Macroeconomic Objectives and their Importance to UK Economy - Essay Example

? Macroeconomic Objectives and their Importance to UK Economy Define macroeconomic you can compare it with micro Macroeconomics refers to aggregate activities carried out by government, individuals or the government. Microeconomics deals with analysis of individuals and firms market behavior with an aim of understanding the decision-making processes of the companies. Objectives are the aims of the policy being used by the government. The government of the United Kingdom targets a consumer index of over 2 percent. The government also intends to ensure sustainable growth through maintaining low inflation and ensuring proper control on the environmental growth. Macroeconomic Objectives The macroeconomic objectives include labor productivity and high levels of capital investment. Increasing international competitiveness and boosting trade performance demands that strategic capital investment. The rise of the European market and globalization has impacted the long term objectives of the government. The UK government has an objective of ensuring high levels of employment through increasing opportunities for full employment. Part of the plan includes ensuring tight government controls over national debt and borrowing (Greener 2001). The state is expected to meet its own fiscal rules. The overall aim of the United Kingdom government is to ensure a fall in the poverty levels and a rise in the living standards. This can be done by cutting child poverty and promoting growth over the next few years. The bank of in England has control over monetary policy and sets the interest rates policy. The bank applies qualitative easing to ensure unconventional monetary policy (Altug et al 2003). This ensures that money is circulating in the economy. The government is also in charge of the fiscal policy. The government has the power to change taxation and spending to cushion the economy in times of recession. This includes cutting and raising tax. Most of these efforts have resulted in huge government borrowing (Arestis et al 2005). The government of the United Kingdom has been putting a new macroeconomic policy. This is designed to deliver the intended macroeconomic objectives which include stability (Beetsma 2004). The government is increasing product flexibility, capital and labor markets with an aim of enhancing resilience (Jenkins 2013). Low Inflation The emerging objectives and macroeconomic framework has is expected to deal with challenges that come from inflation and economic uncertainty. The inflation is the United Kingdom stood at 2.4 percent at the beginning of 2013. This has been occasioned by a fall in price of diesel and petrol. The price seems to have temporarily stabilized. The energy costs have declined. This includes housing, recreation and culture goods. The macroeconomic framework is based on transparency, responsibility and accountability. The aim is to ensure that the government works through clear objectives for fiscal and monetary policy. The government of UK believes that constrained discretion can help in meeting long term macroeconomic grows. Under this framework, the government of United Kingdom is expected to meet the objectives simultaneously (Greener 2001). This approach is boosted by the fact that some of the objectives and complementary and interdependent with each other. Balance of Payment This occurs when an induced balance of payment transactions is zero. In this case, the government of the UK is responsible for influencing the exchange rates. The government is determined to ensure that the imports to not exceed the exports. This is done through avoiding fixed exchange rates and promoting a culture that is more productive that consumptive. The government hopes to control the exchange movement given the exchange rates is flexible. This might prevent the sterling from depreciating further. Balancing is payment equilibrium affects the holding of foreign exchange with affects the local economy. The government is developing a policy that ensures maintenance of a healthy balance. Low Unemployment – Full Employment Policy reforms have allowed the economy of the United Kingdom to adjust to the needs and expectations of the British citizens. This includes a reduction of unemployment rates. The major cause of unemployment has been the poor economic performance, reduced exports, global economic crunch and impact from emerging market. The government has new deal programs with are part of the macroeconomic strategies (Altug et al 2003). The programs aim at extending employment opportunities to the unemployed. Under the macroeconomic strategies, the government is introducing local employment partnerships (Beetsma 2004). The partnerships benefit claimants between employers and job center at local levels. The introduction of working tax credit was aimed at toping up the wages of the lowest paid employees in the United Kingdom. This ensures that the wealth of the country is evenly distributed that the gap between the poor and the rich is minimized. Redistribution of Income & Wealth United Kingdom has been blamed for having extreme gaps when it comes to wealth distribution. This includes having wealthy Britons and extremely poor citizens in Wales. Unequal distribution is wealth has been said to cause social and political unrest and strife. The government of UK has tasked the MPF with a role of ensuring redistribution of wealth and income in economic, social and political classes. The monetary policy framework works together with monetary policy committee of BoE. This makes it easier to meet the symmetric inflation targets of the government (Beetsma 2004). The bank of England is expected to support the economic policy of the government through enhancing the employment and growth objectives (Greener 2001). The strategies being used to ensure the macroeconomic policy framework of the UK government is achieved include