• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Demonstrate how an appropriate use of fiscal policy can achieve a target level of income. If a government can achieve such a target level of income, explain why unemployment has not been at a permanently low level in the UK in the last two decades

Extracts from this document...

Introduction

Demonstrate how an appropriate use of fiscal policy can achieve a target level of income. If a government can achieve such a target level of income, explain why unemployment has not been at a permanently low level in the UK in the last two decades Certain policies are used to tackle the problem of inflation within an economy. One such policy is known as Fiscal policy. The current economic position of an economy is altered by an increase or a decrease of government expenditure. The essay will introduce fiscal policy, and will explain how the influence of this policy can help alter the general level of income of an economy. If over a number of years, government expenditure is greater than income from the national level of taxes, then the economy reaches a level of national debt. The economy will then incur a fiscal policy. ...read more.

Middle

Because of this, there is a need for other policies. Discretionary Fiscal Policies are a way of getting around such problems, which is done by the government changing expenditure levels and taxation rates. Budgets are also introduced by the government, which help with achieving a target level of income. The budgets are a way of changing the levels of tax on goods such as cigarettes, alcoholic drink and petrol. The budgets will also announce increased or decreased government expenditure. Target levels of income are also influenced by discretionary fiscal policies by altering the aggregate supply. National income is increased by a cut in taxes, which therefore means that the general public are more likely to spend their money on investment because the cut left them with higher income. A way of implementing discretional fiscal policy is to reduce taxes on goods. ...read more.

Conclusion

Despite a drop in unemployment levels, inflation was on the rise. Unemployment was not helped by the joining of the European exchange rate mechanism by the Conservative party. Inflation and interest rates fell within 12 months. The UK left the European exchange rate mechanism in 1992. When Labour took power of government in 1997 they nearly abolished all Fiscal policies. Automatic fiscal stabilisers did still exist allowing a rise in deficits during a recession, and a fall during a boom within the economy. Monetary policies have been used by the government over the last two decades to hopefully achieve its' targets. Fiscal policies were scrapped, which seems to have led to a drop in unemployment rates. It is hard for the government to predict the outcomes of it's' actions, and will not therefore know what the policies will lead to. Due to this, the level of unemployment will not stay at one stage and will rise and fall depending on government's approaches to interest rates and inflation. Martin Colclough 0350114 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Macroeconomics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Macroeconomics essays

  1. Marked by a teacher

    I will be evaluating on the article "UK inflation drops to Bank target" by ...

    3 star(s)

    with large downward contributions from air travel, fuels and lubricants", "Fuel pressures ease". "It added that the price of international flights had increased less in December than a year ago, while petrol and diesel costs fell for a third month in a row."

  2. Peer reviewed

    How can inflation be reduced?

    5 star(s)

    currency will rise which ultimately means that the currency will become stronger (in comparison to other currencies). Exchange rates obviously have a big impact on imports and exports this means that they can be used to resolve the problem of inflation.

  1. What are the government objectives? Explain why each is important and how the government ...

    Retraining can also to help to reduce unemployment by giving people who are part of the way through there working lives different or improved skills and knowledge which are likely to be in demand in the future e.g. computer skills.

  2. Explain what the main macroeconomic policy objectives are and why are there problems when ...

    The true number of jobs available is probably three times the official published figure. Moreover, unemployment cannot fall to zero since there will always be frictional unemployment caused by people moving into the labour market and other switching between jobs.

  1. the limitations of Fiscal Policy

    and foreign debt has been the major economic goal for the government in the long run. In 1996-1997, government fiscal policy had succeeded in eliminating the net debt which stood at $96.3 billion (Government, 2007). This shows that fiscal policy succeeded in achieving long run economic goal.

  2. Budget 2004-05 and Economic Analysis of Pakistan

    Rs.5 million to Rs.10.0 million and the maximum debt-equity increased from 70:30 to 85:15. The maximum loan tenure for housing finance has been increased from 15 to 20 years and the maximum limit of lending for HBFC has been increased from Rs.20 million to Rs.50 million.

  1. How have the Rates of Inflation in the UK Changed Since the Monetary Policy ...

    All of the ways that have been shown, to cause inflation, are monetarist methods, and these are under the control of the Bank of England. However there are some other possible reasons as to why inflation is caused and these are the Keynesian theories and they believe that it is

  2. Market for alcoholic drinks

    With the help of a supply and demand diagram explain how an increase in the age limit to 21 might affect the market for alcoholic drinks. In figure 1, we can see that in reducing the age limit for drinking to 21, it should in effect reduce the demand for alcoholic drinks.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work