ECO4012: Government Macroeconomic Policies for Economic Welfare in UK

This essay examines how UK governments utilize macroeconomic policies to enhance economic welfare, focusing on the last decade's successes and remaining challenges. It outlines key macroeconomic theories, including Keynesian and Monetarist approaches, and supply-side policies employed by the UK government. The essay discusses the impact of the Covid-19 pandemic on the UK economy, particularly in areas like economic growth, unemployment, and inflation, and analyzes government strategies to address these issues. It also assesses the success of major government projects in boosting economic welfare, referencing the Government Major Projects Portfolio. The essay concludes by highlighting the complexities and ongoing efforts required to achieve sustained economic welfare in the UK.

Principles and
Applications of
Macroeconomics

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Outline and Explain, with examples, how Governments use Macroeconomic policy to increase
Economic welfare. How successful have UK Governments been in the last 10 years and what
challenges still remain.................................................................................................................1
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Macroeconomics could be stated to study of behaviour of economy within a region or nation
as whole. It involves understanding of economic wide events, comprising unemployment level,
general pricing behaviour, total amount of products or services produced and many more. It deals
with performance, behaviour addition to structure of whole economy (Adom, Minlah and
Adams, 2018). Likewise, macroeconomic policy provides stable economic environment which is
conducive for fostering sustainable together with strong economic growth. Fiscal policy,
exchange rate policy along with monetary policy are key pillars of the policy that aims to attain
macroeconomic equilibrium. It assists in understanding fluctuations within economy and
formulation of policies for welfare of economy. In a country, policies of government influences
macroeconomics through interventions in form of subsidies, taxations, regulations and hence
forth. It emphasises towards performance of economies entailing changes in economic output,
foreign exchange rates, balance of payments and interest. Social equity, sustainable growth
together with poverty reduction are essential for economic welfare that are possible with sound
fiscal policy and monetary policy. In UK, government have combination of policies to be used
for achieving macroeconomic goals that are stable prices, stable unemployment addition to
sustainable growth.
The essay outlines the ways in which governments use macroeconomic policy for enhancing
economic welfare. It also explains how successful have governments of UK been in last 10 years
as well as what challenges still remain in their practices.
MAIN BODY
Outline and Explain, with examples, how Governments use Macroeconomic policy to increase
Economic welfare. How successful have UK Governments been in the last 10 years and
what challenges still remain
Macroeconomics study whole systems particularly with reference to general output levels,
income together with interrelations among sectors. In UK, governments use macroeconomic
policies to build a conducive environment that fosters sustainable growth wherein creation of
wealth, employment and improved standards depend (Almarzoqi, Mansour and Krichene, 2018).
Through this, governments are able to understand what makes the economy develop as well as
contracts. It has been analysed that growing economy provides ample number of opportunities
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for better lives resulting to economic welfare. There are various factors that influences economic
welfare are housing, education, cost of living, real income, life expectancy and hence forth.
Overarching goals related to macroeconomics includes achieving stable growth and maximising
living standards. In UK, these goals are supported by objectives that are increasing productivity,
minimising unemployment level, controlling inflation and so on.
In context to macroeconomic, there are certain theories and policies that are used by
government for increasing economic welfare. Keynesian economic theory is a macroeconomic
theory that states that people should save less as well as spend more, raise marginal propensity
for consume to effect full employment as well as economic growth. With this theory,
government of UK increased spending during times of recession. The key idea of the theory is
that aggregate demand do not inherently equate to productive capacity of economy, despite,
variant factors, such as private and public determines it (Bahadir, Chatterjee and
Lebesmuehlbacher, 2018). Application of Keynesian economic theory in the nation forces
government to cut deficits along with save for next down cycle in the economy. It is active
government theory for management of aggregate demand for addressing or preventing situations
of economic recessions. The theory provide support to the system wherein fluctuations in
aggregate demand can result in dynamics in employment and output, not on prices. The theory is
considered as most prominent approach of the governments to improve employment level as
steps of governments in to financially stimulate organisations influences the businesses to start
hiring once again. With investment in public works project, there was increase in employment
that halted downward spiral.