accountability, openness and transparency (Jenkins 2013). Under these strategies prompt publications of minutes, voting records, publications and other reports is expected. This allows the macroeconomic policy framework respond with transparency and flexibility. This can help in absorbing economic shocks (Altug et al 2003). The government is constrained by the code of fiscal policy on how to conduct its obligations (Jenkins 2013). This ensures that the government can ran multiple programs in a guided way. The provisions of the code include the audits and reporting requirements (Greener 2001). According to the international monetary fund, the macroeconomic policies and performance of the United Kingdom remains impressive. The policies and objectives are perceived to be supportive and contributory to the good performance and responsive requirements. The government of the United Kingdom intends to ensure sustainable public financing and increased public investment. This is being done by minimizing bias against spending. The borrowing for current spending appears to be decreasing as the government promoted borrowing for investment (Arestis et al 2005). The macroeconomic framework has created a resilient economy. This is important in recovering global economic shocks. Regional Policy The government has set up regional development policies to ensure that the economic performance is felt in most parts of the United Kingdom. The regional policy affects political, social and economic progress of the UK. UK ensures that regional policies are complementary to the efforts to make the national economy competitive globally. EU has led to increased trade and economic cooperation in the region. The European Union is remains the largest trading partner to the United Kingdom. The macroeconomic objectives of the United Kingdom government are being enhanced through domestic and foreign demands. The government of the United Kingdom is streamlining the macroeconomic polices and objectives to ensure that its remains responsive the global economic dynamics and recession. The government has been battling recession (Altug et al 2003). The objectives of the macroeconomic framework aim at ensuring stability in exchange rates. The recent depreciation of the sterling is seen to be relatively smaller compared to other recessions in the past (Greener 2001). This has increased flexibility and responsibility while drafting and implementing the macroeconomic policies and objectives (Beetsma 2004). The government of the United Kingdom is intending to have service oriented approach while promoting the macroeconomic objectives. The United Kingdom has been flexible is responding to the emerging challenges that are based on the emerging global economy (Arestis et al 2005). This is in response the falling share of the UK goods in the world market (Beetsma 2004). The government believes that focus on trade and knowledge-intensive programs is likely to promote the macro-economic policies and objectives. This demands increased funding for skilled labor and higher education initiatives (Altug et al 2003). The United Kingdom is second to the United States when it comes to knowledge intensive service delivery. The macroeconomic framework of is subject to progressive and structured productivity checks to ensure that the government gives distributed attention to the objectives (Beetsma 2004). This ensures that the government and the bank of England deliver the flagship projects and the targets in time (Arestis et al 2005). The productivity growth in the economic cycle averages 2.4 percent annually. The policy of openness to investment has been credited to macroeconomic stability. Ensuring long-term economic performance in the United Kingdom demands a vibrate policy that checks the net inflows. The United Kingdom has a vibrant capital market. The capital markets are known to enhance economic resilience and are directly related to macroeconomic performance (Greener 2001). The capital market in the United Kingdom is designed to allow flexibility and easy financing of investments by multiple stakeholders. The stakeholders include government and households (Beetsma 2004). Capital markets also help in managing the levels of expose to risks through financial products like insurance. London ensures a stronger international presence of foreign banks that Frankfurt, New York or Paris. This means that London is the world’s leading financial center (Arestis et al 2005). The government hopes to use a vibrant financial system to ensure the macroeconomic objectives remain tenable and on course. The internationalization of the capital market has caused the government of the United Kingdom to redraft strategies that have benefited the economy (Beetsma 2004). This has occurred to increased access to finances and proper allocation of resources of capital. The macroeconomic strategies and fight against recession is dependent of the demographic factors like structure and size of the population (Altug et al 2003). The changing age profile and increasing life expectancy needs the government to embrace prepare to elderly support systems which could possible strain the economy (Jenkins 2013). The population of the United Kingdom is above 50 million. The fertility levels have also risen. This calls for development of infrastructure that matches the population growth. The government of the United Kingdom has been fighting recession. The growth averaged zero at the beginning of 2012. The government has austerity strategy (Greener 2001). The private sector is expected to fill the public spending gap. The macroeconomic objectives of the United Kingdom have been affected profoundly by the increased indebtedness from the private sector (Greener 2001). Productivity and Training The UK government believes that research development is likely to make the economy competitive through innovation. UK is known as a technological and innovation global center. With the rise of China, the