Macroeconomic Policy Analysis: Objectives, Fiscal and Monetary Impact

This essay delves into macroeconomic policy, examining the objectives governments set to manage national and regional economies. It focuses on key goals like reducing unemployment and controlling inflation, achieved through fiscal, monetary, and supply-side policies. The paper discusses how the Bank of England uses monetary policy to influence the flow of money, impacting investment, job creation, and inflation. It contrasts this with fiscal policy's role in increasing spending or lowering tax rates to stimulate demand and employment. The analysis includes real-world examples, such as the UK's unemployment and inflation rates, to illustrate the challenges and potential successes of these policies in fostering economic stability and growth. The essay concludes by weighing the effectiveness of monetary versus fiscal strategies in achieving macroeconomic objectives.

Macroeconomics

Contents
Contents...........................................................................................................................................2
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................4
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Macroeconomics is the study of external behaviour, which encompasses both the national
and regional economies. This is primarily concerned with comprehending global events that take
place outside of the corporate organisation, such as the amount of unemployment, general
pricing behaviour, and the total items generated in the economy. Fiscal policy, monetary policy,
and supply-side policies in the market are the three forms of government macroeconomic
policies that maintain the smooth operation of the economy (Su, 2021). It examines all of the
economy's aggregate indicators that are impacted by macroeconomic conditions. Models are
used by businesses and government agencies to aid in the development of economic policies and
strategies. Economics theories may provide insight into how the economy works and the long-
term consequences of certain policies and actions. It also assists individuals in their businesses in
making better decisions by providing a better grasp of the implications of large economic trends
and policies on their particular endeavour.
The government has a number of objectives that need to be met. In terms of
macroeconomics, the main government policy goals are to reduce unemployment in the economy
and to manage the economy in the market so that businesses may make greater profits.
Employment and the economy's inflation balance are crucial factors to examine in order
to maintain a smooth movement throughout the country and a greater degree of profitability.
This also leads to the correct movement of commodities and money within the economy,
resulting in a sufficient number of job possibilities to properly handle the many sectors of the
economy (VUONG, and VUONG, 2021).
In the context of monetary policy, the central bank of England uses this tool to ensure a
better flow of goods and services within the economy and to reduce unemployment. When the
central bank increases the flow of money within the economy, investors can get sufficient funds
to allocate in their new-starts, resulting in a large number of job opportunities being introduced
into the market, which also ensures the proper functioning of the market. Huge job prospects can
assist individuals improve their living standards while also contributing to the economy's growth
in the form of GDP.
On the other hand, in order to manage inflation within the economy, the Bank of England
cut the flow of money within the economy and increased the interest rate of borrowing, causing

small banks to raise the rate of interest in the market, causing investors to cut their borrowing
from the bank, lowering inflation and bringing the economy's aggregate demand into balance,
contributing to the GDP of the UK.
This article will go through the main government policy objectives, as well as discuss
whether fiscal or monetary policy may be utilised to achieve those goals, as well as describe the
chances of success. Furthermore, the advice is given for the economy's prosperity..
MAIN BODY
Macroeconomic policies identify the many policies that are linked to operations and
occur inside the economy. As the government of that country, these are applied inside the
economy. When they aim to execute multiple objectives throughout the country as a whole, they
focus on achieving the various objectives (Oberholzer, 2020). These macroeconomic policies are
pre-defined and followed in a sequential manner by the government in order to make proper and
successful market judgments. The goal of macroeconomics is to ensure that the country's
economic environment remains stable and grows. These policies also aid in the creation of jobs
and the improvement of living conditions across the country. It also aims to narrow the economic
gap between the affluent and the poor. Fiscal policy, exchange rate policy, and monetary policy
are the three basic concepts in macroeconomic policies. These aids are a powerful instrument
that the government may utilise to achieve the nation's macroeconomic goals and objectives.
The goals of macroeconomics are to reduce unemployment as much as possible while
still keeping inflation under control. Unemployment is a situation in which the economy has
fewer jobs and more individuals are unemployed. As a result, the government's primary aim is to
enhance employment inside the country so that individuals may contribute to higher living
standards within the economy while simultaneously contributing to the country's overall GDP.
People are seeking for new jobs or planning to drop out of school. According to economists, a
3% unemployment rate is close to full employment. This is a challenging situation to analyse
exactly. The economy bears certain social and economic costs as a result of high unemployment.
Because those who are unemployed have minimal income, they can only consume a limited
amount of goods. During employment, the government will have to spend more on
unemployment benefits, and tax revenues would be lower ( less VAT, income tax). As a result,
high unemployment will increase government borrowing as well as societal issues including

