Report on the Role of Money in the UK Economy and Associated Problems

This report provides a detailed analysis of the role of money in the UK economy, focusing on the problems and challenges it faces. It highlights that money plays a crucial role in the growth and development of the economy, but the UK has experienced significant financial losses in recent years, exacerbated by events like Brexit. The report discusses how the UK economy has lost trillions due to an oversized financial sector and the instability caused by Brexit, which has impacted investment and trade opportunities. It applies the Quantity Theory of Money to explore potential solutions, suggesting that managing the money supply can influence price levels and overall economic activity. The report concludes that effective management of the money flow is essential for the UK to maintain economic stability and promote growth, emphasizing the importance of financial and environmental analysis in business economics. Desklib offers a platform for students to access similar reports and study tools.

BUSINESS ECONOMICS

EXECUTIVE SUMMARY
This report provides an insight about the topic role of money in UK economy and
problems faced by it in respect to it. This report involves a critical analysis of the problem with
the support of economic theory and models along with significant data. On findings different
aspects being determining where the economy is facing major problem.

Table of Contents
INTRODUCTION...........................................................................................................................2
MAIN BODY...................................................................................................................................2
Analysing the problem being faced by the UK economy...........................................................2
Application of the economic theory relating to solving the economic problem.........................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Business economic mainly refers to the branch of the applied economics which studies
the financial and the organizational along with the market and environment related issues. It
studies about the implication of the economics in the business functioning which is subjected to
the topic of scarcity, production and consumption. This report is on the role of money in the UK
economy pertaining to which the financial problems it is facing. This report will provide an
understanding of the problem being faced by the UK economy with respect to economic
concepts.
MAIN BODY
Analysing the problem being faced by the UK economy
Money plays and important role in respect to the growth and development of the
economy. It is mainly believed that the growth and development of the economy is dependent
upon the growth of the real factors, for instance, the accumulation of capital, enhancement in the
quality and skills of the workers (McLeay and Thomas, 2016). Money is a crucial aspect as
without this the modern and complex economic firms is not possible. Along with this, it is
considered to an important factor in regard to promoting the economic growth. The money
promotes investments which is dependent upon the existing savings. The investment in the
monetary economy will result into overtaking the existing savings. The government creates
excess money through investment in the form of Currency and bank deposits.
In the year 2018, it has been revealed that the UK economy has lost £4.5 trillion in the
past 20 years and the main reason behind this is that of oversized financial sector. This amount is
equivalent to the 1.5 years of GDP or in other words, £67,500 per person. Currently, the UK
economy is very unstable which is majorly because of the Brexit, impacting the investment and
trade opportunities (UK economy lost out on £4.5 trillion because of 'too much finance', study
finds. 2018). This has resulted into slowdown of the growth rate which is mainly because of the
slow accumulation of the funds or the capital. The decline in the investment or the business
investment, has affected the real growth in the real income. This is the major problem which the
UK is facing because of the lack of funds and the foreign investment has affected the true and the
actual income of the economy. This is the most important problem which the UK is finding it
complicated pertaining to the movement of money and its usefulness in regard to the running an

economy and attaining success. The money problem has affected the production system of the
economy which cannot be ignored and required to be tackled in an effective manner. The Bank
of England manages the flow of money in the market which undertakes crucial decisions in
respect to the money supply, deciding the interest rates and managing the foreign reserves. In
short, it regulates the banking system which helps in handling the growth and development of the
business organization and the economy as a whole.
Application of the economic theory relating to solving the economic problem
From the above discussion it is clear that the money plays a great role within the
economy and for the better working of the economy. Money is the only medium through which
the growth and development of the economy can be managed in proper and effective manner
(Castillo-Vergara, Alvarez-Marin and Placencio-Hidalgo, 2018). In addition to this if the
working of the country is being measured in monetary terms then it is convenient by the country
in proper and effective management of the whole of the country and the business being
developed within the economy. From the above data it is clear that the UK economy has a high
loss of money since the past 20 years. After the Brexit as well the economy of the economy was
unstable and because of this there were many different issues which affected the working of the
whole economy. The most important problem or the issue was of the flow of the money within
the economy. Furthermore, with respect to the current pandemic as well there was a very
difficult in the flow of the money. The major reason for this is that because of the pandemic
many of the business were affected and this impacted the overall working pattern and the flow of
money within the economy.
Thus, for the proper management of the economy the most important solution for the
country is to manage the complete flow of money and this will assist the country in maintaining
the balance between all the economic activities taking place in the country (Lawrence, 2018).
This is essential for the country as if the country will not take care of all the activities of the
economy then this will not have a balance between the working and operations of the different
types of the activities. In addition to this the major economic theory used by the UK government
is the Quantity theory of Money. This is a theory or the branch of economic which includes the
different theories of money.
In accordance with this theory the general price level of all the goods and services is
proportional to the supply of the money which is present in the economy. As per this theory is

