Principles and Applications of Macroeconomics

This study material provides an in-depth analysis of the principles and applications of macroeconomics. It covers topics such as macroeconomic policies, the background of the UK economy, and a review of major opinions and predictions around Brexit. Gain a comprehensive understanding of the subject and its relevance in today's economic landscape.

Principles and
Applications of
Macroeconomics

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................5
Description of Methodology...................................................................................................5
Background of the UK economy............................................................................................6
Review of major opinions and predictions around BREXIT.................................................7
CONCLUSION...............................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
The EU was formed by Maastricht Treaty which was enforced on November 1,1993. the
primary aim of this treaty was to improve economic and political integration in Europe by
creating a single currency, a united foreign security policy, common rights related to citizenship
and increasing collaboration between members of the EU in several matters such as immigration,
asylum and cases related to the judiciary. The EU comprises of 27 member countries and nations
which fulfil Copenhagen criteria are able to apply for EU membership. The Copenhagen criteria
includes a free market economy, stable democracy, rule of law, adoption of EU legislation which
includes usage of euro as national currency (Coppock and Mateer, 2017). 27 Commissioners of
European commission are proposed by council of EU based on the recommendation of
governments of EU membranes which are appointed after gaining approval from European
parliament. Members of the EU commission stand for common interests of EU instead of
national interests of their country. UK became a part of European communities which would
become EU as a result of Maastricht and Lisbon treaties after the ratification of ascension treaty
in 1973. UK aimed to join the European Union as remedy to economic failures and enhance
political power across Europe. Fear of isolation in western Europe influenced UK decision to
join EU (Why did the UK join the EU?, 2019). UK refused to accept euro as their national
currency after joining EU because it failed to meet with the fire tests policy which needed to be
fulfilled in order to accept euro as the national currency.
Britain joined the Organization for European Economic Co-operation or OEEC in the
year 1961. After doing so, the country worked significantly towards reducing the trade
restrictions between the members. Britain did not adopt the euro currency and instead uses the
British Pound because the government of the country has determined that the euro currency does
not meet the five necessary tests that are required to use it. The five tests include that the
business cycles as well as the economic structures must be compatible enough so that the UK
could live with the interest rates of the Eurozone (Cristina Terra, 2019). Apart from this, it is
necessary that adopting the euro must create conditions that are conducive to both individuals as
well as firms that invest in the United Kingdom. If the euro is adopted, it must promote
economic growth of the country and an increase in the job. It is important that the system must

have flexibility in order to deal with both aggregate as well as local problems of the economy.
The last test was that the euro would enable the financial services of the industry to remain in a
competitive position.
There were certain factors that led to Brexit, such as the election of Tories and their
promise of a referendum, Brexit and the transition, Brexit negotiations etc. The major reasons
that Tories won the election were Brexit, simplicity of message, weakness of the labours, Boris
Johnson and a safety-first strategy (Reis, 2018). The message of Boris Johnson to the world was
that he would get Brexit done. This message was repeated again and again and also, the message
was kept simple. Also, there were certain negotiations made for Brexit which led to the decision
of the Parliament of the UK invoke Article 50. The first referendum was presented in the year
1975 and included continued membership of the European Communities. During the years 2017
and 2018, the representatives of the United Kingdom as well as the EU the different terms for
Brexit.
The trade deal for the Brexit covers both tariff as well as non-tariff barriers to trade. The
negotiations for this formally ended in the year 2020 (Dullien and et.al., 2017). After Brexit
happened, the UK and EU needed to determine the guidelines for their future buying and selling
dating. This turned into critical because the EU is the UK's largest and closest trading
companion. The exchange deal that became agreed prevented any tariffs and quotas being added
- which might have made it higher priced to exchange. As the United Kingdom no longer has to
follow EU policies on product standards, companies will need to get used to new tests. This
manner greater paperwork, that may purpose delays if corporations turn up at ports unprepared
(Brexit: What trade deals has the UK done so far?, 2021). Strict EU legal guidelines on animal
merchandise also approach some UK merchandise cannot be exported. The deal additionally
does not absolutely dispose of the possibility of price lists in destiny. Both aspects will want to
live near shared guidelines in regions like employees' rights and environmental protection. If
either the United Kingdom or the EU shift their policies too far, the other aspect ought to
introduce tariffs (Franke and Westerhoff, 2017). Therefore, it seems that Brexit will have both
positive as well as negative consequences on the overall economy of the United Kingdom as
well as the welfare of its populations, just as with its membership in the EU. The essay includes
an explanation of the macroeconomic policy analysis, overall background of the UK economy as
well as the major opinions around Brexit.

