Evaluate Policies That the Government Can Use to Increase the Rate of Economic Growth. Analyze the Advantages and Potential Disadvantages of These Approaches in Terms of Their Impact on Other Uk Macroeconomic Issue. Essay

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In United Kingdom, the government has been doing very well in the global race. However, the policies that United Kingdom is using have to be changed as to adapt to the change in the local context and the global economy. Hence, there are many other policies that are suitable for United Kingdom. According to the International Monetary Fund (2013), there is still a large negative output gap in UK despite the economic recovery. Hence, a set of policies support for demand is very essential to the UK economy. This essay will evaluate some policies that UK government can use in order to boost the economic growth with the analysis of the advantages and drawbacks of these policies in the light of their influences on some UK macroeconomic issues. There are two main policies that can boost economic growth. The first type of policies is demand-side policy. Demand-side policy is a policy that aims to stimulate the demand. This policy is used to increase the aggregate demand of the economy while the Keynesian LRAS remains unchanged. When Keynesian policy is adopted, the aggregate demand increases from AD2 to AD4, the price level increases from P2 to P4 and real national income increases from Y2 to Yfe. The employment rate reaches the full employment level. There’s no spare capacity for the aggregate demand, however, there’s a high inflation, as in figure 1. Hence, the government needs to make choice on inflation or high unemployment rate while adopting this policy. The Keynesian policy can boost the actual growth of the economy, which is a short-term growth. (Begg, Fischer and Dornbusch, 2008:621-622) figure 1 – Short-term growth brought by Keynesian policy (source: S-cool) The government can alter the fiscal policy and monetary policy to increase the aggregate demand. Concerning the fiscal policy, it’s the use of government revenue, which is tax revenue, as well as

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