Economic Growth Of The Uk Economy

1707 Words Mar 22nd, 2015 7 Pages
Economic Growth
Economic Growth is a measure of the percentage increase in either real gross domestic product (GDP) or potential GDP of an economy. GDP measures the output of goods and services produced by an economy by factors of production located within that economy.

The figure above shows the trend of UK’s economic growth from 2008 to mid-2014. As illustrated in the figure the credit crunch of 2007-08 hit the UK economy hard and caused a steeper drop in real GDP than even the great depression of the 1930s. However, due to loosening of monetary and fiscal policy, the UK experienced a partial recovery in 2010 and 2011 before heading back into a recession as seen in Q1 2012. By the end of Q1 2013, the economy started picking up again, showing signs of positive economic growth, and is continuing to increase till date. However, real GDP is still fractionally lower than its pre-crisis peak of 2007. In order to increase real GDP, and thus economic growth of the UK, the monetary and fiscal authorities should use expansionary policies. For fiscal policy, they are required to reduce taxation and increase government expenditure, which will stimulate public and private investment. In addition, research and development may be encouraged by grants and tax allowances leading to a rise in AD therefore a rise in economic growth. The UK government should also maintain demand at high levels that will encourage firms to expand their capacities. An expansionary monetary policy can…
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