Analyzing UK Macroeconomic Policies: Lowering Unemployment & Inflation

This report delves into the macroeconomic policies employed by the UK government over the past decade to combat unemployment and inflation. It identifies and analyzes fiscal and monetary policies, including government spending, taxation, and interest rate adjustments. The report examines the impact of these policies on inflation and unemployment rates, supported by data from 2011 to 2021. It discusses the advantages and disadvantages of fiscal and monetary policies, such as their effects on budget deficits, economic growth, and investment. The analysis highlights the challenges the UK government faces in implementing these policies effectively to achieve economic stability and sustainability. Desklib provides students access to similar solved assignments and past papers.

Macroeconomics

Table oEf Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................4
Identify and analyse two or three macroeconomic policies the government uses to achieve
lower levels of Unemployment and lower inflation rates over the last 10 years........................4
CONCLUSION -...........................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Macro-economics is the part of economics that studies the economy of a country as a
whole. The study of this branch includes the market that operates on a big scale. It is the study of
the large factors affecting the economy that have both positive and negative aspects on the
economy. These macro-economic factors consists of inflation, unemployment, demand, supply,
level of price, economic growth, national income, gross domestic product (Henao, 2020).
Macro-economics also handles with the performance, structure and behaviour of the economy
altogether. It helps in generating the models the explains the relationship between the different
factors. These models are termed as macro-economic policies which helps the government in
bringing sustainability and stabilization in the economy. These strategies helps the government
of a country to go global and to attract foreign investments.
The term macroeconomic policy refers to the scheme concerned with growth of the
economy. It is an action that a government takes to impact the economy as a whole. It studies the
operations and performance of the economy altogether. Macro-economic policies can be
implemented through fiscal policy and monetary policy. These policies are designed in a way so
that it helps in attaining the economic objectives of stability in price, full employment and
growth. The importance of macroeconomic policy is to bring stability and sustainability in an
economy. It reports the interconnections amid mass aggregates which is hard to understand like
overall price level, national income and savings. The significance of macro-economic policy is
that it centres on the big problems like unemployment, trade balance, inflation and
unemployment (Zlatinov, 2019).
The government uses fiscal policy and monetary policy to minimise unemployment and
inflation. The use of these policies to prevent unemployment and inflation is done through
stabilization in an economy. This stabilization is achieved by controlling the spending on public
budget government and tax collection to expand the output and employment. Government uses
both these policies together to manage economic activity, and put-back an economy to complete
employment result.
This report highlights the concept of macro-economic policy and different types of macro-
economic policies that a government implements to lower the levels of unemployment and lower
the inflation rates. With this, it also encompasses the advantages, disadvantages, and

effectiveness of these policies. This report also presents the key challenges that UK government
encounters to implement the different kind of policies.
MAIN BODY
Identify and analyse two or three macroeconomic policies the government uses to achieve lower
levels of Unemployment and lower inflation rates over the last 10 years.
The UK government uses the following macro-economic policies for the purpose of
preventing inflation and unemployment rate -
Fiscal Policy – Fiscal Policy can be defined as the decisions of government regarding spending
and taxation that needs to be improved for the economic growth. This policy is concerned with
generating the revenue through taxes and taking the decisions on what is the size of a
expenditure and designing the pattern for such expenditures. This policy is conducted by keeping
in mind the estimated budget where the government records its expenditure and income to ensure
a financial year (Fadul, 2021). The main objective of the UK government behind using this
policy is to allocate the financial resources efficiently, to control the inflation rate , to generate
employment, to bring price stabilization in the economy.
The UK government's fiscal targets that centres on-
Measures of Government Borrowings- It is the difference between what the government
has raised from the revenue and taxes
Measures of Government debt- In simple terms it can be termed as the loan taken or the
financial liability of a government to cover its budget deficit.
Monetary Policy- This policy includes the scheme where the monetary instruments are used by
the monetary authority to control and regulate the availability, costs and use of money to
promote the economic growth. Not only the money but it also regulates the credit for economic
growth. It is also concerned with proper regulation of demand and supply for money in an
economy. The objective of UK government behind using the monetary policy is to ensure the
credit flow to productive sectors, to create an efficient market for the government securities. The
Bank of England's Monetary policy committee sets this policy to 2% to meet the inflation rate.

