Principles and Applications of Macroeconomics: UK Government Policies

This report delves into the principles of macroeconomics and examines how the UK government employs various policies to enhance economic welfare. It begins with an introduction to macroeconomics, defining its scope and importance in understanding economic performance. The report then focuses on the UK's macroeconomic strategies, including monetary and fiscal policies, welfare reforms, and demand-side initiatives. It explains how these policies are designed to influence key economic indicators such as GDP, inflation, and unemployment, and how the government has adapted its approach over the past decade. The report also explores the impact of specific policies like the Universal Credit system and discusses the role of monetary policy in controlling inflation and stabilizing the economy. Furthermore, it highlights the challenges and future directions of UK macroeconomic policy, offering a comprehensive overview of the subject. The report is contributed by a student to be published on the website Desklib, a platform which provides all the necessary AI based study tools for students.

PRINCIPLES AND
APPLICATIONS OF
MACROECONOMICS

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Explanation for how government use macroeconomic policy to increase economic welfare....3
Explanation the changes come in UK government over the last 10 years and changes remain
in future.......................................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Economics is the study of process by which the available resources are allocated to
people to satisfy their unlimited wants. Economics includes business economics which may be
defined as the use of economic analysis to make business decision. Economics has been
classified into two parts micro economics and macro economics. Macro economics focus of the
whole economy rather than its individual parts. It determines the overall levels of output,
employment, total saving, total consumption, exports, imports and foreign investments. To
stabilize the economy government can use macroeconomic, monetary and fiscal policy. The
government uses many models to develop economic strategies and policies. A important factor
of macroeconomics is the evaluation of inflation and deflation. Inflation means increases the
price of goods and service and deflation means down fall the prices of goods and services. With
the help of price indexes economists determine inflation and deflation. The another factor
indicate the unemployment rate. It evaluates how many people without a job. The unemployment
rate in the country is very high it means the economic output is less. Government founds new
policies to balance in the economy such as monetary and fiscal policy. Monetary policies are
implemented by the Reserve Bank of India. The objective of monetary policy is to stabilise GDP
and decreases the rate of unemployment. Fiscal policies is the important tool to control economic
stability (Abuzjarova, M.I., 2018). It is regulated by the government and can be altered by
political intentions. Macroeconomics is a discipline of economics which deals household, firms
government and external factor. Macroeconomics is essential to understand the economic
situation of a country. In this report contains the details of macro economics and the discussion
the policies which are adopted by UK government to increase the welfare. Further in this report
contains the measures which make the UK government successful over the last ten years and
challenges will make in future. (Carroll and et.al, 2020).
TASK
Explanation for how government use macroeconomic policy to increase economic welfare
Macroeconomics is the study of a national or regional economy. It evaluates how the
economy, the market and other system that operates on a large scale. It focuses the performance,
structure and behaviour of the economy. The objective of macroeconomic policy to establish
economic environment (Ulubeyli, and Kazanci, 2018). It gives special consideration on the

operation of economy. The important factors of the macroeconomic policy are trade off between
the rate of capital structure and inflation in the environment and economic welfare.
Macroeconomics plays an important role in market structure and distribution of goods and
resources in the society. The economic growth rate can be control by adjusting interest rate, taxes
and government expenditure. The growth of economy can determine by comparing producer and
consumer surpluses. With using of surplus demand can determine the market and influence
change. In financial sector the major role played by the monetary policy. The main purpose is
that the inflation rate should be related with the inflation objective. The Function should be
connected with each other so that government policy can easily work out of financial crisis. The
banking sector focuses on the government authorities. Macroeconomic policy has a crucial
impact on economic financial health (Dastile and et.al, 2020).
UK government has opted new step to improving the country by implementing welfare
reforms. Due to the impact of COVID-19 the company's growth rate has affected. In the year
2021, UK gross domestic product has observed an yearly increase of 7.5 %. The main purpose of
a welfare economy is to develop economic environment so that people could not migrate to
another place. In the year 2021 the GDP growth rate is 7.2% and in the year 2022 is 5.5%
because most of the population of UK has vaccinated. After withdrawal the Job Retention
Scheme initiated in pandemic period, the unemployment rate is increased in 2021. There are
some methods and approaches of macroeconomic polices which are used by the UK government
to increased the economic welfare (Emir and et.al, 2019).
Welfare reform- The UK government focuses the low income families and provides the
benefits of welfare such as cash, food and medicines. The increase of work support in recent
years, supports for the poor points to the lower wages earned by many adults. The next step of
welfare reform should be focused to ensuring jobs are available. The main objective of this
policy to give information about the current work support system. The work support system
provides three goals. The first goal serves bonus for work. Under this policy the adults who do
not work is given benefits, but these benefits are often reduce dollar-for dollar as earning
increased. The objective of second goal to support those families who are worked at low wage
jobs have sufficient total income to give an adequate standard of living. In post industrial
economy requires higher education for better jobs (Vanchukhina and et.al, 2019). In new
economy, to improve the national education system to equip young people better jobs. The third

