Study of Macro Economic Policy in Both the UK and the Europe Area - Research Proposal Example

Running head: Study of Macro Economic Policy in both the UK and the Europe area Study of Macro Economic Policy in both the UK and the Europe area [Writer’s Name] [Institution’s Name] 1- Introduction: In the Post Industrial Revolution era, the economies of many countries have experienced tremendous growth, which has resulted in shape of economic strength and high living standards in the countries such as United States, United Kingdom and Europe. Despite the tremendous progress the economies of these countries also face periodical economic shocks. The time span of these shocks is normally short and the economies revive back to their position. The continuation of this expansion and contraction trend in the economy is known as business cycle. The subject matter of macroeconomic theory mainly constitutes the business cycle theory. The effects of the declining trends in economy expand to all the areas such as production, income, consumption and employment level. Therefore it has been an important issue for the economists of all eras to study the main concerns such as the causes of the business cycle and the responsive behaviour needs to be adopted by the policy makers. Despite many explanations that provided by the economists the questions remain still controversial. The main groups of economists involved in the controversy are the Keynesian economists and the classical economists. According to the classical point of view the business cycles are the result of disturbances in the production and spending. The classical economists do not find the need of government action in order to counter the recessions in the economy. On the other hand according to the Keynesian economists the wages and the prices do not respond very quickly to the disturbances in the production level and the employment level. Therefore the Governmental action is needed in order to deal with the situation. In the next section the essay will further elaborate the debate between the two school of thoughts. The Real Business cycle theory is the extended version of the classical theory, which sees business cycle as the result of the productivity shocks. According to the Real business cycle theory the reduction in the productivity at temporary basis creates a declining effect on the real wages, employment level and output and increase the interest rate and the prices. The RBC theory finds a positive relation ship between the business cycle and the level of real wage, prices and the overall productivity level of Labour. On the other hand the theory asserts a negative relation ship between the price level and the business cycle. The anti-cyclical trend of price level is taken as failure by many of the critics of the theory. Except the productivity shocks the increase in the Government purchase also increase the employment level, the interest rate and the price level. Hence the classical model undertake the study of both fiscal factors and the productivity shocks. Although the fiscal policy can play its part in order to improve employment level and output but the classical economists do not support the role of Government action and states that the invisible hand can adjust the market to the most efficient level. In order to understand the practical applications of all these above theories we will undertake the comparative study of macro economic policy in both the UK and the Euro area. 2- Aim: The aim of this research is to examine the role of the Classical, Keynesian and Real Business Cycle theory by undertaking a comparative analysis of the macro economic policy in UK and Europe. 3-Objectives To review the literature about this issue up till now. To improve the presentation of different economic indicators. To help common people understand the importance of macroeconomic policies. To assess and evaluate the gaps in the macroeconomic policies of UK and Europe by implementing the three major theories. Provision of suitable recommendations to undertake improvement in the macroeconomic policy area. Two views about the research process dominate the literature: positivism and phenomenology which have an important part to play in business and management research (Saunders, 2000). Positivism is founded on the belief that study of human behaviour should be conducted in the same way that as studies conducted in the natural sciences. On the other hand phenomenology is concerned with the understanding human behaviour from the participant’s own frame of reference (Hussey and Collis, 2003). As the research philosophy depends fundamentally on the research question (Saunders 2000), the phenomenological philosophy has been chosen in this paper. This choice originates from that researcher’s topic/question that aimed to investigate how sufficient is information provided in the economic theories in order to undertake a comparative analysis of the macroeconomic theory of UK and Europe. A mixed methodological approach will be used in this research, because mixing methods enables the insufficiencies of both qualitative and quantitative methodologies research design to be overcome and can assist with data collection and data analysis (Jennings, 2001). Data sources and collection: The study will cover the material available on the economies of the two countries. The main data sources will be the periodicals, Financial and business journals. The overall effects of the different theories on the market situation also needs to be analysed therefore the Market analysis provided by the Government bodies will also be reviewed. Research design and statistical analysis: The hypotheses are developed while keeping in view three major economic theories. First hypothesis as explained by New Keynesian economists is: H1: Demand management by the government or its central bank can lead to more efficient macroeconomic outcomes than laissez faire policy would. The second hypothesis is based on the classical economic theory H2: Individual rationality in markets will generally lead to socially desirable outcomes. Third hypothesis is based on the real business cycle theory, which is as follows: H3: “The level of national output necessarily maximises utility, and government should therefore not intervene through fiscal or monetary policy designed to offset the effects of a recession or cool down a rapidly growing economy.” (Wikipedia, 2007) The above mentioned hypothesis favours the findings of the studies by the economists of three major economic schools of thoughts. In case of the contradiction with the above-mentioned hypothesis we will accept the rest two or it is also possible that all three of the above hypothesis will prove right in different situations. Final Document Proposal On their own, data are rarely used in their original form. Through the process of data analysis, value is added to the data to turn them into information. It is information rather than data which users especially policy and decision-makers are interested in (Uganda bureau of statistics, 2005). However this will be a very sensitive and critical stage in my research process as misinterpretation or over-interpretation is always a potential risk. The data will be gathered and analysed using statistical information, correlation and noting possible linear regression models. The research study and statistical implications will then be developed for the final research document arrangement. The outline for the final research document arrangement is as follows: 1. Chapter 1—Introduction a. Nature and scope b. Literature Review/History c. Methodology and Activities 2. Chapter 2—Problem Statement a. Objective of the Study b. Justification c. Implications 3. Chapter 3—Review of Literature a. History (Who has done this before, what were their results?) b. Statistical documentation 4. Chapter 4—Methodologies and Procedures Used in the Study a. Secondary data collection. b. Procedure of deployment. c. Based on the research proposal. 5. Chapter 5—Results a. Factual and objective results of the study and statistical analysis. b. Tables and figures. c. Correlation’s, Hypothesis proof or disproof. d. Statistical inferences: Who, What, Why 6. Chapter 6—Discussion, Conclusions, Recommendations a. Recommendations for Action based on the study and market capability. b. Recommendations for Dissemination assign the actions to be implemented by and methods of implementations. References Hussey R., Collis J., Business Research, 2nd Ed. (2003), Palgrave Macmillan Jennings, N. R., (2001). An agent-based approach for building complex software systems. Communications of the ACM, 44 (4) 35–41. Kaboub, F., New Classical and Real Business Cycle Theories Understanding the Business Cycles, available at http://k.faculty.umkc.edu/kaboubf/WP/RBC.html King Robert G. "Will the New Keynesian Macroeconomics Resurrect the IS-LM Model?" Journal of Economic Perspectives 7, no. 1 (winter 1993): 67-82. S. Ahmed, B. W. Ickes, P. Wang, and B. S. Yoo, "International business cycles," American Economic Review, vol. 83, pp. 335--359, June 1993. Saunders M, Lewis P, & Thornhill A, (2000)., Research Methods for Business Students, 2nd Ed. Pearson Education Limited. Uganda bureau of statistics, (2005). Information available from: www.ubos.org Wikipedia, (2007). Real Business Cycle Theory, page last modified 22:24, 16 August 2007, Available at http://en.wikipedia.org/wiki/Real_business_cycle Read More