Macro Economics

Introduction.

For this assignment I am going to discuss the Macroeconomic measures for the United Kingdom over the years of 2002-2009.

I will also discuss and take into account the changes throughout this period and the opportunities, risks and profits which businesses have faced. I will also explain whether it has improved detiorated or stayed the same.

1.0 The main objectives of Macroeconomics.

According to LCE 2009 Macroeconomics can be defined as,

"Macroeconomics considers the performance of the economy as a whole. When we study macroeconomics we are looking at topics such as economic growth; inflation; changes in unemployment and trade performance with other countries"

1.1 United kingdom 2002-2009.

I will start by briefly discussing how the data for the United Kingdom has varied from 2002-2009. (Referring to appendix A) The United Kingdom's population has increased from 58.9Million to 61.6 Million. However the amount of marriges and pubs in the UK has both decreased. Unemployment rates have increased from 1.68Milion to 2.47Million. The average house prices have doubled, from £77.698 to £160,159.

Inflation and interest rates have both decreased. Interest rates have been cut down by 5% and inflation has decreased by 0.6%. Also the most interesting statistic is that the government's debt has rose from approximately £390 Billion to £1.014 Billion.

By looking at the last three figures mentioned, government debt, inflation and interest rates we can tell that the UK's economy seems to have gone from being in a positive "boom" to a economic downturn.

I will now go on to investigate these figures for, real GDP, unemployment, inflation, economic growth and trade position, further.

2.0 Inflation.

According to about.com 2009 Inflation can be defined as

"An upward movement in the average level of prices. Its opposite is deflation, a downward movement in the average level of prices. The boundary between inflation and deflation is price stability."

In other words inflation is a sustained price on everything in an economy. It is normally a set percentage but can increase more when needed to. Its objective is to control purchasing power and the value of money.

LCE 2009 says

"The rate of inflation is measured by the annual percentage change in the level of consumer prices. The British Government has set an inflation target of 2% using the consumer price index (CPI)."

The main causes of inflation are Increased VAT and external factors such as the price of oil.

2.1 Aggregate demand.

To achieve a better understanding of the other inflation theories. I will need to briefly explain and define aggregate demand.

About.com 2009 defines aggregate demand as "the sum of all demand in an economy. This can be computed by adding the expenditure on consumer goods and services, investment, and net exports (total exports minus total imports)." Basically the amount of demand in an economy and its output.

As a formula aggregate demand can be written out as AD = C + I + G + (X-M).

C is consumer expenditure, I is for investment, G is government spending X is exports and M is imports.

2.2 Demand Pull inflation.

LCE 2009 defines Demand pull inflation as

"When there is full employment of resources and aggregate demand is increasing at a time when SRAS is inelastic."

Therefore Demand pull inflation rates arise when Firms cannot supply the amount demanded. Therefore inflation must rise and decrease consumers disposable income, which will then decrease demand in an economy.

The main causes of demand pull inflation are reductions in taxation, decrease in interest rates and a lower exchange rate.

2.3 Cost push inflation.

Prior to this there is cost push inflation, cost push inflation can be defined as

"Cost-push inflation occurs when firms respond to rising costs, by increasing prices to protect their profit margins." LCE 2009

Therefore In cost push inflation, inflation