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In the UK economy, growth is reasonably strong and inflation has just fallen. However, there has been some uncertainty about what lies ahead for the economy in the light of the Northern Rock crisis and fears that the housing market is about to crash.
Discuss how you think the government and should respond to the current state of the economy.


The government can respond to this problem in many ways. First we have got to examine what can resolve the problem. The reason why the housing market is about to crash is because there is a recession in the economy. In a recession, unemployment rises and inflation falls. I now need to state ways in which to decrease unemployment and to avoid inflation.

The government needs to keep unemployment low as if fewer people are working then the economy is supplying fewer. This would then avoid a recession. Also, the government have to pay out welfare payments to people without jobs, which can result in a recession.

Monetary policy is a method that could reduce unemployment. This involves interest rates. When interest rates are cut, there is a decrease in taxes and it forces people to save less money, as they get not as much interest from the bank so the money that they had saved will be spent. This will increase the spending of the public and also increase the profits of companies, which could lead to a decrease in unemployment. However, there is a danger of inflation. The government may decide to increase interest rates to avoid inflation and could avoid a recession and stop the housing market from crashing. However, this can have an effect on everyone who has borrowed money, as they will have to pay back their loans with more interest. They could then go back into unemployment. Instead of solving the problem, this could make the problem even worse.

A fiscal policy is another method that could reduce unemployment. This involves spending and tax. Decreasing...