UK Inflation and Unemployment under New Labour

The economics of New Labour

The foundation of the new labour economic policies in the year 1997 led to so many changes in the economy . These policies are seen to have evolved from the neo-liberalism . It is through this policy that it has rejected the Keynesian approach and leading to the adoption of the fiscal policy which could be seen to control the unemployment and the inflation rates of this country . Unemployment has fallen and this is from a peak of 3 million to fewer than 900 ,000 . There has been a big

br drop in the unemployment rates and current research shows that over the past ten years , unemployment has fallen from 10 to 3 . On the other hand , the inflation rates have also fallen . CPI inflation in UK is currently 2 .1 (Begg , Fischer , and Dornbusch , 2005 , pp 26-27

Fiscal policy under the new labour

The labour government which was started in May 1997 came up with the issue of the new labour in pursuit of a third way in the economic policy . The main goals of the new labour movement was the emphasis of the avoidance of that the many tax and spent policies which had been introduced by the current government , the restraints of the public expenditure plus the adoption of the so called the golden rule of the public finances which was under the current government and would be also in balance in the course of the business circle . In the draft manifesto the labour party stated that it will enforce the golden rule of the public spending which meant that the government will only borrow to invest but not to fund the current expenditure . So you find that it is through the golden rule that the government will be in a position to record an increased performance in most of its activities and hence at the same time lowering the unemployment and the inflation rates . The policy was also to ensure that when the country is on trend the public sector is to borrow no more than it is required to finance its net capital spending . You find that most of the case of inflation and unemployment rates only occur when the government borrows more money than it can finance its capital spending . At the end of the day , you will find that the economy has recorded poor performance . The Keynesian approach to the micro economic policies and more specifically to the use of the fiscal policies which were seen to help steer the economic was something akin to a disavowal . The use of this fiscal policy could be seen as an economic stabilizer to the increasing unemployment and the inflation rates which were experienced in that country . It was argued that the reduction of the unemployment rates through the new labour rule was to be addressed through the labour market reforms and flexibility The key issue here was to lower the non accelerating rate of the unemployment and hence at the end lower the...