Evaluate the extent to which government economic policy may have influenced the rate of growth of the UK economy in recent years.
Evaluate the extent to which government economic policy may have influenced the rate of growth of the UK economy in recent years. (30 marks)
Government economic policies are actions the government take to intervene in the economy. There are two types the government implement: Demand Management policies which are used in the short term to affect demand by using either Monetary or Fiscal policies and Supply Side policies which are used in the long term to have an effect on aggregate supply using the four factors of production to improve technology, investment and education and therefore improve productivity. Economic growth for the UK in the past 5 years has been very slow and in some cases in negative like more recently, so far in 2012 for the first quarter we were in -0.4%, for the second -0.3% and then for the fourth quarter -0.4% again. This is way below the governments aim to achieve economic growth close to the long run trend rate of 2.5%. The long run trend rate of growth is the average sustainable growth rate over a period of time. A growth rate of 2.5% will typically mean aggregate demand grows at a similar rate to Aggregate supply. In theory a growth rate close to 2.5% will lead to full employment.