Verified Document

Macroeconomic Policy Measures Introduced By The UK Essay

¶ … macroeconomic policy measures introduced by the UK authorities in response to the global credit crisis and associated UK recession Macro-economic policy measures

This essay is based on two scenarios of financial crisis that occurred consecutively in the United Kingdom and other parts of the World. The recent economic recession started in 2007 up to 2010 while the credit crunch was experienced in 2002 up to 2004. In both of the financial crisis what were witnessed were reduced employment levels, collapse of major sectors of the economy mostly the financial sector, high prices of goods and services brought about by high inflation rates, low economic productivity and a deficit in the balance of payment coupled with a general decline in the country's gross domestic product.

According to Dale, Proudman and Westaway (2010) the causes of the recent economic depression and the earlier credit crunch are more or less similar to one another. As in both crises regulatory laxity was first to be blamed, followed by other factors such a rational market behavior and the poor financial performance of the housing industry, among others.

Abstract

The essay intends to analyze the mechanisms and briefly evaluate the effectiveness of the macroeconomic policy measures introduced by the UK authorities in response to the global credit crisis and associated UK recession.

To start with the study will identify some of the policy measures that were used to address both the credit crunch crisis and the subsequent recession. Secondly in the literature section the study will highlight on impact these measure should have had and thirdly in the evaluation section, the effectiveness of these measures will be evaluated before the essay comes to a conclusion.

Policy measures

Buiter (2010) noted in his publication in the oxford review of economic policy, that during both the credit crunch crisis and the recent economic recession witnessed in most parts of the world, the United Kingdom government introduced a number of macroeconomic policies measures that were categorized into three groups, namely the fiscal policy measures, monetary policy measures and supply side policy measures, all of which were meant to control the crisis and lead to economic recovery.

In the two scenarios it would have been inappropriate to consider the re-evaluation of the macro economic policies, because according to Dooley and Garber (2009) the credit crisis and the economic downturn that was experienced World wide was largely contributed by laxity in these financial regulations. Consequently, UK authorities opted for an expansionary fiscal policy because monetary policies that were in place only promised higher inflation rates in the future, in addition they also opted for the development of new and more effective monetary policy measures.

Through the fiscal monetary expansion the government increased its' spending in a bid recover from both crisis and also increase the economic output, demand for goods and services and the employment levels. Important to note is that in the early phases the government introduced precautionary measures due to fiscal implementation uncertainty and lags. According to Chung, Davig and Leeper (2007) the overall objective of the government in introducing the stimulus plan concurrently with the expansionary fiscal policies...

Parts of this document are hidden

View Full Document
svg-one

Dooley and Garber (2009) and other economic analysts pointed out that through the fiscal policy expansion which was an increase in government spending with only a minimal government borrowing, the UK authorities expected an increase in national income as well as the gross domestic product. The stimulus plan that was introduced by the new policies and which was channeled towards mostly financial institutions and the ailing sectors of the economy was expected to lower the interest rates that would have eventually lead to increased spending of business capital and also increased consumer spending. Larger capital stocks would have resulted from increased investment spending, which consequently was expected to increase the UK's national income.
Eggertsson and Woodford (2003) demonstrated in their studies using the IS-LM model, which is tool used by economists to explain the relationship between interest rates and real output in the service and goods market and the money market. Using the model they demonstrated on how the UK authorities expected through the newly introduced macroeconomic policy measures to get a general equilibrium in both the money market and goods and services market. The equilibrium was to be influenced by factors such as investments, savings (IS) and Liquidity preference, money supply (LM) that are controlled by macroeconomic policies.

Referring to the economic literatures written by Kirsanova, Leith and Wren-Lewis (2009), the macroeconomic policy measures introduced during the credit crunch and the recent economic recession were expected to manage the aggregate demand in the overall economy. This consequently has an influence on the inflation rates, employments levels, increasing the national income and creating equilibrium in the balance of payment. The reflationary policies such as the fiscal stimulus package and the expansionary fiscal policy aimed at increasing the aggregate demand in the economy and the level of spending during both times of financial crises.

