Macroeconomics as a Phenomenon in the UK Economy - Assignment Example

? MACRO ECONOMICS By + Macro Economics This paper evaluates macroeconomics as a phenomenon accounting for issues, objectives and policies that affect the whole UK economy. The aggregates referred on this paper are macro, and they are the determinant factors of increased rate of the unemployment, inflation in relation to UK economic growth. To illustrate these concepts, this paper selectively, discusses the case study of UK national unemployment rate, causes and effects of inflation on the country economy. Unemployment According to the trading economic website, tradingeconomics.com, unemployment rate in the United Kingdom remained unchanged at 7.70 percent in August of 2013 from 7.70 percent in July of 2013. National Statistics charged with the mandate of reporting the rate of unemployment in United Kingdom reports that; the mean rate of the unemployment rate is 7.70 percent from the period of the year 1971 until 2013. The greatest unemployment rate was 12.0 percent reported on May 1984, and the lowest rate of the unemployment was 3.4 percent reported in November 1973 (Trading Economics 2013). In the United Kingdom, the calculation of the unemployment rate measures the number of persons actively searching for an occupation as a percentage of the entire workforce (National Statistics 2013). Moreover, National Statistics reported that there were 2.89 million of unemployed people in UK down from 18.000 reported on March to May 2013. These statistics clearly indicates that the unemployment rate has been declining day by day in United Kingdom. This is as a result of the government effort through which it established policies intended to succumb unemployment among other issues affecting UK economy. From the use of Microeconomic principles, there may be a host of causes of unemployment in UK. Some of these causes include: Frictional unemployment – In a situation whereby people quit job due to their own personal reasons might lead to unemployment. This is so when they take time to get a new job. It is common among people who after getting work, are not satisfied with their job and feel it is not the best for them. These people quit their jobs to look for new employment and take time before they secure another job. The main reasons for frictional employment in U.K are because information is not always perfect and it always takes time for people to find work. The next common form of unemployment is the structural unemployment, which occurs due to a mismatch of skills in the labour market. There are three main reasons for this form of unemployment namely occupational immobility, geographical immobility and technological change. Occupational immobility refers to the difficulties in learning new skills applicable to a new industry. Many people fail to access information relevant in assisting them gain a competitive advantage in the job market. With the changes that occur everyday in organizations the job market continues to become more demanding, unfortunately many unemployed people either lack the knowledge of what they need to get the jobs or lack the finances to advance their skills. Geographical immobility that refers to the difficulty of working in certain areas because of issues of transport and movement is another common cause of unemployment. For example, there may be job in London, but accommodation and living conditions compared to the place one lives may be difficult to afford. For other people, it is difficult to leave their families in search for employment. Change in technology may also lead to unemployment. This is so because firm can lay off some of its labour force since it is possible to perform a similar amount of work with the help of technology and maintain a smaller work force. Changes in the economy are also likely to lead to unemployment as some firm may have to close down after economic changes make it impossible for them to continue operating (Snower 1997) Other causes of unemployment are when people choose to remain jobless rather than take the existing jobs in the market or when firms chooser not to employ because they are at a low season in their operations. To tackle the issue of unemployment, the government should ensure constant and steady flow of information. This will help people who are unemployed as a result of lack of information get such information. Provision of information will help reduce frictional unemployment and occupational immobility as those looking for job opportunities will have the information they require. Another option would be to start programs that seek to support firms that changes in the economy make it impossible for them to continue operating. Giving tax reliefs and government incentives to businesses will also encourage investors to expand their businesses, which will create employment opportunities for people. Inflation Inflation is the increase of goods prices or rather it means that your money cannot buy many goods. Economists define inflation as the sustained rise in the aggregate, or general, price level. An increase in the inflation rate affects households especially when making money related decisions. In this regard, inflation has been a matter of concern in United Kingdom. The government had policies meant to control inflation since the 1980s. Today, the United Kingdom inflation rate as reported by trading economics website was 2.20 percent as at October 2013. Office for National Statistics indicated that UK inflation rate averaged 2.81 percent from 1989 until 2013, with the highest inflation rate of 8.50 percent recorded in April 1991 and a record of the lowest rate of 0.50 percent in year 2000 (Trading Economics 2013). In most instances, Inflation rate is measured by the consumer price index that include aggregates like transport, housing, water electricity, gas and other fuels. Additionally, recreation, food and beverages also account for the inflation rate calculated. Other miscellaneous aggregates include clothing and footwear, furniture, household equipment and maintenance, health, communication and education. Trading Economics reported that increase on fuel was the main core of increased education and transport facilities. This directly affects the consumer at household level. Advantages and Disadvantages of Monetary Policy Consequently, increased inflation rate may lead to low economic growth. As a result of the discussed effects of inflation, UK government created a monetary policy in order to control prices of products purchased by households and the value of UK sterling pound. Moreover, the monetary policy is essential in managing foreign dept, significantly, in matters concerning exchange rate, monetary policy plays a primary role in keeping exchange rates at equilibrium (King 1997). This way the government is able to control economic growth. Economists revealed that the inflation rate that exceeds 2.0 percent risks the value of investments. Hence, investors fear investing in the future, this hurts global economy. On the other hand, inflation has a direct effect on exchange rate in that the higher the exchange rate the more households are likely to suffer due to increased price index (Alogoskoufis & Smith 1991). However, for the past more than 5 years down the line, the UK government has established economic policies whose main objectives were (a) Enhancement of full employment, (b) Ensuring Price Stability, (c) Keeping balance of Payments at equilibrium and, (d) Ensure high but sustainable rate of economic growth. Parameters discussed above are core determinants of the performance of United Kingdom economic development. In conclusion, the scrutiny of unemployment parameters, Inflation in the United Kingdom provides a clear link to explain the state of the economy. It provides indication regarding the robust character of the association between unemployment factors and inflation rate with macroeconomic concepts and theories. The analysis also provides a cultured understanding of the nature of microeconomics theories and state of the United Kingdom labor market. It does this through the case study review of unemployment and information within the period of a few years as discussed on this paper. Reference List Alogoskoufis, G. S., & Smith, R. 1991. The Phillips curve, the persistence of inflation, and the Lucas critique: evidence from exchange-rate regimes. The American Economic Review, 1254-1275. King, M. 1997. Changes in UK monetary policy: Rules and discretion in practice. Journal of Monetary Economics, 39(1), 81-97. Trading Economics 2013. United Kingdom Unemployment Rate, viewed 12nd November 2013, < http://www.tradingeconomics.com/united-kingdom/unemployment-rate >. Trading Economics 2013. United Kingdom Unemployment Rate, viewed 12nd November 2013, http://www.tradingeconomics.com/united-kingdom/inflation-cpi >. Snower, D. J. (Ed.). 1997. Unemployment policy: Government options for the Labour Market. Cambridge University Press. Read More