the money within the economy is doubled then this will increase the price and the price will also
double (Buckley, 2016). In simpler words this means the consumer will be paying twice the
money for the same goods and services of the company. further this means that this will result in
the increase in the price level and as a result of this the inflation will rise and the rising prices
will result in increase in the flow of money within the economy. Furthermore, this will increase
the money and the flow of money in all the economic activities of the country.
Along with this same type of forces also affects the demand and supply of the goods and
services (Merigó, Rocafort and Aznar-Alarcón, 2016). This is particularly because of the reason
that when the demand and supply within the economy will increase then this will increase the
money supply as well. The major reason underlying this fact is that when the demand of people
will increase then this will result in the increase in the supply of the goods. In addition to this
when the demand of the product will increase then this will result in consumer purchasing the
product and services of the company. hence, this will increase the money supply in the company.
thus, when the sales of the company will increase then the income of the company will increase.
On the other side when the income of the company will increase then they have to pay more
taxes over the income earned. Thus, in addition to this when the government income will
increase then as a result of this the government will increase its spending over the development
and growth of the economy. Thus, in this manner this whole cycle will result in increase in the
flow of money in the economy.
Furthermore, on the deeper analysis it is clear that the quantity theory of money also
assumes that this theory has a large influence of its level of the economic activity of the whole
country. Hence, when there will be change in the money supply then this will be beneficial for
the country. The major reason for this is that when the flow of money will be increased within
the company then this will increase the working efficiency of the country. In addition to this the
proper flow of the money will increase the efficiency of the money to a great extent. The major
reason for this is that when the country will manage the money and its flow in economy then this
will improve the economic condition of the country to a great extent (Gardner, 2016). Hence, for
the effective working of the economy the most essential thing for the country is to take effective
decision for the proper flow of the money within the economy.

CONCLUSION
From the above evaluation of the study it is clear that business economics is the study
which deals with the financial and the environmental analysis of the economy. The major reason
for the country to manage the economic condition is that when the country will not take care of
the economy then it might be possible that the country will not be in profitable condition. Thus,
the major problem identified above is the role of money in the economy. The major reason is that
if the flow of money will not be proper then the economy might face problems. Thus, for this the
Quantity Theory of Money was used to manage the flow of the money in the economy. This
theory stated that when the money within the economy will be doubled then as a result of this
price level will also be doubled.

REFERENCES
Books and Journals
Buckley, P.J., 2016. International business: economics and anthropology, theory and method.
Springer.
Castillo-Vergara, M., Alvarez-Marin, A. and Placencio-Hidalgo, D., 2018. A bibliometric
analysis of creativity in the field of business economics. Journal of Business Research, 85,
pp.1-9.
Gardner, S., 2016. A genre-instantiation approach to teaching English for specific academic
purposes: Student writing in business, economics and engineering. Writing and Pedagogy,
8(1), pp.117-144.
Lawrence, R.J., 2018. Applications in economics and business. In Lognormal Distributions (pp.
229-266). Routledge.
McLeay, M. and Thomas, R., 2016. UK broad money growth in the Long Expansion 1992—
2007: what can it tell us about the role of money. The UK Economy in the Long
Expansion and its Aftermath, 131.
Merigó, J.M., Rocafort, A. and Aznar-Alarcón, J.P., 2016. Bibliometric overview of business &
economics research. Journal of Business Economics and Management, 17(3), pp.397-413.
Online
UK economy lost out on £4.5 trillion because of 'too much finance', study finds. 2018. [Online].
Available Through:<https://www.independent.co.uk/news/business/news/finance-curse-
uk-economy-sector-city-london-loss-financial-services-a8571036.html>.