According to Leeper (2008) the macroeconomic policy measures that were adopted during the economic down turn and the credit crunch not only in the United Kingdom but by all other countries, were meant or were expected to create equilibrium in the balance of payments of these countries, sustain the economic growth that was initially in progress, lower the inflation rates with stable prices of goods and services, increase the employment levels in each respective country, improve the overall living standards of their respective citizens and lastly re-establish sound government finances.

Evaluation section

According to statistics released by the UK government, they show that before the onset of credit crunch which was followed by economic depression in the periods between 2007 and 2010, there had been a commendable macro-economic stability witnessed in the country in the past few years. The credit crunch and economic depression as seen below caused a massive decrease in the country's employment level, prices of commodities went up, which was coupled with increased rate of inflation and the growth of gross domestic product also declined.

Source:

Sources used in this document:
References

Buiter W. 2010, the Limits to Fiscal Stimulus, Oxford Review of Economic Policy pp 48-70.

Chung H., Davig T. And Leeper E. M 2007, Monetary and Fiscal Policy Switching. Journal of Money, Credit and Banking pp 809-42

Dale S., Proudman J., and Westaway P. 2010, The Inflation-targeting Regime in the United Kingdom: A View from Thread needle Street. Oxford Review of Economic Policy pp 3-14

Dooley M., and Garber P. 2009, Global Imbalances and the Crisis: A Solution in Search of a Problem. Vox EU. P 45-67
Cite this Document:
Copy Bibliography Citation

Related Documents

Measures -- Central Tendency &
Words: 445 Length: 2 Document Type: Research Proposal

Looking at the variability of each group is important because it gives the decision-maker an indication of how wide is the spread of scores of each worker in the group. That is, through measures of variability, the decision-maker is informed of just how varied the manual dexterity scores of the workers are, since it would be most efficient for him/her to have workers who at least have the same levels/scores

Measure You Get What You Measure the
Words: 572 Length: 2 Document Type: Term Paper

Measure You Get What You Measure The phrase "you get what you pay for" is pretty easy to understand, but "you get what you measure" is a little more difficult -- measuring doesn't actually procure or "get" anything other than a measurement, and of course you get the measurement that you take -- that's self-evident, right? In the business world, though, people often seem to think that they can get whatever results

Measure Target Action Maintain Starbucks "Ethos" It
Words: 300 Length: 1 Document Type: Essay

Measure Target Action Maintain Starbucks "Ethos" It is difficult to directly measure consumer sentiment. However, dissatisfied customers provided needed feedback as to problems in the overall objective. Consumers, Vendors Take drastic action to address consumers' issues in a timely manner. This may include free samples or refunds but should be as comprehensive as possible to address a wide range of complaints Ethical Treatment of Internal Employees Starbucks can gauge its treatment of its employees from industry standards and

Measures of Central Tendency and Dispersion With SPSS
Words: 524 Length: 2 Document Type: Research Paper

GPA is interval level data one can report all measures of central tendency and dispersion (Creswell, 2012). In the original data case 38 had a GPA reported as 9.00. This value is of course impossible and since there were no missing values defined in the data set this case was treated as missing data. If used as reported it would have resulted in a much larger standard deviation and

Measure Situations of Reality Piquero, 2002 . A
Words: 1161 Length: 4 Document Type: Essay

measure situations of reality (Piquero, 2002). A dependent variable and an independent variable are studied for patterns of relation, covariance, and cause and effect. For example, the relationship between impulsivity, the independent variable, and criminal behavior, the dependent variable, or the effects of a mandatory arrest policy, the independent variable, on future patterns of domestic violence, the dependent variable, are both examples of quantitative research. For causality, three criteria

Measure Value Vice Versa. - Joseph Stiglitz.
Words: 3870 Length: 13 Document Type: Essay

Measure Value Vice Versa." - Joseph Stiglitz. Having started module question:" What purpose business? "You finish assignment links question individual level. IMPORTANT*** PLEASE ONLY USE THE READINGS / TEXT / MATERIAL FROM THE ATTACHED FILE COURSE READINGS AND TEXT. The Importance of Values on Decision Making The following pages focus on providing an analysis of the application of ethical in several types of activity. The Introduction presents the points-of-view used in

Sign Up for Unlimited Study Help

Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.

Get Started Now