Theory of Money and Credit - Example

Macro Essay Macro Essay Macroeconomics Macroeconomics refers to a branch of economics, which deals with the structure, performance, decision-making and behavior, of a financial system as a whole, instead of individual markets (Blanchard, 2000). This comprises of regional, national, as well as global economies. When compared to microeconomics, the two, macroeconomics and microeconomics, can be perceived as the most general fields or elements of economics. Macroeconomists deal with aggregated financial indicators like GDP, price indices and unemployment rates, in order to understand how the entire economy works (Blanchard, 2000). These people develop models, which explain the association between factors such as national output, income, consumption, inflation, unemployment, savings, investment, international finance and trade. Microeconomics, in contrast, is mainly centered on the dealings of individual agents, such as consumers and firms, and how their actions determine quantities and prices in particular markets. In the U.K., macroeconomics helps people in understanding the economy. It aids in comprehending how the macroeconomic variables work (Warsh, 2013). The study of the national output, income, gross saving and national expenditure, is extremely essential to comprehend the working of a financial system. Also, macroeconomics helps the country in formulating financial policies. Macroeconomic study grants a sound ground for the creation of government’s economic laws. The financial policies for the elimination of poverty, lack of employment, as well as price stabilization, should be rooted in reliable facts of the aggregate variables (Warsh, 2013). Finally, macroeconomics helps in managing economic fluctuations such as inflation, trade cycle, and deflation. This gives a set direction to the financial system. Therefore, the knowledge of macroeconomics is imperative. Macroeconomic Objectives Economic Growth Economic growth refers to the enhancement of the amount of the goods and services (products) produced by a nation over time (Simmons, 2013). It is typically calculated as the percentage rate of growth in real gross domestic product (GDP). Increase is normally measured in real terms (inflation-adjusted) so as to hinder the damaging upshot of inflation on the price of the products produced. In money matters, "economic growth theory" or just "economic growth" normally refers to growth of impending output, or, in other words, invention at "full employment". In the U.K., economic growth has helped reduce poverty. According to financial analysts in the region, growth does not mainly reduce poverty levels, but, without economic development, it is extremely tough to make any significant and sustained cut in poverty levels. This is predominantly significant in the U.K. since economic growth has also reduced unemployment in the nation. A sluggish economy, according to economists, leads to much greater rates of idleness, as well as social misery compared to a fast growing economy (Simmons, 2013). Also, the "Production possibility frontier" graph provided shows that economic growth causes the production-possibility frontier to shift outwards (grow). The negative side of economic growth is that it causes resource depletion. Resource depletion refers to the exhaustion or overexploitation of raw materials in any given region. Britain is an industrial country any they need an unending supply of raw materials in order to maintain their growth. This has made the nation exhaust a majority of their raw materials and is now seeking raw materials from other nations in order to maintain their high status. Low Inflation Low Inflation refers to an occurrence where the prices of goods and services (products) are not raising at a fast pace (Warsh, 2013). Such a situation is not that harmful for any financial system since it could be managed through the adoption of various measures, unlike high inflation. High inflation is more or less uncontrollable. Most economists have backed up this view since no financial system at the present age is free from inflation. Hence, it would be a matter of success if they could sustain the intensity of inflation at a lower rate. In the U.K., the financial recovery remains feeble and uneven. Local demands went up reasonably in 2012, but this was largely caused by a definite fall in goods exported out of the United Kingdom. Employment levels continued to grow powerfully; hence, the weakness of productivity hints that the financial crisis might still be pondering on the current efficient supply power of the nation, as well as on demand. Consumer Price Index (CPI) it still above the 2% mark and is set to rise higher in the future (Warsh, 2013). Inflation, in the U.K., is most expected to stay above the targeted mark for a majority of the next two years, encouraged by external price pressures, as well as regulated and administered prices. However, if the nation wants to cut its inflation rate to their targeted 2% mark in the near future, then they should consider increasing their domestic costs as external price pressures decrease and a slow revival in output growth curbs (Warsh, 2013). This can be seen in the "Business cycle" graph as output increases with time when a nation is on the verge of recovery of its economic growth. Balance of Payment Balance of payments (BoP) refers to accounting records, which store of all monetary transactions or any financial proceedings between a country and the rest of the globe (Blanchard, 2000). These transactions comprise of payments for the nation’s imports and exports of goods, services, financial transfers, as well as financial capital. BoP accounts sum up international dealings for a specific time, normally a year and are organized in a single currency, normally the domestic currency for the nation in topic. Sources of funds for a country, such as the receipts of investments and loans or exports, are documented as surplus or positive items. Uses of funds, for instance imports or investment in other foreign nations, are recorded as deficit or negative items. Ever since de-industrialization hastened in the early 80s, the United Kingdom has had a hefty deficit in goods. The country still produces goods, but they have turned into a net importer particularly in manufactured goods such as clothes, cars and computers. This deficit in the country’s products is mainly caused by an increase in services, for instance insurance and finance, but it is not enough to conquer the trade deficit (Blanchard, 2000). The nation has been able to draw adequate financial flows such as portfolio flow to support its deficit. To cut the current account deficit, U.K. needs to cut consumer spending by tight fiscal and monetary policies. For instance, a higher income tax will lessen disposable income, and; hence, ease spending on imports. Nevertheless, it will cause a lower