Monetarist theory of macroeconomics contends that change in supply of money is
significant determinants of economic growth rate and business cycle behaviours. Through this
theory, governments foster stability and welfare in economy through targeting growth rate of
money supply. With application of the theory, governments increase money supply for
temporary boosting economic growth addition to job creation (Berg, Davidson and Potts, 2019).
By pumping more monetary resources into economy, it enhances possibilities of more
purchasing and selling, while shrinking money supply results in less economic practices causing
situation of recession. In UK, application of Monetarist theory, UK governments are able to
bring out possibilities of wider investments and consumers spending more, allows imposition of
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quantitative easing by Central Bank, lower rates of mortgage payments and promote
transparency that contribute in economic welfare.
Supply side policy is kind of macroeconomic policy wherein key emphasis is towards
aggregate supply. With this policy, governments of UK seek to enhance level of efficiency,
productivity addition to potential competency of the economy. There are two kinds of supply
side policies including interventionist supply side policies and free market supply side policies.
in aspect to interventionist side policy, government of a nation intervene for overcoming failure
of market (Bowles, Alexander and Hadjikakou, 2019). For instance, higher government spending
on education, communication along with transport. On other hand, free market supply side policy
comprises practices to enhance competitiveness as well as free market efficiency. With
application of Supply side policy in UK, government makes economy efficient that assist in
reducing cost push inflation. It also contributes in reducing frictional, structural together with
real wage unemployment that reduces natural unemployment rates. It also increases sustainable
rate of growth of economy through increasing supply that enables in higher economic growth
rate.
Economic welfare is related to the increase of real income and output of the country or their
public. There are different factors are present in macroeconomics which are interconnected to
economic welfare such as inflation, deflation, unemployment, gross domestic product and many
more. All these factors are very important for the growth of the economy so government of the
state has developed different policies in their management to stabilise these factors. These
policies are also called economic policies of the country (Chang, Wang and Shieh, 2018). The
Covid pandemic has negative impact on global economy and the economy of United Kingdom
also faces many problems in relation to this. The business structure of the country is badly
infected due to the negative impact of lock down. The economies of many countries has shown
negative growth which is not favourable for the development of the country. It is very important
for the government of the country they focus on these issues so that the goals of economic
welfare can be achieved. The government of United Kingdom has developed many strategies top
overcome from the negative impact of Covid pandemic. The government of the country are
generally focuses four areas such as economic growth, inflation, unemployment and government
borrowing. All the four factors discussed are the critical part of the economy and has great
impact on economic welfare of the country. It is required to discussed all four factors separately
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so that considerable judgement can be made related to the strategies of government. It is essential
to focus on these issues because it impacts the economy in different aspects such as positive and
negative.
The economic growth is one of the important part of the economic welfare if the growth of
the economy increases then the income of the people's also increases. The economy of United
has faced stiff recession due to the Covid pandemic as the GDP of the country are declined by
9.2% in the year 2020 (Chatri, Yahoo and Othman, 2018). It is not positive indicator for the
growth of the country in international market. The government of the country has make many
changes in their working such as to make the taxation structure more simple and supportive to
the business of the organisation. The government of United Kingdom has try to make the market
of the country favourable for the business so that more and more business are attracted towards
the country. The government of the country try to improve their education structure so that
effective information about the technical innovation can be made in the country. The government
has cut the taxes and provide financial support to the business organisations. The government has
provided different types of rebated to consumers so that their spending can be boost because the
spending of consumer is badly infected with the Covid.
Unemployment is another factor of the economy has reflected the number of person are
jobless in the country. The unemployment rate of United Kingdom is increased by huge level in
the country. At the time of Covid, most of the business remains shut which in results that
companies have fired their employees which becomes the reason for the increase of
unemployment in the country. It is estimated from many surveys that almost 76 million jobs are
at the risk at the time of Covid (Deleidi, Paternesi Meloni and Stirati, 2020). It becomes essential
for the government of the country that they develop effective strategies to deal with the
situations. The government of United has developed many measures to deal with the
unemployment in the country such as a single adult of the country which are 25 or above age has
received 325 pounds from the government spending to fulfil the basic amenities of their life. The
government of the country has serious focus on the labour market where large number of people
are unemployed on the streets of the country. Government has developed many job centres in the
street of the country and makes the vacancies of job open for all type of workers in the market.