goal of this policy to support the people who have left their job or cannot find the work (Ma and
et.al, 2018).
Demand side policies- It is one best example of government initiatives aimed at incrasing
overall demand. It determines the future demand for goods and services on the basis of the past
data. The objective of this policy to provides goods and services at right time so that can satisfy
the consumer need. The factors such as production, inflation, and employment are affected by
demand policies. If demand is high and supply is less then demand policy determines how many
customers are interested to buy goods and services in the country. There are some essential
factors such as consumption, government spending, net export and investment. If any changes in
these factor then both impact positive and negative can be viewed and they influence on overall
demand. Both type of policies that is long period and short period are important to lead the
essential adjustments in the country. These policies help us reducing expenditure and inflation
rate. (Melnikova and et.al, 2019).
Payment policies and self independence- The government policies of UK help us to
improving the financial condition of the country. In 2016 the government has established self
payment independence policy. In year 2021 they are some changing in personal payment
independence. They are providing benefits those person who are in difficult life and creates in
order to make things easier. The other changes will be made to personal independence payment.
 Consumer helps to reduce cost which is related to health problems.
 To determine user capacity to participate in society function.
 To help the physically challenged people, assistance provide for their families in the
society. (Xiao and et.al, 2018).
The main objective of PIP are to determine and meet such needs arising from the effects
of health conditions and disabilities. A long term health condition brings important challenges.
These challenges are affected socially, financial and personally. Disabled people do not able to
work, they are limited opportunities to done the work and decreases the working hours. It is
difficult for disable people to perform daily activities.
Monetary policy- It is very difficult approach in macro economics. Economic activities
can control by monetary policy. This policy can affect three factors such as output, inflation and
exchange rate. Inflation rate affected the person through tax charged and curbs growth. The

incomes of the poor are affected by fluctuations and real exchange rate can affected in two
methods. In first method the short term period are affected money supply and second changes
affect the poor people. This policy is controlled by central bank and provides the sustainable
growth for controlling the supply of money which is available to the nation's bank and its users.
The UK treasury department creates money but the federal reserve refuses provide of money in
the economy. The objective of this policy to increasing the demand of gross domestic product to
reduce the unemployment rate and stable rates of foreign exchange and inflation. The monetary
policy is also classified into some parts (Nordhaus, W.D., 2021).
1. Expansion monetary policy- To reduce the high unemployment the monetary authority
can opt expansion monetary policy. The another objective of this policy, the monetary
authority provides lower interest rates for the purpose to promote the spending money
and make saving it.
2. Contraction monetary policy- The main purpose of this policy to decrease the inflation
rate through increases of interest rate and reducing the supply of money. Through this
policy the economic growth rate goes down and unemployment rate increased.
Fiscal policy- Fiscal policy is introduced by national government. It sends money, both
directly and indirectly to increased spending. The lower tax rate, people wants spend more
money. This policy helps to understand the reason why government raises and spends its money.
This policy is work on the basis of John Maynard Keynes whose objective to expansion the
business activities and economic output. Fiscal policy helps to control taxes and expenditure.
When decreases the government expenditure or increases tax revenues, without compensatory
action, the economy is affected. Through the balance budget scheme when increased the personal
and business tax rate during the period of declining economic activity to provide assistance the
government revenue will not reduce. The fiscal policy is used with monetary policy with an
objective to influence lending through use of money of supply and interest rate. The fiscal policy
has classified into two parts (Santis and et.al, 2018).
1. Expansionary Fiscal policy- The main aim of this policy to put high money in the
economy so that will improve the welfare of economy. This policy creates more job and
increased profits for economic growth. If the demand increases then requires entity to
increase jobs for the purpose of increasing output, input and consumer spending.
(Sarkodie and et.al, 2018).

