Fiscal and Monetary Policy: Key Government Policy Objectives

This essay explores the role of fiscal and monetary policies in achieving key government objectives, focusing on reducing unemployment and controlling inflation within the UK economy. It examines how the central bank uses monetary policy tools, such as adjusting interest rates and managing the money supply, to influence economic activity. The essay also discusses the factors that affect the success of these policies, including the importance of maintaining a balance between employment and inflation. Real-world examples and illustrations, such as unemployment and inflation rates in the UK, are used to support the analysis. The document concludes by emphasizing the importance of monetary policy in stabilizing prices, encouraging consumer spending, and fostering economic growth, while also acknowledging its limitations in guaranteeing economic recovery.

Macroeconomics

Table of Contents
INTRODUCTION ..........................................................................................................................3
Select two key Government Policy objectives and explain how either Fiscal Policy or
Monetary Policy can be used to achieve these & what other factors influence the chances of
success.........................................................................................................................................4
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
Macroeconomics is the study of external behaviour which includes the national and the
regional economy as a whole. This is basically related to the understanding the global events
which are occurring outside the business organisation that includes the level of unemployment,
general behaviour of prices and the total products produced in the economy. There are basically
three types of government macroeconomics polices that are fiscal policy,, monetary policy and
supply-side polices in the market which ensures the easy functioning within the economy. It
analyses all the aggregate indicators which is being influenced by the macroeconomic factors
within the economy. Corporation and the government bodies uses models in order to help the
economic polices and strategies. Economics theories can offer the insight that how the economic
functions and the long term impact of the specific polices and the decisions. It also helps the
individual in their business to take better decisions with the better understanding through the
effects of broad economic trends and polices of its venture. There are many objectives of the
government which needs to be full fill. In context to macroeconomics, the key government
policy objectives are reducing the unemployment within the economy and controlling the
economy in the market so that they tens to have more profits within the economy.
Employment and the balance in inflation within the economy are the important aspects
which needs to consider so that they can ensure the easy flow within the nation which also
having the higher level of profitability within the economy. This also leads to have the proper
flow of goods money within the economy so that the ample of job opportunities so that they can
rightly address the various aspects of economy. In context to monetary polices are the tool which
is being used by the central bank of England, so that they can rightly ensures the better flow of
goods and services within the economy and the unemployment can be reduced when the central
bank increases the flow of money within the economy so that the investor can get sufficient
funds to allocate in their new-starts by which ample of employment opportunities can be
introduce in the market which also ensure in the proper working of the economy. Huge
employment opportunities can also helps the individual to enhance the living standards and also
contribute to the betterment of the economy in the form of GDP.
On other hand, in order t manage the inflation within the economy, the central bank of
England cut the flow of money within the economy and increases the interest rate of borrowing
so that small banks also increase the rate of interest in the market so that the investors also cut

the borrowing from the bank and in such way the inflation can be reduce and the aggregate
demand of the economy come within the equilibrium within the economy which also contribute
to the GDP of the UK.
This respective essay will cover the key government polices objectives and also explaind
weather the fiscal or the monetary policy can be used in order to attains such objectives and also
describe the chanced of success. Further the recommendation is being made for the success of
the economy.
Select two key Government Policy objectives and explain how either Fiscal Policy or Monetary
Policy can be used to achieve these & what other factors influence the chances of success.
Macroeconomics polices defines the distinct polices that are connected to the operations
and also take place within the economy. These are the implemented within the economy as the
government of that country. As they focuses on attaining the various objectives when they are
planning to implement the various objectives in the nation as a whole. These macroeconomics
polices as pre-defined and being follow in an chain by the government in order to take the
appropriate and effective decisions within the market(Fu and et. al., 2022). The aim of the
macroeconomics is to maintain the stability and the growth of the economic environment within
the country. These polices also assist in the creating jobs, improving living standards with in the
nation. It also focuses on minimising the gap between rich and poor in the economy. The main
concept of macroeconomic polices are fiscal policy, exchange rate policy and Monetary policy.
These helps are the impactful tool which helps the government by which they can use to full fill
their aims and objectives of macroeconomics of the nation.
The objectives of macroeconomics is to maximise the unemployment and controlling
inflation within the economy. Unemployment is the state in which there are less job within the
economy and more people are jobless. So this is the main concern of the government is to
improvement the employment within the nation so that the individual can contribute to the better
living standards within the economy and also contribute to the GDP of the nation as a whole.
People are looking for new job or leaving school. Economist suggest that an unemployment rate
of 3% is close to full employment. This is some difficult to analyse the precisely. High
unemployment has certain social and economic costs to the economy. As the unemployment
have low income which enable low levels consumption. During employment, the government
will have to spend more on the benefits related to the unemployment, additional the government

