Monetary And Sustainable Development : Uk Governments Have Pursued From The Credit Crunch

1540 WordsJan 12, 20167 Pages
Macro-economic policy is designed to achieve the aims of full employment, stable prices and sustainable development. In order to achieve them, policies and targets are set by governments. These policies are mainly monetary and fiscal. In this essay, I will examine the aims and policy objectives which UK governments have pursued from the credit crunch of 2008 up to the present time. The credit crunch in 2008 was caused by irresponsible mortgage lending by banks. High-risk loans were made to people who were at considerable risk of not being able to repay them. These loans were then packaged together and sold on in to the investment market. Investors bought the safer tranches because they trusted the triple-A credit ratings assigned by…show more content…
The stock market had a frantic time in the month from September 29th 2008, as shares decreased hugely in value. The economy was pushed in to recession. How did the UK government response to this global crisis? From 2007 to 2010 the Labour government was in power. Gordon Brown was the PM and Alistair Darling the Chancellor of the Exchequer. The labour government applied Keynesian economic theory to stimulate the economy. This would allow citizens to have more money to spend and help generate economy recovery. Interest rates were a key weapon in the fight. Between May 2008 and April 2009 UK bank base rate was reduced from 5% to 0.5% (where it has remained ever since). The government wanted to encourage the population to spend more by reducing the cost of borrowing. Between March and November 2009 the bank of England purchased £200 billion of financial assets from UK banks, using newly created money . This so-called “quantitative easing” was designed to give banks more money to inject in to the economy. The Labour government also applied fiscal policy to the problem. They continued to run a large budget deficit. They also applied fiscal stimulus. In particular, they cut VAT in November 2008 to give the population more money to spend. The Labour government also effectively nationalised two major UK banks (HBOS and Royal Bank of Scotland) after their discovered how vulnerable these banks had
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