2. Contraction fiscal policy- The objective of this policy to increase growth rate and to
manage the inflation rate. The government collects taxes and increases the
unemployment rate. The economy needs unemployed workers for business production. If
company can not hire the workers then production growth rate slow down.
Universal credit policy- The objective of this policy for those people who are searching
for work or on a less income. This policy is replacing the following benefits and tax credits
(Sirgy, 2018).
 Income support
 To provide allowances on the basis of job
 Working tax saving
 House allowances
 Employment income and other beneficial allowances
Universal credit policy supports the personal budgeting support which is objective to
adapt to some of the changes such as monthly payment system. This policy is divided the people
on the basis of age and location. After introduce single policy scheme the user will be set up their
newly business and provide the salary of worker on the basis of work. The result of these
scheme, the workers should awarded with great enthusiasm. After this change the work will do
work more efficiently. The workers will also be able to move at another place. The another
objective of this policy to increased the income of workers and disqualified the worker whose
come under the age of 18. This policy establish relationship between people and government so
that accept and fulfil a claimant commitment. This policy becomes beneficial for both people and
economy.
Reducing income tax- Some factors related to supply side which is helped to increase
economy growth. The growth of economy depends on supply side policies. These policies are
direct related with the government inflammation and the growth in employment opportunities. If
the tax rate reduces then greatest impact on resident because helps the general public reduce tax
burden and improve the quality of life. In UK there has different strict labour restrictions. They
are allowed only the workers who have higher degree. Investors would not tend to invest in long

term because of the inflexible nature of the markets. Gross product development is very
significant factor of the country's economy (Smeekes and et.al, 2018).
Explanation the changes come in UK government over the last 10 years and changes remain in
future
After follow the macroeconomic concepts there were many changes in the UK economy.
They produces more manufactured goods for increasing GDP. The UK has invested in capital
structure with £100 billion and has achieved high quality infrastructure. UK has established an
international reputation in science. In these periods UK government has used monetary policy
and fiscal policy in increases GDP and decreases unemployment rates (Ture and et.al, 2018).
The demand of housing will increased if the population and economic condition incrased
this approach requires to build new houses. The new development should result in net
environment gain. Government have continuously followed the macroeconomic concepts to
counter the negative impact of various economic activities which have occurred during the last
ten years. Government should increased the level of security so that important information can
not hike. There should be develop a strategy in the better manner so that they provides
information across the people. The UK government should focused the following aspect they are
as follow-
 The department should make a policy in flexible manner so that improve the efficiency
and effectiveness among citizen.
 To providing high level of digital services , which is important to citizen.
 To offer computerized types of assistance and change the manner in which government
works, like front finish to back office.
 Division ought to hold liability regarding risk around conveyance no matter what the
obtaining game plans.
 The UK government should adopted different type of methodology such as data paucity
and statistical concern, improved monitoring employing a logic model and capturing
more comprehensive data.

CONCLUSION
In the above report the macroeconomic policy is used by the UK government to improve
the economy. Monetary policy and fiscal policy play an important role in the economy. Surplus
demand can be determine the market changes. Individual have called the UK a government
assistance state with major areas of strength for a bowed. The objective of this policy was to
provide free school meals and jobs. The pension were also available over the age of 70. The
National Insurance Act was passed for individual who were employed and objective of the act
over 13 million people were protect under this act. Around 0.09 percent of the population uses
food bank. The UK government has taken another step to improve the work bill policy and
welfare reform. The most important factor of macroeconomic policy to increasing the demand. If
there is an excessive amount of demand then these policy measures the people want to buy goods
and services in the country. In 2016 the UK government was establishment of personal payment
independence. These policy establish relationship between output,revenues, expenditures and
domestic demand. There should be proper balance between these factor because imbalance
between these factors are reduced economic growth. Macroeconomic does not depends only
macroeconomic management but also depends on key markets and structure. The country
situation depends on the three factors such as sources of instability, stabilization and adjustments
of macroeconomic stability. There are many policies and approaches are adopted by UK
government for implement economy. Government policy is explained borrowing and spending
activities. Fiscal and Monetary policy that affects the macro economy and financial markets. The
monetary policy is controlled by central bank that directly influenced the financial sector and
economic condition of the country. Fiscal policy is depended on government decision that affect
taxation and spending. The citizen of economy choose to hold in the form of money. The
objective of holding money is related with speculative, transaction and precautionary. Over the
last 10 years there are many changes in the UK economy. After introduce the concept of free
payment they help better living with minimum cost such as a long term physical health condition
and can claim adult people for pension. Between 2012 and 2022 there has been decreased the
manufacturing industry and an increased in services. The some change still remain in UK, there
should be provide assistance of disabled people for the jobs and give benefits such as reduce
working hours, transport facilities and some retention benefit.

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