Module code and Title: AAF045-6 Business Economics Assignment Sample
Introduction
Scrutinising the requirements of this case study, the role of different macroeconomic policies playing a major role in changing the economic conditions of nations is recognised. The macroeconomic policies influence the nations to attain sustainable and growing economies. In addition to this, this report includes obligatory descriptions of the context of implementing different macroeconomic policies so that the nation can achieve sustainable growth in the economy.
It is further recognized that the policies not only aid the nations to construct and improve economic conditions and maintain the sustainability of the country but also aim for the welfare of the individuals of the economy, specifically helping to reduce poverty. This paper includes the whole macroeconomic situation of a country and how the country is adopting different policies to reduce poverty in the nation and whether it is effective or not. The report further considers the real economic situation and problems of the United Kingdom.
Literature Review
An illustration regarding an economic system with respect to the macroeconomic policies and its profound and systematic understanding
The economic structure of the UK
Based on the research it is determined that the economy of the UK involves a highly developed economic structure. The type of financial structure the UK persists in is a market-oriented and social market-oriented economy. Due to the favorable economic condition, the UK is also identified as the sixth-largest national economy in the world.
It is further identified that the UK has an advanced open market economy. The identified economic system allows the determination of the prices of commodities and services in a free price system. In other words, it can be said that the financial system of the UK is a mixed economy that creates a balance between state intervention and market forces.
The economic structure of any region can be classified into four different ways such as traditional economic system, commanding or planned economic system, market economic system and mixed system (Singh et al. 2020). An economic system is also determined by the factors that create a positive impact on the overall nation as it helps to develop society.
An open market economy is also referred to as an economic system that allows free market activity. In other words, it can be said that an open market economy is determined as an economic system where there are no market barriers. The characteristic of an open market economic structure is that the tariffs, taxes, requirements of licenses, unionization, subsidies, and other market activities are absent (Hansen et al. 2021).
Description in the context of the macroeconomic policies and their impact on the economic condition of the UK
According to further analysis, it is determined that to make the economic structure of the nation more stable it is very essential to implement relevant and reliable economic policies. Economic policies can be referred to as measures or regulations that are imposed by the administrative department of the nation. The purpose behind the implementation of economic policies is to manage the economy and the natural resources of the economy.
The economic policy further also involves monetary policy, creation of jobs, maintenance of the national budget and the imposition of taxes (Holynskyy, and Onyusheva 2019). There are three economic policies that are also referred to as the key pillars of macroeconomic policy.
The three key policies are monetary policy, fiscal policy, and the exchange rate policy. It is further articulated that the macroeconomic policy is perturbed by the overall economic operation of the economy. The main aim behind the implementation of the macroeconomic policy is to maintain stability in the economic environment of the country. In other words, it can be said that the purpose of the macroeconomic policy is to foster strong and sustainable growth in the economic structure of the country (D’Orazio, and Popoyan 2019). It is also identified that the macroeconomic policies have helped the nation to reduce the issue of poverty by increasing job opportunities.
Based on the provided illustration it is determined that the macroeconomic policies create a great impact on the economic structure of the country. In other words, it can be said that it plays a great and significant role in the economic development of the country. It is further perceived that due to the implication of the macroeconomic policy in the economic structure the efficiency of product markets can be enhanced easily (Syverson, 2019).
Apart from the product market with the help of macroeconomic policies the factor markets, as well as the industrial sectors, can also be improved to a great extent. Moreover, by enhancing the aggregate supply of commodities it also helps to improve the productivity of the economy. It is further ordained that microeconomic policies are also referred to as microeconomic reform.
Concerning the overall research, it is advocated that there are two major tools of macroeconomic policies that are fiscal policy and monetary policy (Chugunovet al. 2021). The two major tools are used to achieve the goal of macroeconomic equilibrium. The fiscal policy further includes the spending of an administrative department for economic growth. On the other hand, monetary policy deals with the intervention of the central bank in the economic system to manage and control the supply of money. More details concerning the fiscal policy and the monetary policy have been provided below.
Fiscal policy: It is identified or demonstrated as the spending of the government and the imposition of taxes to enhance or influence the economic structure of the country. The administration generally uses fiscal policy to attain the goal of strong and sustainable growth. Another purpose behind the implementation of the fiscal policy is to reduce the issue of poverty in the region (imf.org, 2022). By the implication or introduction of taxes, the fiscal policy obliges the nation and helps in the optimum utilization of resources.
Moreover, by creating control over the utilization of resources also creates financial support in other projects as controlling the resources reduces the possibility of wastage and in return increases savings. Moreover, it also helps in providing encouragement to boost the rate of savings. The implication or imposition of the fiscal policy further provides sufficient incentives to the private sector of the nation to enhance its activities. It is further identified that with the help of fiscal policy macroeconomic sustainability can be promoted easily (Haas et al. 2021).