Inflation Rate- It is a rate at which the price of goods and services increases with the consequent
decrease in the value for money. Inflation can be termed as decline in purchasing power.
Inflation rate of UK over past 10 years-

In the above graph the inflation rate over the last 10 years can be analysed i.e. from 2011-
2021. The rate if inflation is highest in 2011 i.e. 4.46% then it is decreased to 2.83 in 2012. The
UK government took a step to save the spending because there will be a greater purchasing
power in future which states that the policies framed by the UK government to control the
hyperinflation had good impact on economy because the inflation rate is decreased by 1.63%. In
the year 2013, 2014, 2015 the inflation rate is continuously falling and has reached to 0.04%.
The inflation rate is set to 2% in UK. The decline in the inflation rate over these 3 years has led
to the deflation in the UK economy (Miller and Schmidt, 2021). This decrement in the inflation
rate states that the prices in the market are falling and there is a decline in the aggregate demand
and lower growth rate which has affected the future profits of the economy. This further leads to
the less investment in the economy. For the year 2016 and 2017 the inflation rate starts
increasing and reaches at 2.68%. This means that there is an increase by 2.64 which states that
the economy is coming out from the stage of deflation. The causes for this increasing shift can be
that the open market operations, increase in demand etc. and it has reached to 2.48% in 2018
which represents the stabilization in economy but in the year 2019, 2020, 2021 it is 1.79% ,
0.85%, and 2.19 respectively So it can be interpreted that the macro-economic policies of United
Kingdom is bringing good results in the economy. The UK government has made policies and
have taken every possible in order to prevent the economy from the state of hyperinflation.
Unemployment rate - Unemployment rate- It is the percentage of the labor force that are
without a job. It can rise and fall due to the changing economic conditions so it can be called as
the lagging indicator. The unemployment rate of UK economy over past 10 years-

The unemployment rate is set to 4.10% in United Kingdom.
In the above graph the data for the unemployment rate of United Kingdom economy is
given for the 2011-2021, and the projections till 2022 (Lisciandra, Martini, and Herfeld,2022).
The diagrammatic representation states that the rate of unemployment is highest in 2011 that is
8.04% which means the economy is unable to generate enough jobs for the people who are

willing to work. The high rate of unemployment leads to the social problems and makes the
economy less appealing to the foreign investors. From 2012-2018 the employment rate is
decreasing and has reached to 3.74%. This can be usually considered as the positive sign for the
economy of United Kingdom but this can be dangerous for the economy at the same time
because it might have some negative consequences like inflation and reduced productivity. In the
year 2020 it has again increased to 4.34% . The expected rate is 4.10% so this might represent
that the expected rate is rising, and the scarcity of jobs has been increased and it also depicts that
the economy has poor shape (Correa , 2019). This represents that the macro-economic policies
framed by the government of United Kingdom over the past 10 year is helpful in generating the
employment in the country. But these policies might also lead to the failure in some cases if the
unemployment rate will keep declining because the decrease in the unemployment rate does not
only result with the increase in jobs despite of this it also leads to the poor and less productivity
in an economy.
Thus, it can be said that the policies framed by the UK government for controlling of
inflation and unemployment has lead to the sustainability over the past 10 years.
Advantages of Fiscal Policy-
Reduction in unemployment- When there is a high rate of unemployment the government can
make use of the fiscal policies as this involves the increase in spending or purchasing and
lowering the taxation rates. Lowering the personal income tax rates and indirect taxes can lead
to more disposable income of a citizen and higher real income in UK economy, whereas cut in
corporation tax and reducing tax on interest from saving can add to business capital spending and
consumer demand respectively. To encounter with the growing demand, there will an increase in
the production and this will increase the employment opportunities in the economy (Helgadóttir,
2019)(Niu, 2021).
Reduction in the Budget deficit- A country faces the problem of budget deficit where the
government expenditures are more than its income. This deficit has the economic effects of
increased public debts. Framing fiscal policies can assist the UK government in reducing its
expenses by lowering the amount on public spending and increasing the tax rates to generate
more revenue.
Increase in economic growth- UK Government takes various fiscal measures in order to expand
the national economy. The government invest in human capital through education system, builds