MAIN BODY
Description of Methodology
Macroeconomics can be defined as the study of the overall economy of a country and it
is used to determine if expanding the production will be welcomed by the market (Stiglitz,
2018). There are certain key terms that are included in macro economics such as macroeconomic
policy, monetary policy, fiscal policy and their respective objectives. A macroeconomic policy
mainly aims towards providing an overall stable environment that is helpful for fostering strong
as well as sustainable growth. Monetary policy, fiscal policy as well as supply-side are examples
the three major macroeconomic policies (Gans and et.al., 2017). Monetary policy can be defined
as the process of drafting, announcing as well as implementing the various plan of actions which
are taken by the currency board, central bank or any other monetary authority of a country. The
Monetary Policy Committee of the Bank of England is responsible for maintaining the monetary
policy within the United Kingdom. The examples of monetary policies include purchasing
government securities, reducing the overall reserve ratio and decreasing the discount rate. On the
other hand, fiscal policy can be referred to as the use of government spending as well as the tax
policies in order to influence economic conditions. These mainly include macroeconomic
conditions, employment, demand for goods and services etc. The major examples of fiscal policy
include neutral policy, contractionary policy and expansionary policy. Economic welfare is also
an important component of macroeconomic policy analysis and can be defined as the sum of
producer as well as consumer surplus.
There are different variables that are used in the analysis of the consequences of Brexit
on the United Kingdom as well as the people’s standard of living (Gregory Mankiw, 2019).
National income or Gross Development Product can be defined as the total market value of all
the finished goods as well as services that are produced within a country in a specific period of
time. GDP is vital because it gives statistics approximately the scale of the economic system and
how a financial system is acting (Stonecash and et.al., 2017). The growth charge of real GDP is
regularly used as a trademark of the overall health of the financial system. In vast phrases, a
growth in real GDP is interpreted as a signal that the financial system is doing well. Cost of
residing, economic fee of keeping a specific widespread of dwelling, commonly measured by
way of calculating the average price of a number of precise items and services required by way
of a specific group. Apart from this, economic growth is another variable that can be defined as

the increase in the overall production of the goods and services as compared to a particular
period of time. Investment is an asset or item this is bought with the wish that it's going to
generate earnings or respect in value at some point in the future. An investment constantly
concerns the outlay of a few asset today (time, money, attempt, and so forth.) in hopes of a
greater payoff within the future than what was at the beginning installed (Heijdra, 2017). Other
variables include wages and unemployment levels, population, inflation ang migration.
Unemployment level refers to the percentage of people living within the country who do not
have any income source and are thus, unemployed.
Background of the UK economy
The United Kingdom has a fiercely impartial, advanced, and international trading
financial system that changed into at the vanguard of the 19th-century Industrial Revolution. The
USA emerged from World War II as a navy victor however with a debilitated production zone.
Post-war recuperation turned into notably sluggish, and it took almost forty years, with
additional stimulation after 1973 from membership within the European Economic Community,
for the British financial system to improve its competitiveness extensively (Hein, 2017). Years
of uncertainty over the destiny terms of EU exchange have already broken the United Kingdom
economic system. GDP increase in the three years after the June 2016 Brexit referendum slowed
to at least one.6% as commercial enterprise funding stagnated, in line with analysts at Berenberg.
Brexit has created many uncertainties for the country, besides creating some opportunities for it
(Svartzman, Dron and Espagne, 2019). The economy of the United Kingdom is ranked as the
sixth-largest national economy in the world and is measured by gross development product.
The 6th-largest financial system in the global, the British financial system's boom has
slowed for the reason that 2016 referendum on leaving the European Union (Brexit). The
scenario worsened in 2020 due to the outbreak of the COVID-19 pandemic: GDP fell with the
aid of 2.2% inside the first region and plummeted 20.4% in the second, with a every year loss
expected at 9.8% with the aid of the IMF, the country’s private recession considering World War
II. Despite the measures taken by using the authorities to support the economy, enterprise
investment and household consumption collapsed (The economic context of the United Kingdom,
2016). According to the IMF's October 2020 forecast, a rebound is anticipated for 2021 and
2022, also largely because of the good deal awaited remaining-minute alternate deal signed
among the UK and the European Union, eventually defining the new phrases of the future