Adult retraining is the important part of the government policies to deal with the unemployment.
Those adults which want to change their sector requires proper retraining of new sectors. The
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government has established many new training centres in the market and start developing
different types of skills and qualities in adults so that they can easily change their jobs and do
some better for their life. When any company of the market has faced financial difficulties then
government of United Kingdom has provided monetary support to these employees so that the
jobs of the employees becomes safe and unemployment rate of the country are in control.
Inflation is another factor of the economy is related to the increase in the prices of the goods
in the market. It is very important for economic growth that the inflation rate of the country
becomes stable (Dunz, Naqvi and Monasterolo, 2021). The increase in inflation rate leads to
decrease in consumer spending of the country which is negative for economic structure. The
government of United Kingdom has try to stable and low in the country. The target of the
government is to place the inflation rate at 2% due to make fluctuations in the interest rates.
Moreover, government borrowing is a factor of the economy is related to loans taking by the
government from the other country or from the world banks. These borrowings are taken by the
government for the development of nation. The borrowings of UK government have increased by
the large number as the government has borrowed around 17% billion. The government of the
country has try to cut the borrowings of the government by more than 7% which reduces the
interest provide by the government on these borrowings.
Government of UK have been successful in last 10 years through undertaking major
projects that boosted economic welfare at great rate. Number of projects undertaken by
government varies each year as projects have been rescoped or completed into small plans that
leave GMPP with entrance of new project.
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Figure 1: The number of projects in government major projects portfolio. 2020.
(Source: The number of projects in government major projects portfolio. 2020)
As per the presented graph, it is determined that in 2019-20, more than 25 major projects
left portfolio. In this period, only 17 new projects entered that resulted in drop of over number of
projects to 125. However, number of projects of government reach to high of 199 in the year
2014, nonetheless, reduced in 2016 as greater than usual amount of project that were due to
completed and left the portfolio (The number of projects in government major projects portfolio,
2020).
The government of UK have achieved success in past 10 years with commitment over
£100bn for investment in infrastructure. For supporting it, the government has set out clear as
well as fully funded investment plans that cover £5.9 billion in order to support scientific
excellence up to 2021, £15bn investment in the road network that is largest programme to
improve roads and £2.3bn programme of 1,400 flood defence schemes (Glomm, Jung and Tran,
2018). Moreover, the government of UK have enhanced capita spending on technology and
science that enable significant development in projects addition to research facilities. UK
economy grew in last ten years to great extent. Services sector is largest sector of the nation that
accounts to more than three quarters of GDP. The industry includes many industries, such as
consumer focused industries, business services and hence forth. In this, manufacturing and
production contributes around 21% of GDP as well as agriculture to nearby 0.60%. the UK
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government has simplified business regulations by introducing new regulations for ventures.
Major functioning of government in developing market economies includes maintaining
competitiveness, redistribute income, provide legal along with social framework, correct for
externalities, arrangement of public offerings and stabilise the economy. The governments of UK
also help population to determine whether the economic system meets the needs of society.
The government of United Kingdom is facing various challenges in the economy which
are creating major issues and challenges. Poverty is a major challenge which is faced by the
government of United Kingdom in last 10 years. According to a survey, there was 23% of UK
population which was living in poverty. The main causes of poverty in country are capital
deficiency, under developed economy, national income, rural economy and absence of skilled
labour. It is important for the economy of UK to focus on eliminating poverty with the help
policies and planning frameworks to achieve sustainable development (Grigoryeva, Kolycheva
and Ushakov, 2018). Another economic challenge is Unemployment that is faced by government
of UK which is creating major obstacles and hurdles in economy. Current unemployment rate of
United Kingdom is 5.1% which is creating major challenge for government. It is very much
essential for government of UK to focus on creating employment opportunities for general public
to achieve prosperous development. In order to eliminate or minimise unemployment rate, it is
essential for government of UK to develop strategic planning. Moreover, Inflation in UK is
rising at a faster pace, which is a major issue for the government. The government is focusing on
development of precise monetary policy in UK to control inflation rate. It is also one of the
major role of government to put in money supply for welfare of whole economy. Inflation is also
impacting majorly on different business organisations which are functioning in the economy.
