The Main Monetary and Fiscal Policy Instruments Available to the Essay

The Main Monetary and Fiscal Policy Instruments Available to the British Government - Essay Example rend of contracting and competitive tendering so that services improve through competition between the private and public sector in such areas as NHS catering, laundry and cleaning services along with infrastructure development and correction services. The government has initiated such schemes as value for money for its departments by setting performance parameters in increased numbers (Riley, â€Å"Fiscal Policy,† par. 7). Demand and Supply-side Policy Demand and supply side policies are government tools that help it to achieve policy aims. The demand side policies of the UK government are: 1. Fiscal policy—it is related to levying of taxes and government outlays. 2. Monetary policy—it governs issues like rate of interest and flow of money. 3. Exchange rate policy—it involves shuffling in the rate of Sterling Pound. Supply-side Policies 1. Help the government in boosting competition and performance in product markets. 2. Help in increasing of competition and production in factor markets, particularly labour markets. 3. Help in boosting the domestic savings by offering incentives. 4. Offer attractive schemes to firms for increased production and investment (Economics Online, â€Å"Fiscal Policy,† par. 6). Fiscal Policy It is the planned attempts to change the government outlay or taxation to gain desired macroeconomic results by manipulation in aggregate demand. There are two classes of fiscal policies, discretionary and automatic. 1. Discretionary policy. It is related to such policies that are formulated and enforced by one-off policy changes. 2. Automatic policy helps in stabilizing the economy by fiscal drag and fiscal boost (Economics Online par. 1). Fiscal Drag It diminishes the effect of increased income for goods as taxes are levied in increased ratios....An active fiscal policy increases the chances of deficit budgeting which is central to Keynesianism; it is still a trend of the British government to boost the morale of the money markets by not indulging in grand scale fiscal surpluses. Under the New Labour government, the fiscal policy plays a passive role in changing the budget deficit position over a business cycle but it should not mean that the New Labour government has terminated the active fiscal policy in principle; it has been ‘coarse-tuning’ the fiscal policy to get positive vibes. The New Labour does not deny a desired rate of unemployment, delinking any correlation between inflation and unemployment, which shows that in macroeconomic policy no setting in aggregate and effective demand is possible. The concept of interplay between supply and demand sides and their relation with unemployment can be clearly seen in the New Labour government. The need for interaction between both microeconomic and macroeconomic policies is needed for growth, stability and employment. Supply-side issues are important but demand jerks are risky. The New Labour government is nearer to Keynesia n in identifying that demand alone cannot ensure stability in employment, a crucial feature of New Labour’s political economy. One thing is clear that policies of the New Labour government have not promoted competitiveness. It is significant to note that the New Labour government has not faced a test of its macroeconomic policies in recession time although Britain’s macroeconomic policies have reduced the tremors felt by France and Germany in 2002-03.