Evaluate relative merits of monetary and fiscal policy measures for governments wanting reduced unemployment in the UK. (20 marks)

Introduction - definitions of monetary policy, fiscal policy,  and unemployment.

Monetary policy is expansionary - rate of interest decreased, value of savings decreased, spending increased, borrowing increased. Value of the £ decreases and exports are more competitive. Consumption increases and unemployment decreases. However if the rate of interest is already low, cute will have little effect.

Fiscal policy is an increase on government spending to increase demand. Government investment in training, infrastructure (e.g. HS2), houses and schools. Lower taxation or corporate taxes to increase incomes or business investment. Depends on how government money is spent, also currently in period of austerity.

Conclusion - neither fully effective, especially in current UK economy with already extremely low interest rates and high debt. Mixture of policies but also need to consider supply side policies.