crime and social alienation. Especially if the government body focuses on the young who is
feeling alienated by receiving no work.
The unemployment rate in the United Kingdom was 4.1 percent in the fourth quarter of
2021, and it has been reducing since 2013, and has been falling since the end of 2020. Those
who had been unemployed for six months drove the drop in unemployment during the last three
months (United Kingdom Unemployment Rate,2021). There are numerous sorts of employment,
such as earning-based employment, which is performed by an individual in order for them to get
proper remuneration for their labour. Individuals engage in volunteer work so that they can
contribute to charity and the social welfare of the society.
Another goal is to keep inflation under control. Inflation is defined as an increase in the
total price level that continues to erode purchasers' buying power in the market. It happens as a
result of a drop in demand for products and services, which leads to price increases and inflation.
Inflation, on the other hand, is negative when buying power falls far more than increased prices,
leading to a reduction in total expenditure and a decline in currency value.
The use of instruments such as the open market, discount rates, and reserve requirement
is characterised as monetary policy in macroeconomics. It regulates the amount of money
accessible to the inhabitants of the country, as well as how these monies can be provided and
transferred throughout the economy (Luther, 2021). The national bank of England, the UK's
central bank, assists government entities. It aids in the control of inflation and economic growth
by regulating the pace of consumption within the economy. They are generally set up to fulfil
macroeconomic goals. The primary concern is the existence of a monetary transmission
mechanism inside the economy. The basic goal is to improve market consideration so that the
economy can function more efficiently. In the event of inflation in the economy, there is a high
circulation of money in the market, as the central bank will supply various securities and trade in
the open market. As investors engage in such securities and then purchase them, the excess
amount of funds that are flowing in the market will cause the economy's investments to fall,
resulting in an inflationary gap. When the central bank considers the inflationary gap, it will buy
base securities as well as buy from open market activities. This will increase the amount of
money available to people in the economy. As the major aim is to secure the circulation of
money throughout the economy, this leads to an increase in investment and consumption within
the economy, as well as an increase in aggregate demand and a reduction in the inflationary gap.

To sustain the inflation gap in the UK, the central bank of the UK enacts more monetary policies,
such as raising borrowing rates so that local businesses and stakeholders lower their borrowing
from the bank. When borrowing is curtailed, the supply and flow of money into the economy is
similarly lowered, allowing the government to maintain the inflation gap.
The annual inflation rate in the United Kingdom increased to 5.5 percent in January 2020,
exceeding market expectations of 5.4 percent. Housing and commodity pricing contributed
significantly (7.1 percent vs 6.9 percent), with gas (28.3 percent vs 28.1 percent) and food (4.3
percent vs 4.2 percent) accounting for the majority of the increase (7.1 percent vs 6.9 percent)
(United Kingdom Inflation Rate,2021). The government of the United Kingdom limits the flow
of money to achieve policy objectives such as inflation, and the central bank of England manages
the flow of money in this way.

According to the graph above, the employment rate is decreasing as the Bank of England
boosts the flow of money within the economy, allowing potential investors and shareholders to
get cash from the bank, resulting in a variety of job prospects in the market. People can apply for
meritorious jobs in a variety of fields that interest them.
More investments are being made as a result of monetary policy, and consumers are
spending more. In light of the bank's expansionary monetary policy, this has resulted in reduced
interest rates on mortgages and loans. They also develop their business processes, allowing them
to have more cash accessible at a fair interest rate. Inflation was defined as an increase in the
price level and a decrease in the value of money inside the economy (Juniper, Nadolny,
Pantelopoulos, and Watts, 2020). Monetary policy aids in the stabilisation of prices and the
reduction of the rate of inflation in the economy. While they are acquiring, they are also
enhancing the power of individuals by employing the same in the market. The price of a
commodity will fall as a result of monetary policy, and it will also be used to encourage
consumers to buy more things. This also leads to a higher profit margin inside the company. The
federal reserve may use monetary policy to manufacture money, which also enables them buy
government bonds from banks and other institutions. This also means that banks have a larger
cash reserve and monetary basis. Because the company's interest rate is lower, banks and
financial institutions are more willing to lend to borrowers. It is one of the most important
benefits of monetary policy, and it is the price stability within the economy over time that helps
to keep the rate of inflation low in the country and throughout the world.