will get lower tax revenues( less VAT, income tax). Thus, high unemployment will incomes the
government borrowing and social problems such as crime and social alienation. Especially if the
government bodies focuses on the youth who is feeling alienated by getting no jobs.
In UK, the unemployment rate came in at 4.1% in fourth quarter of 2021 and is also
shown that since 2013, the unemployment rate is declining and fallen since the end of 2020. the
decrease in the unemployment over the latest three-month period was driven by those
unemployed for 6 months(United Kingdom Unemployment Rate,2021). There are various types
of employment such as earning based employment which is being done by the individual so that
they can rightly get the compensation of their work. Where as voluntary employment is being
done by the individual so that they can contribute to the charity and the social welfare of the
society.
Other objective is the controlling inflation, Inflation is the rise in the overall price level
which is continuing to decrease the purchasing power of buyers within the market. It basically
occur dude to the decrease in the demand for goods and services which leads to raises prices and
inflation occurs. However, the inflation is harmful when the purchasing power decreases much
more than the inflated prices and tending to reduce the overall spending and the minimising the
value of currency.
Monetary policy of macroeconomics defined as the usage of tools such as open market,
discount rates, reserve requirement. It controls the money supply that are available with the
people of the nation and also defines how these monetary funds can be supplied and circulated
within the economy. Government bodies take the help of national bank of England which is the
central bank of UK. It helps in managing the inflation and the economic growth with the
consumption rate within the economy. They basically establish to achieve the macroeconomics
objectives(Diaf, et. al., 2022). The main consideration is to have the monetary transmission
mechanism that takes place within the economy. The main emphasis is to have the better
consideration in the market so that they can ensures the better working within the
economy(Muñoz-Bandala, 2022). (Murshed, 2022). In case of inflation within the economy,
there is the high circulation of money in the market, as the central bank will supply various
securities and trade in the open market, as the investors engage in such securities and then
purchase them, the excess amount of funds that are being flowing in the market and with this, the
investments within the economy will fall down and bring the inflationary gap in the market.

When there is consideration of inflationary gap, the central bank will buy base their securities
and buy from the open market operations. This will provide the more funds with the people
within the economy. This leads to increase the investment and the consumption within the
economy and also leads to increase the aggregate demand and leads to reduce the inflationary
gap within the economy as the main consideration is to ensures the circulation of money within
the economy. In order to maintain the inflation gap with in the UK, the central bank of UK frame
more monetary polices such as they increases the interest rate of borrowing so that the local
business and the stakeholder reduce the borrowing from the bank. When the borrowing reduce its
also reduced the supply and flow of money with the economy and in such way the inflation gap
can be maintained by the government.
The annual inflation rate in the UK edges higher to 5.5% in January of 2020 and the
above market forecasts of 5.4%, pricing of housing and commodities made the huge contribution
( 7.1% vs 6.9%), mainly gas(28.3% vs 28.1%) and followed by food (4.3% vs 4.2%)(United
Kingdom Inflation Rate,2021). For achieving the objectives polices such as inflation, the
government of UK reduces the flow of money and in such way the central bank of England
manage the flow of money.
Illustration 1: Illustration 2: United Kingdom Inflation Rate,2021

From the above graph, it can be said that employment rate is being reducing when the
central bank of England increases the flow of money within the economy so that the potential
investors and the shareholders can acquire the funds from the bank in this helps in giving various
employment opportunities in the market. People can get the deserving job applying in various
filed of their interest.
Monetary policy bring more investments and the consumer are spending more. In context
to expansionary monetary policy in which the bank are lowered down the interest rate on
mortgages and loans. They also expand their business process in which they have more funds
which are available with the effective reasonable interest rate. As the inflation refereed to the rise
in the prices level and the declining the value of money within the economy(Ba, 2022).
Monetary policy assists in stabilising the prices within the economy and also minimise the rate of
inflation within the economy. While they are purchasing the power of individual which also
enhanced by using the same in the market. With the help of monetary policy, the prices of the
commodity will go down and it also using for encouraging consumer so that they can purchase
more products. This also results in having the more profits within the organisation. Monetary
policy can be accessed by the federal reserve for printing money that also helps them to acquire
government bonds from the banks and financial institution. This also leads to have more cash
reserve and monetary base within the banks. The interest rate of the company is lowered then the
Illustration 2: Illustration 1: United Kingdom Unemployment Rate,2021

