Principles and Applications of Macroeconomics
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1.1 Background on the BREXIT
The word BREXIT is a portmanteau of the “British” and “Exit”. The United Kingdom has decided to exit the group on June 23, 2016. The European Union is a group of 27 European countries. As per the reports, the total area of the European Union is 4,233,262 km square and the estimated population in 2021 is around 447007596. The total GDP of entire European union is $ 2.1 trillion and $ 48,304 per capita income. The European Union was formed in 1993 to oversee political integration and their economics. The United Kingdom joined the organization for cooperation of European economics in 1961, and it worked to decrease the trade restrictions between the member countries.
On June 23, 2016 a referendum was held where the majority of the population of the United Kingdom voted to leave the European union. The British prime minister David Camron promised to conduct a referendum on Britain's membership in the European union. On May, the European Union council have approved the negotiation, where it has proposed to extension of article 50, on October 2019 the government of Up has focused to withdraw the negotiation by the prime minister of Boris Johnson. In the BREXIT transition period, the European Union and United Kingdom have agreed to a withdrawal agreement that means the United Kingdom is no longer a member of the European Union but it is still a single market and during that time, the United Kingdom will continue to be under European Union rules. As per the report, the result of the “BREXIT” referendum had reduced the national income 0.6% and 1.3 % respectively. It has been addressed that the United Kingdom had been faced with labor problems, a heavy shortage of skilled workers, and faced investment -related issues and recession during that time. Moreover, it has been identified that “BREXIT” has some positive consequences such as allowing the United Kingdom business to import and export more easily and freely with the non- “European Union” countries. On the other hand, the negative consequence of the “BREXIT” is that the UK has faced the GDP losses of 1.2 to 4.5 % during the 2017 to 2019 and the cost has been increased approx 1 to 10 %.
2. Main body
As per the view of the author Barton (2019), the policy “Macro economy '' that aims to provide sustainable and stable growth to the country. The “macro economy” conducive to stable, sustainable growth and forecasting. There are mainly five types of macro economy, which is “non-inflationary growth, Low inflation, low level of unemployment or full employment, equilibrium in payment of balance, and fair distribution of income.” The main objective of the “macroeconomics policy” of Up is to control the inflation. It has been addressed that up has 2 % of inflation in the consumer price index. As opined by the author Haller (2019), The objectives of the macroeconomic policies are to increase the income level of a participant, provide a sustainable growth to the economy to maintain and enhance the living standard of peoples. The secondary objective is to maximize the level of income in the long run. Economics welfare is a study of resources and goods that are directly associated with the wafer of economy. Welfare Economy helps to provide the tools to guide the peoples to achieve the economic and social outcomes for all the entire economy.
As stated by Wachowiak (2021), the “Monetary policies' ' is a tool that helps to control and increase sustainable growth by supplying the money that is available to the national banks of the countries. Generally, monetary policy can be undertaken by the central bank of the country to control the supply of money in order to achieve sustainable growth. Some available tools that are directly associated with the “monetary policies' ' which are ups and downs in interest rate, changing the requirements of reserve banks or central banks. In the context of the UK the “central bank of the UK ''is totally responsible for “monetary policy”. As pined by the author Basak et al. (2020), This month the Bank of UK has raised the interest rate to 1 %. There are six basic goals of “monetary policies' ' which is “high employment, sustainable economic growth, stability in price, stability in interest rate, stability in financial market, and lastly stability in foreign exchange”. As expressed by the author Falkingham et al. (2021), the “monetary policies' ' helps to control the GDP, income level, and also the inflation rate of an economy. Generally, there are two types of “monetary policies” which is “contractionary monetary policy and expansionary monetary policy”. The selling of government securities by the open market can be a concrete example of “Monetary policies”.
Figure 1: the monetary policy outlook
(Source: resolution foundation.org)
The “fiscal policies” in macroeconomics refer to spending of government through the taxation policies in order to influence the economic growth. The “fiscal policy” is directly associated with the employment, goods and services, economic growth, and inflation of the economy. In the period of recession, the government of the country may apply the “fiscal policies” by way of decreasing the taxation rates to protect and enhance the demand and supply chain and economic growth. The most objective of “fiscal policies' ' is to “stability in economics, stability in prices, accelerate the rate of economic development, increase the investment level, and capital formation for sustainable growth. These policies can help in order to maintain the lowest level of inflation, and increase the living standard of the individual. The “fiscal policies'' that is following by the UK government which is: “debt should be forecast to fall as a share of national income between the second and third years of the forecast period”. Second, the current budget should be in the surplus in the year of forecast period, the net investment in the public sector should be lower than 3 % of the entire GDP of UK. Cutting in taxation and increment of government spending may be concrete examples of “fiscal policies' '. As these policies are intended to enhance the aggregate demand.
