Fiscal Policy and Aggregate Demand in the UK Essay

Fiscal Policy and Aggregate Demand in the UK - Essay Example Simply, the monetary policy of the government is to control the liquidity balance in the economy affecting the movement of the macroeconomic variables by adjusting interest rates. On the other hand, fiscal policy is an attempt of the government for influencing the economic activity by changing the level and rate of taxation and government expenditure. (Grant and Vidler, 2000, pp 165-167). In the UK, Bank of England is responsible for controlling and directing monetary movement in the economy with the monetary policy. The Bank of England has the power to set the rate of interest independently along with requirements. In case of fiscal policy, the government itself has taken important steps in strengthening the fiscal policy framework since taking office. The government directs the fiscal policy decisively and confidently for sustaining medium-term public finances based on the authoritarian rules and regulations. If possible the fiscal policy supports the monetary policy regarding the movements of the economic and financial parameters of the country. This balancing approach of the fiscal policy together with the monetary policy endows with the stage of solidity essential for accomplishing the Governments fundamental economic purpose of providing a high and sustainable growth and employment in the economy.