Knowledge outcomes Review the characteristics and components of the UK Economy.

1. Knowledge outcomes Review the characteristics and components of the UK Economy. Consider economic trends and their impact upon the economy. Government policies in relation to the management of the economy

2. The Three Basic Markets Goods and Services market Money (financial) Market Labour market

3. The manufacturing paradox

6. Protectionism in manufacturing is already in evidence, although it tends to take the form of subsidies instead of traditional tariffs. The new regional economic blocks, such as the European Union, NAFTA or Mercosur, do create large regional markets with lower I nternal barriers, but they protect them with higher barriers against producers outside the region. And non-tariff barriers of all kinds are steadily growing

7. U.K. Public Sector Employment1 in 5 of all workers Public sector employment as a proportion of all in employment, UK, headcount, not seasonally adjusted. June 2005

8. Rest of the world investors owned 33 per cent of UK shares listed on the London Stock Exchange at the end of 2004, worth £483 billion; of this, £164 billion (34 per cent) was held by investors based in Europe. This is the largest percentage Holding recorded to date for Rest of the world investors, up 0.3 per cent from 2003. Between 1 January 2004 and 31 December 2004, the market value of the Stock Market increased by £112 billion to £1,480 billion, representing a rise in value of 8 per cent. On 31 December 2004, UK individuals' holdings were worth £208 billion, or 14 per cent of all shares. Almost 50 per cent of all ordinary shares listed on the UK Stock Exchange were owned by insurance companies, pension funds and other institutional shareholders. Together, these shareholdings were worth £722 billion, of which insurance companies owned £254 billion and pension funds £233 billion

9. The FTSE 100 companies continue to dominate the UK Stock Market. The proportion of funds invested in these companies varies between 65 per cent for individuals and 86 per cent by the overseas investors. More generally the long term trend shows the percentage of shares held by rest of the world, or foreign, investors continues to increase, while the percentage holdings of individuals is decreasing.

10. The business cycle illustrated previously is symmetrical, which means the length of an expansion is the same as the length of a contraction. All business cycles are not symmetrical, however. It is possible, for example, for the expansion phase to be longer than the contraction phase. When contraction comes, it may be fast and sharp, while expansion may be slow and gradual. Moreover, the economy is not nearly as regular as the illustrated business cycle in indicates. While there are ups and downs in the economy, they tend to be erratic. • Figure 5.5 shows the actual business cycles in the United States between 1900 and 2001. Although many business cycles have occurred in the last 100 years, each has been unique. The economy is not so simple that it has regular cycles.

11. Aims Reduce inflation Reduce Unemployment Lower interest rates Surplus on the Balance of Payments Reduction in Government expenditure Analysis Inflation increasing Rising unemployment Imports increasing Government expenditure growing Instruments Monetary policy Fiscal policy Measures Increase interest rates Increase taxation - Direct - Indirect Increase government expenditure Managing the Economy Source: adapted from Stanlake, G.F.,`Macro-economics: an introduction’, pp.234, Longman,1977

12. Government in the Macroeconomy Much of the discussion on macroeconomics concerns the potential role of government in influencing the economy. There are three kinds of policy that the government has used to influence the macroeconomy: • Fiscal policy • Monetary policy

13. MONETARY POLICY Taxes and spending are not the only variables the government controls. Through the Bank of England, the nation's central bank, the government can determine the quantity of money in the economy. The effects and proper role of monetary policy are among the most hotly debated subjects in macroeconomics. Most economists agree that the quantity of money supplied affects the overall price level, interest rates and exchange rates, unemployment rate, and level of output. The main controversies arise concerning how monetary policy manifests itself and exactly how large its effects are.

14. References Begg, David, Fischer, Stanley and Dornbusch (1991). Economics, McGraw Hill Stanlake, Greg (1977) Macro-economics: an introduction, Longman The Economist print edition Survey: THE NEAR FUTURE ,The manufacturing paradox Nov 1st 2001 The Economist print edition, Survey: The NEAR FUTURE, The new workforce Nov 1st 2001 http://www.hmtreasury.gov.uk/documents/uk_economy/fiscal_policy/ukecon_fisc_ ndex.cfm#Introduction www.bankofengland.co.uk/monetarypolicy/how.htm http://www.statistics.gov.uk Handouts OECD Public Management Service, 2001, Share of the Public employment over Total Employment Nickell, Stephen,Redding, Stephen and Swaffield (2002) Patterns of Growth, CentrePiece, Autumn Van Reenen, John (2004) Working Better,CentrePiece 2004 Smith, David (2005) The Two Faces of Gordon Brown, Sunday Times, Business, 06 March pp.4 Smith, David (2005) Britain weighed Down in race with the new giants, Sunday Times, Business, 13 March, pp.4 Smith, David (2005) As cooler winds blow, we that sinking feeling, Sunday Times, Business,01 May pp.4