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The U.K Governments Policy of Deficit Reduction - Essay Example

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This essay talks about the UK government which has announced reforms in case of Annually Managed Expenditure (AME) which includes welfare and public service programs. The government has made sure that there is immediate implementation of the reforms. …
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The U.K Governments Policy of Deficit Reduction
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The U.K Governments Policy of Deficit Reduction

Download file to see previous pages... s printing money, but that too had its ill effects, such as people do not sit with such money in hand, rather they spend it, creating demand for goods and then it can lead to inflation. Without printing money the government can resort to borrowing, but that will include equal amount of less private spending, thus jobs created by stimulus spending will be equaled by jobs lost by decline in private spending. Another case is where the people can investment in government bonds when they know that taxes would go up. This will put the net effect to zero (Cochrane, 2009). UK government could have taken the path decreasing corporate and income taxes instead of increasing them. Tax increase immediately leads to more money getting accumulated, as liquidity trap, and less mobility. Tax cuts on the other hand could have increased the overall spending and helped reduce the crisis. Government spending is another component of aggregate expenditure. If the government expenditure increased then the benefits of multiplier effect could have been derived (Petroff). It has been debated whether these policies of the UK Government were appropriate in this context. Firstly, the Government declared an increase in taxes. This was expected to lower the level of production in the economy. Secondly, high taxes in an economy also have a deterring effect on the taxpayers because citizens have tried to evade taxes in economies which have imposed high levels of taxation. Thirdly, the reduction in Government spending was also supposed to lower the economic production. Fourthly, reduction in Government spending could have a detrimental effect on the consumer and the investor spending which would further decrease the level of its production. Fifth, when the Government of a country decreases its spending...
This essay declares that the UK government could have come up with other alternative policies such as printing money, but that too had its ill effects, such as people do not sit with such money in hand, rather they spend it, creating demand for goods and then it can lead to inflation. Without printing money the government can resort to borrowing, but that will include equal amount of less private spending, thus jobs created by stimulus spending will be equaled by jobs lost by decline in private spending. Another case is where the people can investment in government bonds when they know that taxes would go up. This will put the net effect to zero.
This paper makes a conclusion that UK government could have taken the path decreasing corporate and income taxes instead of increasing them. Tax increase immediately leads to more money getting accumulated, as liquidity trap, and less mobility. Tax cuts on the other hand could have increased the overall spending and helped reduce the crisis. Government spending is another component of aggregate expenditure. If the government expenditure increased then the benefits of multiplier effect could. It has been debated whether these policies of the UK Government were appropriate in this context. The decision to finance higher education and designing policies for its betterment is crucial for any economy. Often students opt out of higher education due to the cost and as a result there arises shortages of qualitative human capital ...Download file to see next pagesRead More
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