courting and cooperation among the UK and the relaxation of the EU after Brexit. Therefore, it
can be said that Brexit has impacted the overall economy of the country to a great extent. There
are many measures that are taken by the government of the country in order to make sure that the
negative impacts of the same are minimised.
Review of major opinions and predictions around BREXIT
There were certain arguments both for as well as against Brexit that took place before as
well as during the referendum. The first argument was that the European Union threatens the
British Sovereignty. This is the most common argument and this was because a series of EU
treaties had shifted a growing amount of their power from the individual member states to the
central EU bureaucracy. Some of the arguments that were in favour of Brexit included
controlling immigration (Hommes and LeBaron, 2018). Another argument that is in the favour
of Brexit is that if the United Kingdom leaves the EU, the citizens could end up needing the
visas to travel to continental Europe. The EU struggled to address the migrant crisis effectively
and due to this, the Brexiteers argued that the UK needed to avoid getting dragged down by the
actions of the bloc (5 arguments in favor of a U.K. ‘Brexit’ from the EU — and 5 against, 2021).
Brexit has impacted the overall standard of living in the United Kingdom to a great
extent. One of the disadvantages of the impact of Brexit is that the overall growth of the country
has been affected. This was mostly due to the uncertainties that were caused due to the Brexit.
As a result of this, the number of jobs in the country have also been affected, and due to this, the
overall standard of living of the people living in the United Kingdom. People are facing tough
times in finding a suitable job (Mercure and et.al., 2019). There are some people who argued
against the same saying that leaving the European Union will lead to an immediate cost saving.
This was because the country would no longer have to contribute to the overall budget of the
European Union.
The current situation in the dawn of Brexit is that if no trade deal has been agreed on by
the end of the year, the UK will have to face the prospects on the tariffs. Brexit has created
various uncertainties for the country due to which, the overall standard of living of people living
there has been impacted to a great extent. The EU-UK trade agreement or TCA is a free trade
agreement that was signed on the 30th of December, 2020 between the EU, the United Kingdom
as well as the European Atomic Energy Community. The overall impact of the agreement is that
there has been a reduction in the membership of the European Union between the UK as well as

the EU. This will make the goods as well as services cheaper for the consumers in the United
Kingdom and thus allow the businesses operating in the country to export their products as well
as services effectively. But in addition to this, the UK will benefit less from the future market
integration within the European Union.
The EU membership will reduce trade costs between the United Kingdom as well as the
United Kingdom as well as the EU (Nieto and et.al., 2020). There has been a significant impact
on the overall standard of living among the people. This is because both of them will be required
to decide the rules in order to ensure their trading relationships are improved. The United
Kingdom does not have to follow the rules of the European Union any longer and this include
rules on product standards as the businesses will need to get used to the checks. Before Brexit,
the UK was a part of the trade deal that EU had negotiated with another country.
CONCLUSION
From the above report, it can be concluded that macroeconomics is an important
component for any economy. This is because it helps in understanding of the modern economic
system of a country to a great extent. It describes how the economy as a whole function
effectively and how the level of national income as well as employment are determined. The key
findings of the report are that Brexit has created uncertainties due to which the overall
functioning of the country has been impacted. Macroeconomic policy analysis is an important
component for an economy and the different policies included in this are the monetary policy as
well as the fiscal policy. It is important for the respective country to keep a track on its monetary
as well as fiscal policies in order to identify any risks or threats that can affect the overall
economy of the country. Monetary policy is important for a country because it increases the
overall liquidity of the country in order to create overall economic growth for it.
On the other hand, it can also be said that just like monetary policy, fiscal policy is also
important for the overall macroeconomic policy analysis. The reason for this is that it is used for
stabilizing the overall economy of a country in order to overcome recession as well as control
inflation within the economy. The main aim of the government of any country is to ensure the
overall growth of the economy of the country. Apart from this, there are various macroeconomic
variables that are used in order to analyse the overall consequences of Brexit on the economy of
the United Kingdom. Some of the examples of these variables include cost of living, economic
growth, Gross Development Product, Inflation, Population as well as Migration. The UK

