Comparison between US and UK - Essay Example

Macro and Micro Economics: Comparing between US and UK Microeconomics basically deals with the study of how decisions are made by businesses and individuals in connection to prices of goods and services and how resources are allocated. Under microeconomics, factors such as government regulations and taxes apply. It is geared toward seeing how demand and supply, and other factors affect commodity prices in an economy. For instance, microeconomics evaluates how a company reduces its production to reduce prices and improve its competition. It looks at the how customers’ demand is dependent on the availability of goods at a given price (Gärtner 32). When making decisions on where to invest, business owners consider new markets and customer demands. Company expansion, downsizing, introduction of new products, and negotiation of suppliers are other examples of Microeconomics in businesses. According to Kokemuller (par. 5), consumers also play a major role on microeconomics in terms of how to spend, monthly budgets, rent, transport among others. They also make decisions on whether or not to invest in certain areas or just to save money. Macroeconomics as opposed to microeconomics generally deals with an economies behavior as a whole. It deals not with just specific companies but the all the industries in economy (Gärtner 43). The gross domestic product (GDP) is a major determinant in a countries economy within a given time. Governments use factors such as unemployment rates to come up with economic policies. When making decisions to hire and expand companies use trends unemployment (Kokemuller par. 2). A comparison between the USA and U.K. micro and macro economies shows some areas of difference. One of these areas is the gross domestic Product (GDP). The U.S. economy is the largest and the most technologically advance. The GDP is estimated to be around $52, 800 per capita. Education accounts for about 5.4% of the country’s GDP expenditure (CIA World Factbook par. 1). The UK is the third largest economy in Europe after France and Germany, with a GDP of $37,300 per capita. Education accounts for about 6.2% of the country’s GDP expenditure. About 9.3% of the GDP is spent on health in UK while in US the percentage is 17.9%. The UK’s unemployment rate is higher than that of the US at 21%, with a male unemployment rate of 23.8% while that of female is at 17.9% being ranked at position 55. On the other hand, the U.S. unemployment rate stands at 17. 3%, with the male and female unemployment rate being 18.7% and 15.7% respectively. The country is at position 73 in terms of unemployment rate. Other areas of difference include population growth rate where the US is ahead at 0.77% while the UK is at 0.54% (CIA World Factbook par. 1). Similarities lie in the way decisions are made economically, in the United States of America, decisions related to economic policies are made by the central bank, in the Federal Reserve Committee, headed by the Federal Reserve chairman. These decisions heavily rely on macro-level economic data, factors such as real estate trends, rates of inflation, patterns of economic growth and home values are indicators that are commonly used. The federal funds rate is set by the central bank, consequently influencing the rates for consumer and business accounts for savings and loan. Monetary policies are majorly concerned with balancing healthy growth and reduced inflation, or increased prices. This is one of the ways the government tries to control the economy. The fast growth rate of inflation is as a consequence of increased money supply, and when inflation is down this means money supply is down. Generally the US inflation target is set to maintain the steadiness of the inflation, which should be between 2-3% (Gärtner 46). The UK monetary policy is set in almost a similar fashion. It is set by the Monetary Policy committee (MPC) of the bank of England. Though they are independent in setting the interest rates that will consequently influence the interest rates for savings and loans for individuals and businesses, they must put to consideration governments inflation target. The policy is key in influencing the spending of consumer and Aggregate Demand (AD). Just like in the US, they also consider factors such as unemployment and growth. The work of the policy is to keep the rate of inflation at its current CPI target of 2% +/-1 (Economics Help par. 1). The policy works by the Bank of England monitoring the trends of inflation in the economy by considering variables such as consumer confidence, unemployment, exchange rate index and growth. This is used to determine whether inflation is to rise or fall. If inflation and growth is expected to rise, they raise the interest rates, if growth and inflation is expected to go down, they lower the interest rates. Theoretically, lowering the interest is to act as a stimulus to economic activities as it reduces the cost of borrowing. This consequently will increase the consumers spending power who have mortgages interests, and encourage spending. When the government feels the economic growth is too fast beyond its target, they increase the interest rates to reduce the rate of growth hence reducing pressure of deflation. One other similarity between the two countries is with respect to the literacy level which stands at 99% with both male and female averaging the same percentage. Their school life expectancy is almost similar at 16 years for US and 17 years for UK. Urbanization in both economies is also almost similar with US at a being slightly ahead at 82% rate of 1.2% while UK with a rate of 0.7% is at 80%. As can be seen, these economies differ in the area of expenditure especially education and health. This might be the key to other differences such as literacy and population growth rate. Similarities between economies of these countries can be summarized under policy making. In both countries monetary policies by the central bank is key to the growth of economy and maintenance of inflation. The central bank controls the rate of interests charged on loans and savings, hence influencing flow of money. In a microeconomical sense individuals and business play a major part in the economy. If a business assumes the consumers demand, that hinders the growth of the business and hence economy. Work Cited CIA World Fact Book. Europe, United Kingdom. 2014. Web. https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html CIA World Fact Book. North America, United States of. 2014. Web. America,https://www.cia.gov/library/publications/the-world-factbook/geos/us.html Econimics Help. UK Monetary Policy. 2014. Web. http://www.economicshelp.org/macroeconomics/monetary-policy/ Gärtner, Manfred. Macroeconomics. New York. Pearson Education Limited. 2006. Print. Kokemuller N. Everyday life, The Differences Between Macro & Micro Economics. 2014. Web. http://everydaylife.globalpost.com/differences-between-macro-micro-economics- 14453.html Investopedia. Monetary Policy. 2014. Web. http://www.investopedia.com/terms/m/monetarypolicy.asp Investopedia Staff (26th Feb 2009), What's the difference between macroeconomics and microeconomics?,http://www.investopedia.com/ask/answers/110.asp Read More