Summary of Key Points Economic policy and social policy are closely interrelated, with changes in one resulting in changes in the other.The need to promote economic growth now lies at the heart of all economic policy planning.Capitalism is based on market exchanges of goods and services and on employment of workers in the labour market. However, modern economies also include non-market provision of some services and state intervention within markets.The laissez-faire approach of classical economics led to hardship and periods of recession in the late nineteenth and early twentieth centuries.Keynesian economic planning was based on government intervention to stimulate economic growth at times of low demand and was linked to social policy commitments to promote full employment.In the 1970s Britain’s relatively weak international trading position led to problems of inflation and unemployment which could not be controlled by Keynesian economic management.Monetarists argue that reductions in public expenditure may be necessary to control the supply of money and so reduce inflation within the economy.In the 1980s rising unemployment and a deficit trading balance led to a shift from monetarism to supply-side economics with tax cuts and deregulation aimed at stimulating economic growth.High levels of borrowing in the early 1990s followed by rises in the interest rates charged on loans led to another recession in the British economy.Since the beginning of this century all advanced economies have had to adapt to the need to compete within a global economic context. This led the Labour governments to make control over inflation and the creation of a stable climate for economic growth the core features of its economic, and social, policy planning.In 2008 a global economic recession was triggered by the imminent failure of international banks due to speculation on risky loans and the unsustainable growth of credit.Since 2010 economic policy in the UK has been dominated by government commitment to reduce the future scale of public borrowing by cutting public expenditure. This has also taken even more extreme forms in a number of European countries within the Eurozone.
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