U.K. Economy Essay -- Economics Fiscal Policy Essays

U.K. Economy The UK government currently has four main macroeconomic aims that it is pursuing. These aims are those of low unemployment, low inflation, and high and stable economic growth as well as a favourable balance of payments current account position. This essay will concentrate on the government’s success in the first three of its aims listed above and how these macroeconomic aims can or have been achieved using fiscal and monetary policy. Fiscal policy is used to affect aggregate demand by altering taxation and government spending; monetary policy also affects aggregate demand by the manipulation of interest rates and the supply of money. Economic growth is the prime measurement of a country’s economy as it reflects improvements in standards of living. It is defined as an increase in the productive potential of the economy and is usually measured in terms of rate of change of real gross domestic product (GDP), which is the value of output produced within an economy over 12 months. It must be remembered that for each year, the percentage change in GDP is shown therefore any positive figure will represent a growth in the annual GDP level. The swift growth the UK experienced from 1982 to 1988. This growth in GDP decreased from the 5.2% level experienced in 1988 to 2.2% in 1989 and fell to its lowest in 1991 at –1.4%. This is due to the recession that hit the UK during this period. After the negative year of growth in 1991, the UK economy began its recovery from the recession and consequently there was a healthy growth in GDP from 1992, which lasted up until 2001. In 2000 the GDP growth figure stood at 3%, this is mainly due to the increase in consumer spending and capital investment that occurred during this year. The most satisfying aspect of this economic growth is the fact that at the time it coincided with the achievement of the government’s second macroeconomic aim of low. Last year however the economy grew by just 1.7%, which is the lowest for a decade. This low rate of UK economic growth coincided with the position of the manufacturing sector, which in 2002 was in a deep recession and is to the manufacturing industry to call for a further interest rate cut, to help push the value of the pound down, so that UK manufacturing export demand can increase. Inflation is the general a... ...enting the economy from entering a recession. Nevertheless this is where we can see the difficulties in making these policies due to trade offs that occur, as a rate cut in theory should lead to the rate of inflation to rise even further however this is a risk worth taking to end the current manufacturing recession as well as strengthen consumption even further. Revising an expansionary fiscal policy (fall in taxation, increase in government spending) would also be advisable. This will further boost aggregate demand and as supply side economists may argue, shift aggregate supply to the right effecting growth (a rise) unemployment (a fall), inflation (a fall), thus these goals to be met. It must be remembered that both policies have time lags connected with them, in particular fiscal policy, for which they are greater. A decision to change an instrument must therefore be consistent, as it may not always have the desired effect instantly. Bibliography www.statistics.gov.uk www.bized.ac.uk/ www.hm-treasury.gov.uk http://www.tutor2u.net www.telegraph.co.uk/business http://news.bbc.co.uk/1/hi/business/economy/default.stm Economics – Sloman.