The macroeconomics variables to be used in the analysis of the consequences of “BREXIT” on the economy of the United Kingdom and the living standard of the peoples consist with balance payment method, inflation, growth of economy, and unemployment. It has been addressed that the time of referendum the FDI earning had increased. On the other hand, the payment of debt securities in the UK market had been affected heavily. As a result, it has been seen that the UK market faces a short-term positive effect on the balance payment method in the financial year of 2016 to 2018. It has been seen that the trade between the UK and EU at the lower level has higher traffic in the trade. The average income had fallen by 1.3 % and the “BREXIT” lower income by 2.6% (£ 1700 per household).
Inflation that can define the persistent rise in the price of products, goods and services of daily usage. The second variable of macroeconomics that has been used is “inflation”. At the time of the referendum of “BREXIT”, it was identified that the rate of inflation increased to 0.4 % to 3 % in the financial year of 2016 to 2017. As stated by the author Kowalczyk (2020), On the other hand it has been seen that the vote of BREXIT has decreased the living standard of UK people. As per the reports the BREXIT caused a high increment of inflation, prices of foods in the uk. As per the report the result of the “BREXIT” referendum had reduced the national income 0.6% and 1.3 % respectively. It has been addressed that the United Kingdom had been faced with manpower problems, a heavy shortage of skilled workers, and also faced investment -related issues and recession during that time.
The third variable of “macroeconomics” is economic growth, it has been seen that due to referendum of “BREXIT” in the UK, it heavily affects the entire economy of the UK, where UK has faced the GDP losses of 1.2 to 4.5 % during the 2017 to 2019 and the cost has been increased approx. 1 to 10 %. Moreover, it decreases the income level of the people. At the time the trade was between the United Kingdom and Europe. As per the view of the author Stevens and O’Brien (2019), In October 2021 the government office of the UK evaluated the “BREXIT” would cost approx. 4 % of GDP per annum in the long term. The fourth and last variable that is used for the analysis of consequences of “BREXIT” on the entire economy of the UK and the living standard.
The macroeconomic factors such as Wages and Unemployment level, Population and Migration, show the effect of immigration as the variable of national income shows the adverse effect. In the context of wages, after Brexit, the wages of the laborers who were working in the factories or construction sites increased to a reasonable limit. This increase in wages shows that the country needs to address more occupations in terms of determining the actual wage rate of the employees. This will be exempted for the UK-born, as they have the ability to draw other sources of income. As per the view of the author Palicki et al. (2021), In the context of unemployment levels, after Brexit, the level continued to grow at a sharp rate to manage the work that was created after the legislation. The population of the country UK after Brexit decreased at a high level. The percentages dropped down from 6.5% to 5.9 % in two years.
Figure 2: UK migration after Brexit
In comparison with the other countries, it can be stated that the number of inhabitants in the country, the UK, has increased by 443 million in the year 2016. Migration refers to the movement of people from one place to another region in search of work. After Brexit, the rate of immigration fell by 6% in the year 2016. After a long movement, UK people can apply for a visa for continuing their work after Brexit. All the above macroeconomic factors
The economy of the UK is generally based on the service sector where it contributes approx. 49 % in the entire economy. As per the reports, the UK economy trades with the 27 member countries of the European union. On the other hand, the state of London is considered the second largest financial sector in the world. It has been identified that the growth rate was -9.79 in the financial year of 2020, and it has been affected due to the Covid 19 effect. As expressed by the author Liu et al. (2020), At that time the UK government had faced lots of challenges such as problems in supply chain management, decreased in demand and supply, high inflation, and lower level of living standard. As a part of the “European Union”, the country UK spends most on the development of regional and agriculture.
Around 44 % of people expect that the UK will leave the EU in the march 2019. In the part of consequences where 124 % of the people of the UK expect the BREXIT to enhance the living Santander in a few years, the 31 % assuming that it can decrease the living standard. Around 41 % OF labour supports that the living standard should decrease. In the context of the growth of the UK, where 39 % of people expect that the growth rate can be decreased as a result of “BREXIT”. As a result, it has been seen that the GDP at the time had quite decreased. On the other hand, the national income of the British has decreased by 0.6 % to 1.3 % at the time.