The inflation rates of economy are also rising due to impact created by pandemic.
The Gross domestic product and national income of United Kingdom is declining day by
day. It is necessary for the government to focus on increasing all major economic sectors like
primary, secondary and tertiary in order to formulate development of GDP and national income.
Economy of UK should be developed with the help and support of corporate laws that supports
development of all major organisations (Ivanyna, Mourmouras and Rangazas, 2021). This
approach will help government to focus on increasing national income and GDP which is
important for welfare economy. Furthermore, availability of resources of a country are most
important part of economic development. The UK's decision of BREXIT has impacted on
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availability of resources, which has decreased economic potential. It is now ethical duty of
government of UK to develop optimum methods in order to provide resources for better growth
and development.
CONCLUSION
From the mentioned information, it has been concluded that macroeconomics assists in
evaluation of capabilities along with resources of an economy together with churning out aspects
to enhance economic welfare in form of boosting productivity, increasing national income and
creating opportunities of employment. It permits public to gain understanding of the economy at
macro or wider level so to facilitate or guide establishments or governments to devise decisions
through effective techniques concerned with consumption, fiscal policy, general welfare of the
economy, output and international economic policy. Concepts, theories and policies related to
macroeconomics when applied in a country, it brings stability in level of prices and assist to
analyse fluctuations in activities of business. With this, goals related to economic development
are achieved and explains ways to reach highest state of growth addition to sustaining it.
Through detailed knowledge about functioning of economy at macro level, government
formulate adequate economic policies and coordinate with global policies of economic welfare.
Government of a country uses economic policies and theories including keynesian economic
theory, monetarist theory and supply side policy for improving economic welfare in form of
stable prices, full employment, balance of payments in equilibrium and economic growth rate. In
last 10 years, government of UK has achieved success by making appropriate investment
decisions and undertaking major projects for uplifting economic situations. In stages of sustained
growth, governments of UK have provided incentives for entrepreneurship in order to take
uphold. In many economies, governments have carried out decision making for power, utilities
and transportation along with offered financial inducements addition to subsidies. There are
ample number of challenges including poverty, unemployment, inflation and unavailability of
resources that government of UK is facing and are still remain same since last 10 years.
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REFERENCES
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Efficient Government, Stability and Full Employment. Routledge.
Bahadir, B., Chatterjee, S. and Lebesmuehlbacher, T., 2018. The macroeconomic consequences
of remittances. Journal of International Economics. 111. pp.214-232.
Berg, C., Davidson, S. and Potts, J., 2019. Capitalism after Satoshi: Blockchains,
dehierarchicalisation, innovation policy, and the regulatory state. Journal of
Entrepreneurship and Public Policy.
Bowles, N., Alexander, S. and Hadjikakou, M., 2019. The livestock sector and planetary
boundaries: A ‘limits to growth’perspective with dietary implications. Ecological
Economics. 160. pp.128-136.
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expansion in the electricity sector: A CGE analysis for Malaysia. Renewable and
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Deleidi, M., Paternesi Meloni, W. and Stirati, A., 2020. Tertiarization, productivity and
aggregate demand: evidence-based policies for European countries. Journal of
Evolutionary Economics. 30(5). pp.1429-1465.
Dunz, N., Naqvi, A. and Monasterolo, I., 2021. Climate sentiments, transition risk, and financial
stability in a stock-flow consistent model. Journal of Financial Stability, 54, p.100872.
Glomm, G., Jung, J. and Tran, C., 2018. Fiscal austerity measures: Spending cuts vs. tax
increases. Macroeconomic Dynamics. 22(2). pp.501-540.
Grigoryeva, N., Kolycheva, Z. and Ushakov, D., 2018. Budgetary Administration and
Macroeconomic Systems’ Social Effectiveness. Advanced Science Letters, 24(9),
pp.6311-6313.
Ivanyna, M., Mourmouras, A. and Rangazas, P., 2021. Macroeconomics of Corruption. Springer
International Publishing.
Online:
The number of projects in government major projects portfolio. 2020. [Online]. Available
through: <https://www.instituteforgovernment.org.uk/explainers/major-projects>
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