The Role of the Government Management Policy in the Economic Growth of the United Kingdom
This study discusses the roles of demand management policies of government in United Kingdom in order to reduce the current unemployment problem in the country. A major issue here is if free operation market creating enough employment for the population in the United Kingdom, as well as could it also create national revenues for the various industries and government, as well as could it lead to the stability of commodity prices, so as could it help to promote economic growth in the country. The implementation of macroeconomics policy would bring long-term benefits to various industries, people and the UK government. It would definitely attain its primary goals and improve the overall performance of the economy of the United Kingdom at large. The major goals of government demand policy include the sustainability of economic growth of one nation, stability of prices of basic commodities in the market, creation of high level of employment, improvement of the living condition of the people, sustainability of the balance of payments in every industry, and the proper financial management in the government.
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The demand management policy is the government intervention in aiming to influence the level of Aggregate Demand (AD) for goods and services produced in the economy over a period of time. In the same way, to influence the levels of country’s revenue, employment rate, inflation rate, growth, as well as the balance of payments of the nation. Hence, the implementations of Deflationary policies seek to increase Aggregate Demand (AD) and raise the level of Gross Domestic Products (GDP). This is the effective way of gauging the economic condition of the country. In the contrary, the Deflationary policies seek to decrease Aggregate Demand (AD) and lead an unsustainable deficit on the balance of payments. If this happens, fiscal and monetary policies are needed instruments for demand management. However, there are main problems encountered in managing macro economy, the government would have difficult task of managing the economy because of the inaccurate economic data which tend to be a margin of error. These data are from collected tax returns and released surveys from the public. Second, the policy objectives of stimulating aggregate demand can reduce unemployment only for a short period of time. But, it will increase also the inflation rate of the goods in the market, which may even worsen the financial condition of the economy. Thirdly, every macroeconomic objective has separate policy instrument, thus, the government should select the main and right policy instrument. For instance, if the interest rates are being selected as to keep the inflation controlled, fiscal policy instrument like changes to the tax system might be attained by increasing the labor supply, improve the incentive programs; increase the investments as well as the productivity of the industries.
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Furthermore, the economic management is divided into two. The first one is the fiscal policy which involves the use of government expenditures, taxation and its intervention in the economic activities of the nation, as well as the condition of the aggregate demand and aggregate supply in the country. Next is the monetary policy that involves the utilization of interest rates in order to control the level of growth of aggregate demand in the economy. In this connection, the Bank of England takes charge of the maintenance of the nation’s currency, as well as in the sustaining of the price stability in attaining the economic growth and high employment rate in their country. The Bank of England has been managing independently the setting of interest rates since 1997. The bank targets to meet the government’s inflation target which is 2.0 percent for the consumer price index through implementing short-term interest rates, this interest policy was initiated by the Monetary Policy Committee (MPC).
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Consequently, from 2001 to 2005 United Kingdom economy experienced a significant increase of government expenditure in transportation area, as well as in the health and education sector. The capital spending of the UK government also includes new infrastructure, hospitals and prison buildings. The UK government is an appropriate move to improve the social welfare of the in the country. The UK government spending provides efficient level of public goods and merit goods, as well as it provides a safety-net system in order to supplement the revenues of the poorest population in the society. In this case, if the UK economy is expanding, the tax revenue also increases. In United Kingdom, there is direct taxation which is levied on income, wealth and profit of individuals and companies. On the other side, the indirect taxes come from excise duties various goods in the market such as fuel, cigarettes, alcohol plus VAT on different goods and services in all industries.
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References:
http://tutor2u.net/economics/revision-notes/as-macro-macroeconomic-policy.html
http://tutor2u.net/economics/revision-notes/as-macro-fiscal-policy.html
Credit:ivythesis.typepad.com
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