Monetary policy cannot ensure economic recovery, and economy is in the midst of a
recession, in which all consumers lack adequate buying power to purchase a specific item and
reap the benefits of lower interest rates in the economy. Monetary policy also enables and to get
cash from the central bank at a lower interest rate, which they may then utilise as a loan to their
buyers. However, there are certain banks that have money, which implies that the client will be
able to receive fewer funds from them (Koziuk, 2018). More investments are flowing in as a
result of monetary policy, and consumers are spending more. When banks cut interest rates on
loans and mortgages as part of an expansionary monetary policy, businesspeople are encouraged
to expand their operations because they have more capital available at reasonable interest rates.
Inflation is defined as an increase in overall prices and a decrease in the value of money
(Morvaridi, 2018). Not only does the interest rate fall, but it also rises, which may discourage
them since they are going to invest large sums of money in total working capital, and if the rate
rises, the funds will become stuck in the economy. The central bank of England's monetary
policy comprises managing the money supply and setting interest rates. When the unemployment
rate is high, the government implements fiscal policy to assist reduce unemployment. It entails
increasing spending or making purchases and lowering tax rates as a result (Jimon, Dumiter, and
Baltes, 2021). Companies will boost manufacturing and output to fulfil demand, which will
result in additional work prospects for them. To prevent the economy from collapsing, the central
bank will lower interest rates and make them more accessible so that people may borrow while
raising the overall amount of money. When the economy grows rapidly, the central bank may
execute a restrictive monetary policy by raising interest rates and removing more money from
circulation. This policy has a technical constraint in that the interest rate can only be reduced
nominally to 0%, which limits the bank's ability to utilise it because interest rates are already low
in the economy (Fiscal Policy vs. Monetary Policy: Pros and Cons,2021). Some European central
banks have encountered negative interest rate policies in the market, which has slowed the
economy's general process. When the government employs a combination of fiscal policies,
distinct aims may conflict with one another, resulting in conflict (Schmidt-Hebbel, 2019). The
government may generate additional revenue by issuing bonds, which will increase expenditure
while also increasing the pace of growth. Fiscal policies are normally implemented after they
have received permission through government processes, which causes delays. Even if the
government increases expenditure, it will take some time for the monies to reach the consumer.

Depending on how foreign policy is created, it will promote the country's economic well-being.
Every country strives to get the most out of the foreign policy it has enacted. Foreign policy has
made it simpler for numerous nations to engage in international commercial practises, and
countries with divergent policies may do commerce more smoothly than those whose policies are
in conflict (Zhao, and Yang, 2021). These policies are meant to guarantee that the nation receives
better bargains, and they must be beneficial to the country's population. It's worth noting that
policies are better if they benefit the population of that country by providing more work chances.
It is the primary aspect that leads to a better market approach and the proper
establishment of the flow of goods and services within the economy. There are aspects like
sustainable growth, which is defined as a pace of growth that can be sustained without causing
other severe economic concerns, particularly for future generations. This is essentially a trade-off
between current economic growth and growth in the not-too-distant future. The government will
set monetary policy in such a way that it tries to meet human needs while also protecting natural
resources and the environment for future generations. The government is taking into account a
number of factors, which is having a significant influence on unemployment. When the
government increases the flow of money within the economy, investors may use that money to
establish their own business and create a variety of job possibilities in the economy, all of which
benefit the social welfare and add to the UK's GDP. Another element is the rise in individual
living standards in the United Kingdom (Pangara, 2020). For this, the UK government and
central bank maintain a sufficient flow of money so that individuals may get money in the form
of subsidies or reduced tax rate borrowing, allowing them to improve their living standards while
also improving the economy.
It is recommended that the UK government and the Bank of England use a combination
of fiscal and monetary policy in order to reduce the taxation of commodities and services, as well
as to gain a better understanding of the economic environment and analyse business concepts in
order to ensure that the economy functions properly. It is the most important factor to consider
when individuals are subjected to minimum tax rates on purchases in order to raise their standard
of living and contribute to GDP growth. Another option is for the government to utilise supply-
side policies, which are described as policies that try to raise general productivity and efficiency
within the economy, and then shift aggregate supply to the rightward, allowing for stronger long-
term economic growth. It covers two types of supply policies: free-market supply-side policies

that promote competitiveness and free-market efficiency, and government supply-side policies.
Another is interventionist supply-side policies, which involve government investment on
transportation and communication in order to overcome market failure (Rubinton, 2020).
This supply side contributes to the reduction of inflation, and a movement in aggregate
supply to the right will result in a lower price level. This contributes to lower cost-push inflation
and a more efficient economy. Furthermore, it aids in the reduction of unemployment, which in
turn aids in the reduction of structural, frictional, and real wages. As a result, it aids in lowering
the rate of unemployment in the economy (Bornstein, 2019).
CONCLUSION
The above essay concludes that the above-mentioned goals of reducing unemployment
and regulating inflation within the economy have been met. The Bank of England has reduced
the flow of money by raising interest rates on borrowing, causing investors to take fewer loans
from small banks and, as a result, maintaining inflation in the economy. Furthermore, in order to
accomplish the aims of reducing unemployment, the Bank of England stimulates the flow of
money into the economy, allowing for the introduction of new start-ups and the creation of a
large number of work possibilities for the people. Furthermore, the government is advised to
implement supply-side policies in order to enhance aggregate supply, which tends to lower
unemployment and inflation in the economy.

REFERENCES
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Fiscal Policy vs. Monetary Policy: Pros and Cons,2021 [Online] Available
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