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Is it necessary to use both demand and supple side policies to manage the uk economy - Coursework Example

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Economic growth implies an increase in the real Gross Domestic Product (GDP) of the country. Basically, policies that can be…
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Is it necessary to use both demand and supple side policies to manage the uk economy
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Download file to see previous pages Conversely, the supply side policies are key in the determination of the long term growth of the UK’s productivity.
As is asserted by the literature of Keynes, the belief in his work was that whether the government distributed money to its consumers, the result would be demand for more commodities. This will result in creating incentive for the suppliers to provide more commodities. This implies that the major drive for economic growth is the demand (consumers). In relevance to this, for the optimal management of the economy of the United Kingdom, and for the economy to realize an increase in the GDP, the government should embrace the demand side policies. In addition, the government, should extensively and effectively focus on how to raise the expenditure of the average citizen.
Demand side policies have the objective to cause a rise in the aggregate demand. If there exist negative production gap, the demand side policies are crucial in increasing the level of the economy. Conversely, if the economy of a country, in this case, the UK economy is at its full capacity in the rate of growth, inflation will be the consequence of a further rise in the aggregate demand (AD), as illustrated in the diagram 1 (Freeman, 2006, pg. 123).
Among the aspects of the demand side policies which can control the economy is the monetary policy. The monetary policy is the basic instrument that can influence the activities of the economy. To increase the aggregate demand, the rate of interest can only be lowered by either the Central Bank or government (Langdana, 2009,p.27). A decrease in the rates of the interest lowers the cost of taking loans, increasing investment incentives, and expenditure by the consumers. Conversely, a decrease in the interest rates lowers the need to make savings, and instead creating attractiveness for spending. In addition, as a result of reduced ...Download file to see next pagesRead More
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