Macroeconomic Objectives of the UK Govenment Economic Policy Assignment

Macroeconomic Objectives of the UK Govenment Economic Policy - Assignment Example This paper offers a comprehensive analysis of the framework of macroeconomic policies of the government of the UK. In order to exercise effective administration of the country the government must determine the objectives of its policy. Then the target has to be selected. The next task is to choose the instruments of policy to be used in pursuit of the objectives. Four major economic objectives, that any government should pursue, include low unemployment level, price stability, satisfactory balance of payment position and sufficient sustainable economic growth. In addition to four major economic objectives a government may have other objectives for the economy. These may include a more even distribution income of wealth and a cleaner environment. It is difficult to achieve all four macro economic objectives at a time. Countries rarely experience stable economic growth. Instead they experience business cycles. Periods of rapid economic growth are followed by periods of low growth or even a fall in output. Sometimes, these cycles can be the result of government policy of raising taxes in a recession in order to compensate for falling tax revenues caused by lower incomes and expenditures. Unemployment fluctuates with business cycles. High employment has a number of significant advantages. Most people receive higher incomes from employment than from state benefits. Governments usually not aim for complete price stability but for low and stable rate of inflation. The government also is to ensure balance of payment equilibrium. ... New classical economist refers to the non-accelerating rate of unemployment ( NAIRU). It can also be called the natural rate of unemployment. It is the rate of unemployment which exists when all those who want to work at the going wage rate and who have the appropriate skills can find a job (Storm & Naastepad 2012).  . Whether it is example four percent or 8 percent will depend on a number of factors. These include the gap between paid employment and state benefit, attitudes towards living on benefits, labor market information and skill levels. A government basing its policies on new classical theory would seek to reduce NAIRU by improving the working of the labor market ( Top of Form Fabiani 1998).   Bottom of Form . Furthermore, Governments usually not aim for complete price stability but for a low and stable rate of inflation. Complete price stability or zero inflation would mean that the general price level is not changing. In practice, in a dynamic, growing economy the gener al price the general price level is likely to rise by between 1% and 2% per year. This rise will reflect the buoyancy level of demand and the fact that the quality of goods tends to rise. For example, a television purchased in the year 2013 may be 5% more expensive than one purchased in 2012 but it may also, for instance, have extra channels and give better reception. If the rate of inflation is equal to or below rival countries, the countries can at least maintain its international price competitiveness. If it is stable then firms do not have to guess what wage claims they need to make to maintain their real wages. However, high and accelerating inflation is clearly undesirable. It can reduce a country’s international competitiveness, reduce the real income of some groups, create