economy is considered to be the sixth largest economy in the world. There have been many
arguments that are both for as well as against Brexit during the transition period.
There are certain recommendations that can be made to the respective country in order to
ensure that there is a growth in the country. It is recommended that the country reviews its
different policies as this will allow the country to develop effective strategies and implement the
same. Apart from this, another recommendation that can be made for the country is that it should
involve its people and encourage them to share their opinions regarding the same. This will help
in improving the negative consequences of Brexit and also expand across different geographic
regions in an effective manner. The financial analysis shows that the United Kingdom will be
economically worse-off outdoor of the EU below most workable situations. The key question for
the UK is how a great deal worse-off it is going to be post-Brexit. The failure of the United
Kingdom to reap an open trading and investment with the EU publish-Brexit would have terrible
implications for the United Kingdom and EU, and offer little, if any, advantage for the United
Kingdom.
Therefore, it can be said that there are different positive as well as negative consequences
of Brexit on the United Kingdom. Therefore, the country should take various measured in order
to reduce the negative impact of Brexit. This is because it can affect the overall standard of
living of the people living there. This can include the supplies of fresh fruits and vegetables
decreasing. Also, prices of the products will also increase due to which the standard of living
will get affected. Therefore, by monitoring the monetary as well as fiscal policies, the country
will be able to promote growth by identifying the different risks and thus, identify the best
measures to enhance the overall growth. Therefore, these are some of the recommendations that
can be made to the respective country. If it implements these recommendations, it will be able to
reduce the negative impact of Brexit to a great extent and promote growth.

REFERENCES
Books & Journals
Coppock, L. and Mateer, D., 2017. Principles of macroeconomics. WW Norton.
Cristina Terra, T.H.E.M.A., 2019. Principles of International Finance and Open Economy
Macroeconomics.
Dullien, S. and et.al., 2017. Macroeconomics in context: a European perspective. Routledge.
Franke, R. and Westerhoff, F., 2017. Taking stock: A rigorous modelling of animal spirits in
macroeconomics. Journal of Economic Surveys, 31(5), pp.1152-1182.
Gans, J. and et.al., 2017. Principles of Economics Asia-Pacific Edition with Online Study Tools
12 Months. Cengage AU.
Gregory Mankiw, N., 2019. Six guidelines for teaching intermediate macroeconomics. The
Journal of Economic Education, 50(3), pp.258-260.
Heijdra, B.J., 2017. Foundations of modern macroeconomics. Oxford university press.
Hein, E., 2017. Post-Keynesian macroeconomics since the mid 1990s: main developments.
European Journal of Economics and Economic Policies: Intervention, 14(2), pp.131-172.
Hommes, C. and LeBaron, B. eds., 2018. Computational economics: heterogeneous agent
modeling. Elsevier.
Mercure, J.F. and et.al., 2019. Modelling innovation and the macroeconomics of low-carbon
transitions: theory, perspectives and practical use. Climate Policy, 19(8), pp.1019-1037.
Nieto, J. and et.al., 2020. An ecological macroeconomics model: The energy transition in the
EU. Energy Policy, 145, p.111726.
Reis, R., 2018. Is something really wrong with macroeconomics?. Oxford Review of Economic
Policy, 34(1-2), pp.132-155.
Stiglitz, J.E., 2018. Where modern macroeconomics went wrong. Oxford Review of Economic
Policy, 34(1-2), pp.70-106.
Stonecash, R.E. and et.al., 2017. Principles of Macroeconomics Asia-Pacific Edition with Online
Study Tool S 12 Months. Cengage AU.
Svartzman, R., Dron, D. and Espagne, E., 2019. From ecological macroeconomics to a theory of
endogenous money for a finite planet. Ecological economics, 162, pp.108-120.
Online
5 arguments in favor of a U.K. ‘Brexit’ from the EU — and 5 against. 2021. [Online]. Available
through:< https://www.marketwatch.com/story/5-arguments-why-uk-should-vote-for-a-
brexit-and-5-against-2016-04-29>.
Brexit: What trade deals has the UK done so far?. 2021. [Online]. Available through:<
https://www.bbc.com/news/uk-47213842>.
The economic context of the United Kingdom. 2016. [Online]. Availble through:<
https://www.nordeatrade.com/en/explore-new-market/united-kingdom/economical-
context >.
Why did the UK join the EU?, 2019. [Online] Available through
<https://www.theweek.co.uk/100313/why-did-the-uk-join-the-eu>.