Monetary policy: It is identified as another important tool of macroeconomic policy that is used by the central bank of the country to manage the supply of money. Apart from that, another purpose behind the implementation of monetary policy is to promote economic growth, implementation of revising interest rates strategies and change the requirements of the banking reserves. In other words, it can be said that the reason behind the implementation of the monetary policy is to reserve the requirements, manage the rates of discounts and open market operations. Further, it is perceived that the goal of monetary policy is to promote pinnacle employment, moderate the long-term rates of interest, and stable prices (Dell’Aricciaet al. 2018).
Analysis & Discussion
A survey conducted by the Food Foundation helped to identify that 4.9 million adult individuals are suffering to gather food. These numbers are exceptionally high, in comparison with the pre-COVID-19 lockdown situation when this number was 2 million. This report further help to recognize the almost 1.4 million people or 18% of the 8-17-year-old individuals had faced a scarcity of food over the summer holidays.
Furthermore, this survey recognizes that 11 per cent of the children population in the UK, almost 850000 within the age bracket of the 8 to 17 years old, has admitted that their families had visited the “Food Banks” for survival during the summer holidays as the three is food scarcity in the UK. This is identified that the numbers are significantly higher in contrast to the previous year; the number has increased by 60 per cent which is considerably higher than the “Non-white” British ethnic groups (foodfoundation.org.uk, 2022).
Figure 1: Proportion of adults whose financial situation has worsened due to Covid-19 (Source: London, FCA, 2022)
The organisation “Financial Lives” has conducted a survey and identified that one-fifth of the adult population had to use a reduced amount of the “essential goods and services”, this includes food, medical services for COVID-19, clothing and even shelters. Some of the key structural factors of the economy, such as lack of new employment and losing jobs, lower level of wages resulting in a reduction in the level of income and the purchasing power of the individuals, and this can also be seen that the state was unable to provide the required level of compensation so that suffering individual can avail a better lifestyle.
These are the main causes of poverty in the United Kingdom. The government needs to address these issues and amend the old macroeconomic policies and adopt new policies to reduce poverty and establish the factors for sustainable growth in the economy (Abad-Segura, González-Zamar, and Belmonte-Ureña, 2020).
A significant group of people in the United Kingdom are below the poverty level because of “sluggishness”, “inefficiency”, or “behaviour like a criminal”. Between March 2020 and October 2020, 27 per cent of the adult population, 3.5 million of the 14.2 million, in the United Kingdom is suffering a state of financial resilience.
The challenges of the pandemic
The COVID-19 outbreak resulted in an increase in “inequality” and “relative poverty”. In the UK the contrast between the rich and poor people in terms of availing medical services, food and standard of living is significant.
The individuals who are below the poverty level were hospitalised but the rate of death was almost twice the rate of death of the rich population in the United Kingdom.
The government of the United Kingdom did not have any policies that can aid to reduce discrimination in the treatment of the severe coronavirus infection.
Role of different Macroeconomic policies
Macroeconomic policies that are concerned with sustainable development and growth of the economy are based on the fundamental Keynesian principles. These do not inherit the neoclassical interpretation. The characteristics of the macroeconomic policies are following.
Simplicity and transparency
This materializes to refute the “post-Walrasian” emphasis on complexity. On the other hand, this should be recognized that consistency and great ideas are generally capable of simple explanations (Pedreno-Santos, 2021).
One of the major problems with the current macroeconomic policies is that they are enormously confusing. In comparison to this macroeconomics that is oriented ecologically should be focusing on its fundamental principle. There can be numerous differences in terms of policy mixing but the activist role of an activist government should never be doubted. An activist government plays a major role in promoting socio-economic and environmental sustainability.
Promotion of Social Goals
There is a more radical approach in terms of the formulation of the Keynesian concept of the market “optimality”. This can be stated that achieving many social goals, such as “economic efficiency”, “equity”, “freedom”, “growth”, “security”, and “stability”, can be done through the adoption of collective approaches of the democratic institutions for the government. This emphasizes the fact that the interventions made by the government have more significance in contrast to being a simple technical macroeconomic requirement for stability in the market or in the economy as a whole (Lee, 2020).
This has represented the only feasible way of accomplishing goals that are necessary for the well-being of the economy by restructuring the market supply. Many “Neoclassical” theorists attempted to reduce “Macroeconomics” to non-existence. This can be recognised that reassertion plays a major role in terms of social choice. This ideology does not accept the “free-market” approach, and this should be a key factor to take into consideration in the economics for the individuals and the policy-makers of the economy (Padilla-Rivera, Russo-Garrido, and Merveille, 2020).
Environmental protection and limits of growth
In the modern world, the amount of pollution is increasing alongside the growth of the economy. Many measures have been taken into consideration with the help of different economic and environmental summits organized by the United Nations. Different regulations and laws have been implemented by different nations so that environmental welfare can be done with the growth of the economy.
