Macroeconomic Objectives Of Fiscal And Monetary Policies

1692 WordsJan 9, 20177 Pages
Macroeconomics focuses on the economy as it experiences aggregate changes, analysing outcomes of government policies and how adequate these can be. There are many theories on the best policies to achieve the macroeconomic objectives successfully. In this essay, I will be explaining the aims and objectives of fiscal and monetary policies, the effects of quantitative easing, and how the 2008 Financial Crisis affected the United Kingdom as well as the global economy. Governments use macroeconomic objectives such as monetary, fiscal and supply-side policies to run the economy. Monetary policies are changes made to interest rates, exchange rates, and the money and credit supply. Fiscal policies are changes made to the government taxation,…show more content…
Many sub-prime loans were supported by the firms Fannie-Mae and Freddie-Mac. A more complex high risk system based in shadow banking and virtual instruments developed around the globe. A bubble formed creating a win-win situation where it was insinuated this period would never end, until it burst in 2007. Once the credit markets froze in 2007, things began to deteriorate rapidly. Sub-prime credit stopped and interest rates rose dramatically. House prices declined in the US, interest rates were raised and the failure in repayment of sub-prime mortgages heightened. A crisis of liquidity occurred. Lehman Brothers in the US were the first to collapse in 2008 ($639bn in assets and $619bn in debt) . This caused the US a major loss of confidence. In the UK, the government bailed out major banks, such as Northern Rock, and Lloyds TSB. Glitnir Bank in Iceland and West LB and IKB in Germany also collapsed. By 2009, 21 banks and 62 hedge funds were forced to declare bankruptcy. Preceding the credit crunch of 2008, an unconventional monetary policy was used in Japan in 2001-2005 known as Quantitative Easing (QE) used when interest rates are close or at 0. In the 1990s their economy slumped following an asset-price crash. Facing inadequate growth and deflation, the Bank of Japan (BoJ) cut rates to near-zero. The recovery in the banking system, the sustained low rates and the reduction in risk premiums led to rising business
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