Macroeconomics II Essay Example | Topics and Well Written Essays - 1500 words

Macroeconomics II - Essay Example Macroeconomics is the big picture of a country. The rate of inflation measured by the Consumer price index, Growth measured by the GDP rate, and the rate of unemployment, which denotes the country’s full employment potential. On the other hand, Microeconomics is study of the behavior of firms workers, markets and households. The primary goal of the government and the Bank of England is to keep inflation and unemployment as low as possible in the process of maximizing growth. To achieve this goal a monetary and fiscal policy is formulated. A monetary policy is the altering of lending rates to banks this in turn releases or curbs money supply in the financial market. An increase in the prime lending rate by the Bank of England to other banks pushes them to raise the interest paid on deposits to consumers and the interest on loan to borrowers. A fiscal policy is the change in the taxation structure and public spending. Public spending in other words is the government spending on defense, infrastructure and welfare schemes for the country. (Source:Mathew Bishop ’Economist’ Essentials of Economics, Macroeconomic policy.) Inflation is caused when demand for goods and services exceed supply or a rise in the price of oil, which most countries around the globe are facing right now. An increase in the prime lending rate will encourage saving, and discourage borrowing due to the high rate of interest on loans and in turn bring down consumption spending by giving the common person, lower disposable income, Therefore lower demand and this controls price rise. Now the reduction in consumption spending decreases the demand for goods and services, and businesses will cut cost as they worry about inventory pile up and future sales. This results in low wages and unemployment. So what do we do? What we see here is ironical. In the attempts to