competitiveness of the economy is facing an imminent threat. Research shows that knowledge economy has a profound impact of the wide range of macroeconomic variables. This includes the intangible assets that have a direct impact of macroeconomic productivity (Greener 2001). The government is intentional when it comes to investing in skills and competencies that ensure economic competitiveness and sustainability. The government of the United Kingdom believes that ensuring productivity is an indicator of economic progress. The government intends to nurture a culture of innovation and productivity through research institutions and introducing technology to young children. The government intends to use technological innovation and research to develop and efficient public and private sector. The productivity in the private sector is perceived to have suffered extreme negative effects arising from the recession. The government of the United Kingdom shifted from conventional fiscal policies during the recession. The state is using quantitative easing to increase productivity. The QE strategies have been helpful in supporting the UK financial system (Jenkins 2013). This happens by injecting money into the economy (Arestis et al 2005). The labor market has experienced significant shock arising from economic crisis. The government believes that the cost of starting a business should be lowered to promote local industries (Greener 2001). The government is introducing new fiscal rules as part of the macroeconomic objectives to overcome economic weakness and in order to deal with the financial situation. The reduction of deficits and poor growth prospects has forced the government to adopt a robust consolidation plan (Altug et al 2003). The government has special interest in the role of financial sector in dealing with solvency and liquidity. The banking sector faces less doubtful loans (Beetsma 2004). This implies that the banking sector is likely to offer the necessary economy-driving capital and investment loans. This is after a period of difficulties in getting loans. The strengthening of the financial sector is likely to cause the economy to regain export market share and competitiveness. PPF and business cycle A production possibility frontier is a curve that depicts maximum output possibilities for several goods with a set of inputs like labor and resources. According to AD=C+I+G+X-M formulae, the aggregate demand is the linear sum of the consumption, investment, government spending and net export. The increase in consumption of the products from foreign market and reduced export has affected the aggregate demand negatively. The government hopes to increase the private sector production and domestic investment to ensure the macroeconomic objectives are achieved. The economy of the UK has been undergoing business cycles that show an oscillating economy. This is because of the sequential recovery and economic boom that is always followed by a recession intermittently. The UK government hopes to ensure production remains high to avoid layoffs and unemployment. This shall be done by raising the GDP equilibrium. . The objectives of the government through policy and the bank of England are to reshape the financial system through making it convenient and functional (Arestis et al 2005). Macroeconomic policies may not bring substantive change if they humongous financial system of the United Kingdom is not downsized to reflect the financial realities relative to the GDP. This might include reducing the financial institutions and introduction of a better system of managing risks and complexity. The macroeconomic policy framework is expected to be balanced to enable the government to achieve the objectives. Conclusion The government is developing and grand macroeconomic policy framework that defines the roles of the major economy sector and how they can strengthen the competitiveness of the UK economy. The sectors include financial and housing. The policy intends to manage consumption. After the consumption boom, the domestic market created a strong demand that caused the UK exports not to grow as fast as expected. The State is acknowledging its failure in having a reformed macroeconomic policy. The plan by the government to develop a comprehensive macroeconomic framework states when and how the objectives are going to be achieved. It is possible to achieve the objectives at the same time if the steering committee remains flexible and responsive to economic dynamics. The investments in business have not grown to the levels expected to promote economic recovery. The UK financial strategists believe that export-led growth is likely to enhance the achievement of strategic economic growth (Jenkins 2013). The government hopes to deal with export volatility and overcome the economic uncertainties. However, the government is aware that trade deficit show few signs of coming to an end (Arestis et al 2005). The government policy makers intend to reverse the notion that the United Kingdom is the most unequal economy in the European Union. This challenge requires a structured and institutionalized response (Beetsma 2004). The macroeconomic policy framework intends to use better metrics and real median incomes in assessing the economic policies and objectives. References Altug, S., Chadha, J., & Nolan, C. 2003. Dynamic macroeconomic analysis: Theory and policy in general equilibrium. Cambridge, Uk: Cambridge University Press. Arestis, P., McCombie, J. S., & Baddeley, M. 2005. The new monetary policy: Implications and relevance. Cheltenham, UK: Edward Elgar. Beetsma, R. M. 2004. Monetary policy, fiscal policies, and labour markets: Macroeconomic policymaking in the EMU. Cambridge, UK: Cambridge University Press. Greener, I. 2001. Continuity and change in UK macroeconomic policy: Social learning, 'Keynesian-pus' planning and monetarism. University of the West of England, Faculty of Economics and Social Science. Read More