Macroeconomic Policies: Fiscal and Monetary Policy

This document discusses the macroeconomic policies of fiscal and monetary policy and their impact on the UK economy. It explores the objectives and measures of fiscal policy, such as controlling expenditure and revenue, and the role of monetary policy in influencing aggregate demand. The document also highlights the recommendations of the IMF for maintaining public finances in the future.

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Economics
From the discussion, I have learnt that the macroeconomic policies generally deal with the
policymaker in order to change the behavior and improvise the performance of the economy with
the help of basic economic strategies. It is clearly noticed that the major objective of the
macroeconomic policies that are accepted by the industrial countries is the attainment of high
and steady employment, increasing the per capita income, generating steady price level,
maintaining equilibrium and payments and other distributional aims (Calabria, 2016).
Further, the macroeconomic policies allow the Government of the UK to improvise their
performance and achieve certain results in their existing economy. As per the gathered
knowledge I have observed to improve the living conditions of all the citizens of the country
because of the efficient economic system. The policy is generally observed to deal with the
objectives and issues that can affect the entire economy of the country. It is helping them to
balance the unemployment rate, core inflation rate, balance of payment and other exchange rates
(Calabria, 2016).
Fiscal policy
I have observed from the studies and research that the Government of the UK tries to control the
expenditure and revenue by taking certain measures that can help them to regulate the economic
conditions of the country. There are certain measures that can be opted by the government for
increasing its demand with the help of purchasing new infrastructures (Calabria, 2016). This also
helps other industries and companies to make good services available to the public helping them
to execute other projects and create employment opportunities (Hommes, Massaro & Weber,
2015). The low tax rates applied to the individuals and forms revenue can also help the country
to increase the demand and further help the organizations to expand and create a healthy and
fruitful economy.
Moreover, the government must try certain budgeting techniques that can help them to increase
or decrease economic activities. It came to my observation that there are three categories of
budgets:
• Balanced budget
• Surplus budget
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Economics
• Deficits budget
A balanced budget is used when the government tries to manipulate the economy by spending
exactly the amount equal to the revenue that has been generated from taxes. Surplus budget
refresh to deflationary and also the government tries to reduce the level of economic
performance by spending less because of which it may also face a lower level of aggregate
demand (Diane, 2014).
In deficits budget, the government can spend more money to maintain its system than it is
generating with the help of taxes. This will help them to increase the level of aggregate demand
and hence this system is also known as an inflationary budget (Diane, 2014). The government
borrows money from its public and then uses it to generate revenue and improvising the
economy which will further reduce the deficit and maintain continuous economic growth
(Mankiw & William, 2012).
The short term stabilizing function provided by the fiscal policy can be very useful for the UK
Government as they are not a part of the monetary union and nominal interest rates and exchange
rates do not change for an individual but as a union (Favaretto & Masciandaro, 2016). Hence the
fiscal policies can become a very important instrument that can help the countries to stabilize the
domestic demand and output which can further help the individual governments to function
properly (Favaretto & Masciandaro, 2016). There are also various limitations that can increase
the level of uncertainty and future income developments. This case has also been observed in the
European countries where there are problems arising in the public pension and healthcare
systems because of the demographic trends that are followed by their system (Benchimol &
Fourcans, 2012). Under such situations, the country can try to decrease the tax cuts and
expenditure increases that can help them to gain higher taxes and low expenditure.
Monetary policy
I believe that monetary policy is a very important policy that can help the UK Government to
regulate the economy and use it in relation to the fiscal policy. The basic objective of monetary
policy is to seek the influence of the level of aggregate demand by changing the supply and the
price of money (Benchimol & Fourcans, 2012). The various monetary policy instruments that are
available are:
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Economics
• Money supply control
• Credit on hire purchase control
• Interest rates
As per my opinion, the basic monetary policy aims of the bank are to restore the price stability
that is maintaining low inflation and also support the government economic objectives
unemployment rates.
IMF role
As per the general scenario it is seen that the UK Government should try and continue to regain
control over its public finances so as to maintain itself in the future. It can also be stated that in
future the week growth prospects and high public spending because of the population aging can
add additional strain to the budgetary constraints. In order to protect the public finances, it has
been recommended by the IMF to reduce the guaranteed annual increases in state pensions and
tax reforms that can help them to further maintain the preferential value-added tax rates and also
the harmonizing tax treatment of self-employed and regular employees (IMF, 2019).
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Economics
References
Benchimol, J. and Fourçans, A. (2012) Money and risk in a DSGE framework: A Bayesian
application to the Eurozone. Journal of Macroeconomics, 34(1), 95–111. Available from:
http://www.sciencedirect.com/science/article/pii/S0164070411000802 [Accessed 9 March 2019]
Calabria, A. (2016). Behavioral Economics and Fed Policymaking. Cato Journal. 36 (3), 573–
87. Available from: https://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2016/9/cj-
v36n3-6.pdf [Accessed 9 March 2019]
Diane, C. (2014). GDP: A Brief but Affectionate History (3rd ed). Princeton University Press:
London
Favaretto, F, and Masciandaro, D (2016). Doves, hawks and pigeons: Behavioral monetary
policy and interest rate inertia. Journal of Financial Stability. 27, 50–
58. Doi:10.1016/j.jfs.2016.09.002.
Hommes, C. H., Massaro, D. and Weber, M. (2015). Monetary Policy Under Behavioral
Expectations: Theory and Experiment, 42. Doi:10.2139/ssrn.2636234
IMF. (2019) International Monetary Fund [online]. Available from:
https://www.imf.org/en/News/Articles/2018/02/08/na021418-uk-economy-must-get-more-
efficient [Accessed 9 March 2019]
Mankiw, N. G, and William, M. S. (2011) Macroeconomics. Canadian ed, New York: Worth
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