In addition to this, the commendable and clear implication of the different IS-LM-EE analyses has depicted that the growth of the economy can be accompanied by the integration of cleaner and more efficient technology and by strengthening regulations and laws regarding the environment (Saes, and Romeiro, 2019).
Sustainable trade policies
Economic growth and sustainability can stagnate without sustainable trade policies. It is important to endure a diversified export mix, invest in technology, and have efficiency in trade (Grech, Howse, and Boylan, 2020). These policies help the economy to strengthen the “Social Capital” through the creation of an enriched system for education.
In addition to this, providing a strong and higher standard of labor and arriving toward “low-income equality” plays an important role in economic growth and sustainability. The trade policies which are truly sustainable in nature would try to avoid the over-reliance on the resources that are naturally available, achieving higher standards in terms of the environment through incorporating different laws and regulations in the trade agreements and limiting water pollution and air pollution (Nazar, Meo, and Ali, 2022).
The Links between Macroeconomic Policy and Poverty Reduction
The most important factor that is responsible for poverty is “Economic Growth”. Numerous economic and statistical studies have recognized a sturdy link between the “per capita income” of the nation and the “poverty indicator” of the nation (Urbano, Aparicio, and Audretsch, 2019).
Without macroeconomic stability in the economy, the individuals below the line of poverty will suffer more. Consistency in terms of the growth of GDP or the “Gross National Product” and GNP or the “gross National Income” is important for the welfare of all individuals in the county, especially the population who are suffering from poverty. These are the three main issues
Implementing strategies and policies to reduce poverty without endangering the macroeconomic stability of the nation.
Policies that can be implemented for the improvement of macroeconomic performance.
Policies that can protect the poor from domestic and external shocks.
The macroeconomic stability and growth objectives of the economy should not be jeopardised by the policies that are developed for the purpose of reducing poverty. The policymakers are required to integrate the new policies into the consistent framework of the economy.
Fiscal Policy
The poor population can be directly impacted by the Fiscal policies adopted by the government. The implementation of “tax policy” and “public spending” is distributional. Some of the structural reforms in terms of budget and funds management, transparency of the policies, administration, governance and transparency so that the poor can be uplifted and live a better life. There are no limits that are pre-determinant and rigid so that fiscal deficit can be resolved.
An evaluation would be needed on the basis of the particular circumstances faced by the nation, the “medium-term” outlook of “macroeconomics”, and the chance for “external budgetary assistance”. The terms that are aided with external assistance have significance and are also available. Let’s assume, allow higher grants for the transition into a higher level of spending and the deficit, these grants are reasonably expected to grow with consistency with the sustainable growth of the future (Jouini, et al, 2018).
Making a new effective policy and implementing it in the economy helps the nations to achieve sustainability and this would lead to the upliftment and the welfare of the individuals who are suffering from poverty in the UK.
Monetary and Exchange Rate Policies
The “exchange rate and monetary policies” may affect the population below the poverty line with the help of these three elements: “Inflation”, “Output” and the “Real exchange rate”. Out of the three above-mentioned factors, inflation is the key cause of the poor being hurt. Inflation acts as a “regressive tax” and resistance to growth. Hence inflation is cutting the amount of money from the hands of the individuals, which results in a decrease in purchasing power.
On the other hand, the prices of goods and services are rising due to inflation, so the populations below the poverty level are suffering from the lower purchasing power and increasing price of the goods and services at the same time (Maku, Tella, and Fagbohun, 2020).
Some other factors such as fluctuations in the output directly impact the income of the poor. Changes in money supply can affect the economy in the “short-run” on the real variables, such as interest rate. This can cause the level of output to fluctuate. On the other hand, the assumed or decided exchange rate of a nation may cause an amplification of the exogenous shocks. In addition to this the “real exchange rate” affects the poor in the following ways.
Firstly, the real exchange rate influences the external competitiveness of a nation and therefore the growth rate of the company. In addition to this, a minute change in the real rate of exchange can directly impact the income level of the poor. This situation can occur due to a devaluation of the nominal rate of exchange.
Conclusion
The main focus of this report is to determine different relevant methods related to economic strategies that involve the economy of the UK. It sheds light on resolving the issues faced by the country due to poverty. As one-fifth of the population of the country is below the poverty line, it can make a negative impact on the economy. In the present scenario, the main reason for economic downfall is the global pandemic that occurred in recent times.
Based on the analysis, it is observed that there is discrimination between the rich and the poor people regarding the treatment of disease. As a result of that, the death rate of the poor people was higher than that of rich people. Detailed analysis of the “microeconomic policies” has been done in this context. It is necessary for the UK government to evaluate the issues and take necessary steps to mitigate the issues to ensure the economic sustainability of the country.
References
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