economic development. Low unemployment – Full employment Unemployed people in the U.K. went up by 70,000 to 3 million from December to February. This plunged the rate of unemployment to 7.9%, raising more questions concerning the United Kingdoms economic strength (Simmons, 2013). The number of individuals in employment also dropped, while income growth slowed significantly. Joblessness has a number of causes in the United Kingdom. In the United Kingdom, people have a tendency of moving in between jobs, and they end up with none in the end. Lofty benefits for the jobless might encourage individuals to stay on benefits instead of looking for employment. Another type of unemployment is structural, which arises because of a mismatch of skills and the needed knowledge in the labor field. The divergence is brought about by occupational immobility, the troubles in learning fresh skills applicable to a new-fangled industry (Simmons, 2013). The United Kingdom should note that if there is an improvement in labor saving technology in some fields, then there will be a reduction in demand for labor. The key to creating new jobs is banks lending money for growth and investment. However, banks will not just lend funds at the level they should, but the more talkative the government is, the more the banks may lend. In a lot of cases, however, the concern of the banks is clear. The organizations, which approach them, are just not viable (Simmons, 2013). These are the companies that are just destined to fail. Zombie companies are rising every day, and it is unlikely of banks to throw money to them. Redistribution of Income and Wealth Redistribution of income along with wealth, also known as redistribution of wealth, refers to the transfer of wealth, income or property from some people to others offset by a social mechanism like monetary policies, taxation, charity, welfare, tort law and/or divorce (Blanchard, 2000). The attractiveness and upshots of redistribution are keenly debated on economic and ethical grounds. The subject comprises of analysis of its objectives, rationales, means, as well as policy effectiveness. In terms of worldwide poverty norms, U.K. is a wealthy nation with nearly no person living on under £4 a day. There is both considerable income redistribution and inequality; for example, in 2008 and 2009, earnings in the bottom and top fifth of households were £5,000 and £73,800 respectively before benefits and taxes. After benefits and tax, household earnings disparities are considerably reduced to £13,600 and £53,900 respectively. The United Kingdom Gini coefficient is projected at 0.36. There were more than 619,000 net worth Sterling millionaires in the United Kingdom, in 2011. Financial assets, with regards to the millionaires, stood at US$ 383,000 in 2004 (Simmons, 2013). Half the population of Britain depends on the normal type of employment, but 11% of its population is self-employed. The other 39% depends on partial types of income such as pensions, investments and/or disability benefits among others. This has been influential in making the nation grow economy-wise. Regional Policy U.K.’s regional policy was initiated in the 1930s during the financial depression, when profound industries in the north were overwhelmed (Mises, 2009). Assisted Regions were formed, within which organizations could obtain capital allowances or grants referred to as Regional Selective Assistance in return for safeguarding jobs. The general pattern of policy shifted little in the next four decades. In spite of disapproval by a 70s Royal Commission arguing that it was "Empiricism in a mad state; a game of hit and miss practiced with more keenness than accomplishment" governments of the two parties still supported Assisted Regions (Mises, 2009). The main aim was to balance economic growth throughout the region, which meant transforming economic development which, if not, would go to the wealthy regions such as the Southeast to the United Kingdom. The Town and Country Act, in 1947, agitated that any organization looking to make a key investment in industrial development get approval from the Board of Trade. This created delays and difficulties for projects to take off in the Southeast, but supported for projects in the exceptional regions. The Government provided assistance to firms and loans in the selected regions and changed its purchases to organizations in those regions. Also, the U.K. government centered its public service expansion to the selected regions (Mises, 2009). It even set up whole new towns in these selected regions so as to support the development. Productivity (Efficiency) Productivity refers to a standard measure of the efficiency of creation of goods and services (production). It is the ratio of production output to what is needed for the production (inputs of labor, capital, energy, land and materials among others) (Friedman, 2011). The measure of productivity refers to the total output per single unit of the total input. Therefore, a measure of the standard productivity is normally tough to understand correctly. These explanations are short but wide-ranging and inadequate to make the occurrence, productivity, comprehensible. A more thoroughly explained theory of productivity is required, which explains the occurrence and makes it understandable. In order to attain a quantifiable form of productivity, operationalization of the theory is vital. In operationalizing and explaining, a set of production replicas are adopted (Warsh, 2013). A production replica is an arithmetical expression of the production method, which is rooted in production data, or, in other words, measured data, in the form of quantities and prices of inputs, as well as outputs. Output every hour worked dropped by 2.3 % in the closing quarter of 2012 when compared to 2011. This fuelled concern regarding the United Kingdom’s poor output since the recession of 2008 and 2009 (Warsh, 2013). The Olympics might have affected the alteration between the third and final quarter, but, in general, the data persuaded the “productivity puzzle”, whereby hours worked, and employment have been rising in spite of output falling or being flat. Conclusion In conclusion, as discussed in the paper, the United Kingdom regime can achieve all these factors at once only if they choose to. The paper has discussed some of the various factors that can be considered when to ease these issues, and if the government decides to deal with the profoundly, then they can attain success. References Blanchard, O 2000, Macroeconomics, Prentice Hall, Upper Saddle River, NJ. Friedman, M 2011, Positive economics, University of Chicago Press, London. Mises, L 2009, Theory of money and credit, Yale University Press, Yale. Simmons, K 2013, ‘United Kingdom employment rate’, U.K. Journal of Business Management vol. 4, no. 3, pp 56. Warsh, D 2013, Knowledge and the wealth of nations, Norton Press, London. Read More