The Impact Of Fiscal And Monetary Policies On The Uk Economy

1.0 Introduction Economic policy refers to the actions that governments take in the economic field. In this report, I will be giving an explanation on how fiscal and monetary policies are used by the government to help regulate the economy of the UK. Following that, I will be explaining how supply side economics and policies are also used to regulate the UK economy. I will include examples of these policies to back up my theory. Lastly, I will be explaining how quantitative easing has been used to drag the UK economy out of the doldrums of the 2008 banking crisis. 2.0 Fiscal and Monetary Policy Fiscal Policy ‘‘Fiscal policy is when the government adjusts its spending levels and tax rates to better influence and monitor their countries economy.’’ The main purpose of fiscal policy is to stimulate growth in periods during the business cycle such as a recession, and to keep inflation at a low and sustainable rate (In our government’s case, their target is 2%). Simply put, fiscal policy aims to stabilise the economic growth of a country, and to create a steady rate of economic growth, rather than falling into a bust and boom type cycle. Fiscal policy is based on the theories of John Maynard Keynes, who was a British economist. Commonly referred to now as Keynesian economics, it is the view that in the short-term, especially during periods such as recessions, economic output is influenced heavily by the total spending in the economy (aggregate demand). The two main tools ofShow MoreRelatedFrom Inactivity to Unemployment after the Recession1164 Words   |  5 Pagesallowance and employment. (Dow Jones 2014) UK Monetary policy Monetary policy includes using interest rates and other financial tools to affect the levels of Aggregate Demand and consumer spending. In the UK, the objective of monetary policy is to keep inflation within the target of CPI 2% +/-1. They also emphasize on other macroeconomic variables such as unemployment and growth. 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