Evaluate The Effect Of Economic Policies Economics Essay

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Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percentage rate of increase in real gross domestic product, or real GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to obviate the distorting effect of inflation on the price of the goods produced. In economics, "economic growth" or "economic growth theory" typically refers to growth of potential output, i.e., production at "full employment", which is caused by growth in aggregate demand or observed output.

Low unemployment

Low unemployment occurs when a person who is actively searching for employment is unable to find work. Unemployment is often used as a measure of the health of the economy. The most frequently cited measure of unemployment is the unemployment rate. This is the number of unemployed persons divided by the number of people in the labour force.

Full employment

Full employment is which all available labour resources are being used in the most economically efficient way. Full employment embodies the highest amount of skilled and unskilled labour that could be employed within an economy at any given time. The remaining unemployment is frictional. 

A balanced balance of payments

A balanced balance of payments is exports minus imports for the country.

However there can also be conflicts between these objectives, as healthy growth and low inflation can cause economies to grow too quickly and demand exceeds supply leading to a rise in prices. Lower interest rates will lead to an increase in consumer and business capital spending both of which increases national income. Since investment spending results in a larger capital stock, then incomes in the future will also be higher through the impact on LRAS (Long run aggregate supply). To keep inflation low the government uses tools like high interest rates which can deter economic growth which slows down peoples' spending expenditure and should keep a constant supply line as seen by the diagram below.

Supply-side economic policies are mainly micro-economic policies designed to improve the supply-side potential of an economy, make markets and industries operate more efficiently and thereby contribute to a faster rate of growth of real national output. There are two broad approaches to the supply-side. Firstly policies focused on product markets where goods and services are produced and sold to consumers and secondly supply-side policies applied to the labour market - a factor market where labour is bought and sold.


There are certain factors that influence the government's ability to achieve their objectives. The country needs the production of factors available to produce goods and services. This requires resources also known as 'factor inputs available' in the production process. Economic resources are scarce relative to the infinite needs and wants of people and businesses operating in the economy. It is important to use these resources efficiently in order to maximise the output that can be produced from them.  Economists make a distinction between three types of resources which are land, labour and capital. Technology also influences the government as it is required in everyday usage i.e. internet. We need to use the internet in various organisations may it be sending emails from our phones (3/4g) or even just going into the job centre looking for work which is all done over a network. The government needs to ensure our technology is keeping up with the world's demands but not at a cost which could harm the public for having these services. Technology can also help the U.K trade with other countries but the government needs to ensure that we do not outsource all off our work as this could affect us in time as we would not have anything to offer to other countries and would harm our employment. The government would have to find other type of employment for people or risk losing them to other countries which could lead to a loss in taxes and skilled workers. The main problems of managing the macro economy are several factors. These factors could be inaccurate economic data as all of the main macroeconomic indicators are subject to a margin of error. They rely on statistical data collected from tax returns and surveys and data is often revised many months after its first release. The government sometimes have conflicting policy objectives which aggregate demand may reduce unemployment in the short term but initiate a period of higher inflation and exacerbate the current account of the balance of payments. The Government might under-estimate or exaggerate the potential impact of an economics to either the demand or supply-side of the economy and therefore apply too little or too much of a policy response. Monetary policy is often seen as something of a blunt policy instrument - affecting all sectors of the economy although in different ways and with a variable impact.

In contrast, fiscal policy can be targeted to affect certain groups e.g. increases in means-tested benefits for low income households, reductions in the rate of corporation tax for small-medium sized enterprises, investment allowances for businesses in certain regions. The impact of increased government spending is felt as soon as the spending takes place and cuts in direct and indirect taxation feed through into the economy pretty quickly. However, considerable time may pass between the decision to adopt a government spending programme and its implementation. In recent years, the government has undershot on its planned spending, partly because of problems in attracting sufficient extra staff into key public services such as transport, education and health.

The government also has to keep spending throughout the country otherwise we would have a stand still on spending and businesses would close which would result in losses in taxes and VAT. The companies who survive the downturn could possibly go onto buy their competition up which if they had enough money give them anything from monopolistic competition to the monopoly as we see in today's market with Currys Pc World who know owns the monopoly in its sector.

In conclusion I feel it is a tough balance for the government to make a fair and effective balance when it comes to the economic policies as they can only presume the outcomes providing everything goes to the government's schedule otherwise they need to relook at their policies again.