banks and the financial institution giving loan to the borrowers easily. It is one of the biggest
benefits of monetary policy and it is the price within the economy which get stable over the
period of time that is helpful to ensure the rate of inflation get minimised within the country and
around the globe.
Monetary policy can not guarantee with the respect to the economy recovery and it is the
time in which recession and all the consumer are not having the sufficient purchasing power to
buy the particular commodity an take all the benefits of less interest rates within the economy.
Monetary policy also helps the and to receive the funds with less interest rate taken from the
central bank in which they can use as the loan to their buyers. However, there certain banks
which are having the funds which means that there will be less funds by which the consumer can
obtained from them. Not only, the interest rate decreases but it also increase in the rate which can
discourage them as they are planning to invest huge funds in the overall working capital if the
rate rises then the funds get blocked within the economy. Monetary policy includes the
management of money-supply and the interest rates given by the central bank of England. In
order faltering the economy, the central bank will reduce the interest rate and making it less
extensive so that they can borrow while increasing the overall supply of money. When the
economy is rapidly increases then the central bank an implement a tight monetary policy by
increasing the interest rate and eliminating the more from the circulation within the economy.
There is the technical limitation of this policy, as the interest rate can only be lower nominally to
0% which also limits the bank's use this policy as the interest rates is already low in the
economy(Fiscal Policy vs. Monetary Policy: Pros and Cons,2021). There are some of the
European central banks have experienced the negative interest rate policy within the market
which leads to slow down the overall process of the economy.
It is the main consideration which is leading to have the better approach in the market so
that they can rightly establish the flow of goods and services within the economy. There are
factors such as sustainable growth which is defined as the rate of growth that can be maintained
without the having the other major economic problems, especially for the future generations.
This is basically the trade-off between the economic growth in present and growth in the near
future. The government will make the monetary policy in such a way that they attempts to satisfy
the human needs without harming the natural resources and the environment for the future
generations. The government is having the major consideration which is leading to have the

powerful impact on the unemployment. When the government is increasing the flow of money
within the economy then the investor can take the sufficient funds in order to starts its own
venture and provide various job opportunities in the economy which also contribute to the social
welfare and also contribute to the GDP of UK. Another factor is increasing the living standards
of individual in UK. For this, the government of UK and the central bank ensures the sufficient
flow of money so that the people can get the money in form of subsidies or the lower tax rate
borrowing by which they can increases their living standards and also having the better
consideration in the economy.
It is recommended to the government of UK and the central bank of England, they must
use the mix of fiscal and monetary policy as they can reduce the taxation of the commodities or
the services, also they can have the better understanding of the economic environment and also
analyse the concept of business so that they can rightly ensures the better working within the
economy. It is the main consideration when the people are having minimum tax rates on
purchasing by which they can increasing the standard of living and so that they can contribute to
the development of GDP. Another is supply-side polices can be used by the government as it is
defined as the polices which attempts to increase the overall productivity and also increases the
efficiency within the economy, then they will shift to the aggregate supply to the rightward
which also enable the higher economic growth in long-run. It includes the two type of supply
polices that are free-market supply-side policies which includes the increase competitiveness and
free-market efficiency. Another is Interventionist supply-side polices that includes the
government intervention to overcome market failure that includes government spending on
transport and communication.

This supply side helps in the minimising the inflation ans the aggregated supply shift to
the right will cause a lower price level. This helps in reducing the cost push inflation and more
effective economy. Moreover it also helps in reducing the unemployment which also contribute
to reducing structural, frictional & real wage. Thus it also helps in minimising the rate and
unemployment within the economy.
Illustration 3: Supply Side Policies,2019

CONCLUSION
From the above essay, it is concluded that the above mentioned objectives of minimising
the unemployment and controlling inflation within the economy. Th central bank of England
have minimise the flow of money by increasing the interest rate on borrowing so that the investor
take less loan from the small banks too and and in such way they maintain the inflation within
the economy. Moreover, In order to meet the objectives of minimising unemployment, the
central bank of England increases the flow of money by which the new start-ups can be
introduced within the economy by which ample of job opportunities can be offered to the people.
Moreover, it is also suggested to the government to use the supply-side policy so that they can
increase the aggregate supply which tends to reduce the unemployment and inflation within the
economy.

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Books and Journals
United Kingdom Unemployment Rate,2021 [Online] Available
Through<https://tradingeconomics.com/united-kingdom/unemployment-rate>
United Kingdom Inflation Rate,2021 [Online] Available<https://tradingeconomics.com/united-
kingdom/inflation>
Fiscal Policy vs. Monetary Policy: Pros and Cons,2021 [Online] Available
<https://www.investopedia.com/articles/investing/050615/fiscal-vs-monetary-policy-
pros-cons.asp>