a strong physical infrastructure for transportation and commerce, increase investments by
lowering the capital gain taxation rates. So, all these measures helps in strengthening the growth
of economy(sroilov, Gapurdjonov, and Fayziev, 2019).
Protecting the economy- To safeguard the economy from the destructive developments by
reducing the dependency on foreign investments and food.
Disadvantages of Fiscal Policy-
Clash in objectives- There can be conflicts in connection with the various objectives of the
policy. The aim of fiscal measures to reduce income inequalities and controlling inflation can
have adverse affect on capital formation and rate of economic growth.
Unfavourable effect on debt management- The use of fiscal policies at the time of unemployment
and depression can lead to the upcoming issues of debt management. To meet the budget deficit,
public debt is the cure. But if the economy takes too long to recover from depression then the
formation of budget deficit year after year will lead to a big problem in management of debt and
repaying them (Bartenev, 2019).
Advantages of monetary policy-
Brings scope for more investments- In monetary policy banks lowers the interests rates on loans
and mortgages, which encourages the business owners to expand their enterprise. Secondly, the
prices of the commodity will be lower, so the purchasing power for the goods and services will
be increased.
It can help in low inflation rates- Another advantage of implementing the monetary policy is that
it aids in promoting the stable prices, which are very supportive in ensuring that the inflation
rates will remain low all over the country. Low inflation rates will also help the government in
making best decisions for the UK economy.
It promotes political freedom- Since the Bank Of England is responsible to frame the monetary
policy which involves the decision regarding the official interests rates in the United Kingdom.
The decisions are purely taken by the Bank of England's monetary policy committee so there are
no chances of political influences and the decisions are based on facts and data rather than the
wants and needs of individuals.
Disadvantages of monetary policy-

It takes time to get executed- It takes very long to implement the economic policy in an economy
compared to fiscal policy that helps in pushing more money into the economy rapidly. Especially
at the time of inflation, it is really tough to implement this policy.
They produce risk for hyperinflation- If the interests rates are too low, then it can lead to the
liquidity traps and inflation in the economy (Sbarile 2022).
There are various challenges that a government has to face while implementing these
policies for the purpose of lowering the inflation and unemployment rate. These challenges can
effect the process of achieving the economic objectives.
The main challenge that a government can face is of the lack of financial resources,
because the people pay less amount of tax compared to the taxation rates that are fixed for the
particular financial year., so if the government will lack these resources then it will be tough to
implement the policy in each and every aspect. The government has to increase the purchasing
power of the customers in such a way that it does not use all the available funds.
Secondly, the main aim of any country is the sustainability growth factor, it can be
defined as the factor where the government has to focus on economic growth but also have to
keep in mind about saving the natural resources. The government will have to do so because the
resources are very scarce and have unlimited use, and the government have to use these
resources for future generations also. The government has to take care about the impact of new
policies on the natural resources. So the government has to analyse all these factors very
carefully in order to promote sustainability (Fuad and Disman, 2020).
Another challenge that a government face is regional disparities like wide differences in
per capita income, literacy rates, health and education services, levels of industrialization,
infrastructural facilities etc. such disparities are observed in United Kingdom, so it takes a lot of
time to come to a satisfactory conclusion.

CONCLUSION -
It is clear from the above essay that macro-economic includes taxes, government spending and
borrowing, exchange rate determinants, and monetary and credit rules. Macro-economic policies
aims to provide a sustainability in the environment growth. The key pillars of the macro-
economic policies that UK government uses are fiscal policy, monetary policy and exchange rate
policy and these policies are concerned with the operations of the economy altogether. It is clear
from the essay that monetary policy plays a sizeable role in contributing to the reduction in
inflation and real growth fluctuations for UK and fiscal policy can have a long run effects on
savings, investments, the trade balance and growth. Although these policies are really helpful in
bringing the economic growth but with the same it is also clear that the UK government should
proceed with these macro-economic policies very carefully with a proper understanding of the
consequences that it can in the short-run and long run. Macro-economic policies have advantages
and disadvantages as well. This essay has also stated the major challenges that a government has
to face while implementing the policies. Thus it can be said that all the policies plays a vital role
to bring stabilization in macro-economic environment that enhances prospects for growth and
improve standard livings.

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