In order to the consequent changes in the economy of UK due to the “BREXIT”, it has been seen that the entire economy of the country has faced some issues such as: decrement in the GDP of economy, reduction of the national income of peoples, decrement of living standard of the peoples. Moreover, it has been addressed that the economy had also faced higher inflation as compared to the other economy. As opined by the author Hommes (2021), also it has some positive aspects in the economy, which is, the UK business allowing to trade more easily and freely within the non “European union” markets, which help to access the other market and will be beneficial for the UK economy. This increase in wages shows that the country needs to address more occupations in terms of determining the actual wage rate of the employees. As stated by the author appettini and Krzy?anowski (2019), This will be exempted for the UK-born, as they have the ability to draw other sources of income. In the context of unemployment levels, after Brexit, the level continued to grow at a sharp rate to manage the work that was created after the legislation
At the time of transition period of “BREXIT” where both “United Kingdom and European union “has agreed to withdrawal in which the United Kingdom is no longer as the member of “European union” but it remains as a member of single market and continues to be “European union” rules. The trade deal has been negotiated at the time of transition period after the withdrawal. It has been predicted that the land border between the “Republic of Ireland and North Ireland” to be affected by the “BREXIT”.
In the current situation in the dawn of the BREXIT, where it has been identified that the trade relation in between the “European union and United Kingdom” not changed until the 1 January, 2021. On the other hand, the trade remains and quota free still is no longer a member of “European Union” single market. The Agreement was reached on 24 December 2020. Where the new rules have been applied from the 2021, and the rules are such as “travel and border controls, trade in goods, agreement corporation to combat the crime and terrorism”. As an impact of living standard of post “European union and United Kingdom” trade agreement, it has been calculated that the average income has fallen by 1.3 % (£ 850 per household). After the “BREXIT” the UK income has fallen by 1 %, and in pessimistic cases it has fallen by 2.3 %. Due to the “BREXIT” the cost of products has highly increased.
3.1 Key findings in the main body
As per the study it has been discussed the “Macroeconomic policies” which help the economy to gain sustainable growth and suitable growth. There are mainly Five types of macro economy which is “non-inflationary growth, Low inflation, low level of unemployment or full employment, equilibrium in payment of balance, and fair distribution of income”. Further in the main body it has been discussed the “Monetary policies” that help to control and increase sustainable growth by supplying the money that is available to the national banks of the countries. Generally, monetary policy can be undertaken by the central bank of the country to control the supply of money in order to achieve sustainable growth. The “monetary policies' ' helps to control the GDP, income level, and also the inflation rate of an economy. Generally, there are two types of “monetary policies” which is “contractionary monetary policy and expansionary monetary policy”. The “fiscal policies” in macroeconomics refer to spending of government through the taxation policies in order to influence the economic growth. The “fiscal policy” is directly associated with the employment, goods and services, economic growth, and inflation of the economy. Further, it has been discussed the “Fiscal policies” that is directly associated with the employment, goods and services, economic growth, and inflation of the economy.
3.2 Conclusion and recommendation
One of the main positive impacts of the “BREXIT” is that it allows the UK business to trade with non “European union” markets freely and easily. At the “BREXIT” time it has been seen that the UK gas faced recession and investment related issues. In that case the “monetary policies' ' can help the government of the UK. Through the “monetary policies' ' the government can manage its monetary flow in order to enhance the GDP, manage the low level of inflation, and also can enhance the standard of living of the people of UK. The lower level of inflation wil helps the economy to enhance the sustainable growth rate. In addition, it has been seen that the economy has faced supply chain related issues and demand and supply related problems. In order to enhance the supply chain, the UK Government can build a healthy supplier relation, make the council of Supply chain, and try to improve the distribution. In this context, it has been identified that the living standard of people had been heavily affected by the “BREXIT” at that time. The government of the UK may try to apply some strategies to improve the living standard such as: “the reduction of unemployment, proper taxation on investment income, universal health care, improve public health, reduce the inequality, and tackle global warming”. Unemployment is one of the biggest problems that most of the economy is facing.
The study is based on the potential impact of the “BREXIT”, The United Kingdom has decided to exit the group on June 23, 2016. In this study it has been discussed the positive outcomes of the “BREXIT” on the economy of the UK as well as the negative impact. In a positive sign, it has been seen that the business of the UK allows trade with non “European union” more easily and freely which helps the UK economy to access the more markets which further help to improve the GDP and growth rate of the UK economy. In the aspect of the negative impact of “BREXIT” on the economy of the UK, it has been addressed that the economy has faded lots of issues such as “investment issues, increment in unemployment, recession, decrement in growth rate of economy, and some more issues”.
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