Macroeconomic Objectives - Notes on the Autumn Speech by George Osborne

AS and A Level Economics

James Weir

Notes on the Autumn Speech by George Osborne

Tuesday 29th November 2011

Macro-economic Objectives:

Economic Growth:

The following policies that George Osborne mentioned to try and stimulate economic growth are the following:

Firstly the government is planning to invest £5 billion over the next three years on improving the UK’s roads and rail networks. Osborne feels that by having a better transport network throughout the UK, all the regions will be better connected therefore improving enterprise in the UK. This will extend economic growth because goods can be more easily transported.

Business rates relief extended for small businesses until April 2013. This means the small firms can invest more in other goods and services. This improves economic growth because it stimulates and improves business confidence, which means they will invest more and investment is a small section of Aggregate Demand.

The Chancellor announced a £1 billion finance partnership with pension funds and insurance companies to provide financial assistance to the UK businesses. This will stimulate economic growth by encouraging firms to invest and this will increase AD.

Osborne has announced a credit easing programmed for small and medium enterprises worth up to £40 billion over the next two years. Credit easing makes it easier for people to borrow money which is what the economy needs for economic growth.

Stable Inflation:

The following measures that George Osborne ...

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The Chancellor announced a £1 billion finance partnership with pension funds and insurance companies to provide financial assistance to the UK businesses. This will stimulate economic growth by encouraging firms to invest and this will increase AD.

Osborne has announced a credit easing programmed for small and medium enterprises worth up to £40 billion over the next two years. Credit easing makes it easier for people to borrow money which is what the economy needs for economic growth.

Stable Inflation:

The following measures that George Osborne mentioned to try and control inflation are the following:

Firstly the rail fare price increases are to be capped at 1% above RPI, which means people will know longer have to pay extortionate prices for rail travel. This partly controls inflation because if the price increase had not be capped the prices of rail travel would have gone up significantly more.

The planned increase in fuel duty of 3p a litre has been scrapped. This means a decrease in inflationary pressure on the population, as most goods have to be delivered by road transport, which uses fuel. It controls the inflation because it keeps the general cost of delivering goods down.

Pay rises for public sector employees has been curbed at 1% for each year for the next 2 years. By keeping the pay rises to a minimum this will reduce the risk of wage inflation.

Low Unemployment:

Concern has been raised recently about the high rates of unemployment particularly within the under 30-age bracket.

Firstly subsidised private sector placements were announced. To try and get young people working, the chancellor proposes a new youth contract worth £1 billion. This investment will offer work experience placements to all young people that have been unemployed for more than three months and in addition there will be wage incentives for private sector employers to take into account the costs of the young people.

Income Distribution

Osborne confirmed that pension increases for state pensioners would increase by just over 5% in April next year. As public sector pay rises are being limited to 1% this clearly amounts to a redistribution of income. If the public sector working population are only receiving a 1% pay rise and the pension increases by over 5% this will ensure that the incomes are being redistributed which is objective.

In conclusion, the chancellor hopes that the above measures will stimulate economics growth and reduce unemployment particularly young people.