequilibrium and full
concentration on the forces of market.
CONCLUSION
As it is concluded from the above report that it becomes helpful to understand that the
concept of macroeconomics is the bigger prospect for each and every economy of the UK nation.
It also involves some multiple equipments and techniques through the assistance in which the
government of UK can meet the welfare of economic simply. The techniques and equipments of
macroeconomic policy are monetary and fiscal policy. In this report it also include the analysis
by the assistance of UK government to meet the welfare of economic. Main problems which are
faced by the government of UK and it also involved the issues or challenges which are related to
the Brexit and COVID pandemic. The important suggestions and solutions are shown above in
this report which are described that how the government of UK reduce the problems arise
through pandemic and Brexit. It also create a big effect on the UK economy and it can be simply
understandable through the assistance of charts which are included in this case study. The
concept which are studied in macroeconomics assist the leaders and individual available in
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respected nation. It can create a thought about the functioning of such analysis and how it
indicates to be useful.
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REFERENCES
Books and Journals
Abubakar, J., 2020. International Transmission and Forecasting of Macroeconomic Uncertainty
in Small Open Economies: Empirical Results from Large Panel of flexible Bayesian
VARs. Available at SSRN 3676209.
Alekhina, V. and Yoshino, N., 2019. Exogeneity of world oil prices to the Russian Federation’s
economy and monetary policy. Eurasian Economic Review. 9(4). pp.531-555.
Creel, J., 2020. Asymmetric Macroeconomic Stabilization And Fiscal Consolidation In The
Oecd And The Euro Area (No. 09/2020). Sciences Po.
Çukur, A., 2020. Fiscal Decentralization and Macroeconomic Management in Turkey. Public
Financial Management Reforms in Turkey: Progress and Challenges, Volume 2,
pp.149-174.
Fang, L and et.al., 2018. The importance of global economic policy uncertainty in predicting
gold futures market volatility: A GARCH‐MIDAS approach. Journal of Futures
Markets. 38(3). pp.413-422.
Shirota, T., 2021. Is bigger more effective? shock size and the efficacy of monetary
policy. Macroeconomic Dynamics, pp.1-10.
Ilich, L., 2021, October. Role of the Banking Sector in the Financial System and Its
Macroeconomic Functions in Russia. In The 2018 International Conference on Digital
Science (pp. 311-319). Springer, Cham.
Irangi, A.N., 2020. Macroeconomic Variables and Foreign Direct Investment Inflows in
Tanzania: 1990-2017 (Doctoral dissertation, The Open University of Tanzania).
Jiang, Y and et.al., 2019. Determinants of within and cross-country economic policy uncertainty
spillovers: Evidence from US and China. Finance Research Letters, 31.
Makin, A.J. and Layton, A., 2021. The global fiscal response to COVID-19: Risks and
repercussions. Economic Analysis and Policy. 69. pp.340-349.
Miletić, Z., 2018. Influence Of Demographic Changes On Macroeconomic Trends. Poslovna
izvrsnost. 12(2). pp.139-164.
Niepelt, D., 2019. Public versus Private Digital Money: Macroeconomic (Ir) relevance.
Ronan, V.E.N.N.A.R.D., 2021. European Parliament P9_TA (2021) 0358 Review of the
macroeconomic legislative framework.
Treppner, N., 2022. KIT-Institut für Volkswirtschaftslehre (ECON)-Workshop on Economics
and Finance-Macroeconomic policies in a monetary union: a game-theoretic analysis.
Tsyplakov, A.A. and Melnikova, L.V., 2021. Fixed Investments and Macroeconomic Agent-
Based Modeling. World of Economics and Management. 21(1). pp.5-28.
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