Role of Economic Policies in Business Management

This report discusses the impact of economic policies on business environment, including government policies, labour markets, income distribution, and employment. It also covers the concept of monetary policy, supply and demand for money, fiscal policies, and the role of capital markets in raising money for investment.

Business Management and
Macro-Economic Policy

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Determination of the economic issues such as government policies, labour markets, income
distribution and employment along with their impact upon business environment....................1
Determination about the concept of monetary policy and supply and demand for money along
with the Implications of different aspects of the demand for money..........................................3
Understanding of fiscal policies focussing on taxation and its macro-economic effects, social
security contribution, pensions, and benefits along with the aspect of public expenditure
deficits and the sustainability of public debt...............................................................................4
Discussion on the role of various primary and secondary capital markets such as stock markets
and bond markets in raising money for investment along with other options like crowdfunding
and cryptocurrencies....................................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
Management of business is important aspect from the perspective of attaining sustainability
within the market. This requires the performance of various activities that help an organisation to
survive in diverse business environment like ascertaining economic environment and
understanding of the government economic policies. This exercise has huge importance because
economic environment is the main concern for the business organisation to operate irrespective
to other external factors. For effective management of business, it is important to analyse the
impact of all factors present within a business environment. This will further provide the
opportunity in formulation of business strategies which are effective towards directing in right
direction (Demir, and Ersan, 2018). The importance of all these aspects will be ascertained in
future as strengthened structure where an organisation able to accomplish all of their desired
objectives. The main aim of this report is also to ascertain the impact of economic environment
and government economic policies upon business environment.
The aspects cover in report includes understating of the economic issues which have impact
upon business environment such as government policies, labour markets, income distribution and
employment, monetary policy and the concept of supply and demand for money along with
Implications of different aspects of the demand for money and fiscal policies focussing on
taxation and its macro-economic effects, social security contribution, pensions, and benefits.
Also, cover about the role of various primary and secondary capital markets such as stock
markets and bond markets in raising money for investment along with discussion upon
crowdfunding and cryptocurrencies
MAIN BODY
Determination of the economic issues such as government policies, labour markets, income
distribution and employment along with their impact upon business environment
There is huge positive and negative impact of economic factors or issues over the business
environment which is totally depending over their presence. If these are favourable, then must
have positive impact over business environment where easy to handle the organisations along
with their expansion activities. If the conditions are not favourable, then must have the negative
impact over the business environment where not possible to manage the business effectively. In
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better understanding of this aspect, different economic issues are elaborated below along with the
impact upon business environment;
Government policies: The policies of government are main towards defining the nature of
business environment. In this, the main two are related to monetary and fiscal policy (Đuričin
and Herceg, 2018). If these are favourable, then business environment ascertains the positive
impact where easy to grow the business by focusing diverse opportunities. For ex., if the rate of
tax is decreased by the government for corporates then must have the positive impact where it
supports the businessmen to grow the business beyond to the national boundaries. If the policies
are not favourable, then all the aspects ascertained positive above are became negative where not
possible to manage the business effectively.
Labour markets: The labour market is depending over the situation of manpower
availability. If these are present in large number, then have positive impact over business
environment where easy for everyone to fulfil their workforce requirement at payment of the
reasonable cost of amount. In case, if the situation is opposite then business environment
ascertains the negative impact. For ex., the country like china where manpower is easily
available is the reason that lots of manufacturing activities are happened because cost of product
become low (Grant, 2017).
Income distribution: This aspect has positive and negative impact over the working
attitude in overall business environment. This is about the equal distribution of income to all on
the basis of their qualification and knowledge. If there is any gap between the income, then
having direct negative impact over business environment where not easy to manage the
engagement of employees. If this present in opposite situation, then provide the opportunity
regarding the positive working environment where everyone supports each other in completion
of all desired targets of an organisation.
Employment: This situation employment also has direct positive or negative impact over
business environment. This aspect is totally depending over the level of education within a
particular country. High rate of education depicts the good employment rate where everyone
person some kind of work (Gudgin and et. al., 2018). This has positive impact over the business
environment as easy for them to identify the personnel’s according to their needs within an
organisation. In case, where the lev of education is not good and people are not talented enough
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to understand the work then the rate of unemployment is high. This has direct negative impact
over business environment where difficult to find good employees.
Determination about the concept of monetary policy and supply and demand for money along
with the Implications of different aspects of the demand for money
Monetary Policy: This introduces to the actions carried out by a central bank of a country
to control or monitor money supply with purpose to accomplish macroeconomic goals that
support sustainable economic growth. This policy includes process of drafting, announcing and
developing the plan of actions undertaken by the nation’s central bank, currency board or many
other experienced authorities that controls the amount of money within an economy as well as
the channels through which new quantity of money is supplied. This policy consists of interest
rates and management of money supply with aim to attain macroeconomic objectives like
controlling inflation, growth, consumption and liquidity (Haririan, 2019). All these are
accomplished by actions which are regulating foreign exchange rate, modifying the interest rate,
selling or buying government bonds, and changing the quantity of money banks are needed to
keep as reserves.
In addition, monetary policy is the action and communication of central banks that mange the
supply of money. The money supply consists of checks, cash, credit as well as money market
mutual funds. The most essential of these types of money is credit that includes bonds,
mortgages and loans.
Supply and demand for money
Supply of demand: The demand of money introduces to the total quantity of wealth that
is held by the companies and household. The demand of the money is impacted by some factors
i.e. income level, price level (inflation), interest rates and uncertainty (Harrigan, 2018).
Supply of money: Money supply within economy is controlled or managed by its central
bank for instance, Federal Reserve System in the United State. Federal Reserve System may
change the supply of money by following open market operations otherwise by changing
requirements of reserve.
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Figure 1: Demand and supply curve
(Source: Demand and supply curve, 2020)
From the above mentioned graph, it has been interpreted supply of money curve is fully
inelastic. The demand of money is descending slopping, that is to say the demand for holding
money raise with diminish in interest rates (Demand and Supply of Money, 2020).
Therefore, while the money demand involves the wanted holding of financial assets, the
supply of money is the total quantity of monetary assets obtainable within an economy at a
precise time period. Information about supply of money is recorded as well as published for the
reason that it impacts the inflation, exchange rate, price level and the business cycle.
Understanding of fiscal policies focussing on taxation and its macro-economic effects, social
security contribution, pensions, and benefits along with the aspect of public expenditure
deficits and the sustainability of public debt
Fiscal policy
This is about the estimation of taxation and government spending that has direct impact
over the economy of a nation. This is of two types i.e. Expansionary and Contractionary (Jonung,
2018). The one known as Expansionary designed to boost the economy during the period of
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unemployment and recession. This includes about the lowering of taxes and increasing of the
spending more, or one of the two. The which is known as Contractionary designed to slow
economic growth in case of high inflation. This includes the rise of taxes and cutting of
spending’s. This has two main tools known as taxation and government spending’s.
Key targets of financial strategy are monetary soundness, value steadiness, full business,
ideal distribution of assets, quickening the pace of financial turn of events, empowering
speculation, and capital arrangement and development. Financial arrangement is an essential
piece of the monetary structure. It assumes a key job in lifting the pace of capital arrangement,
both in people in general and private parts. The monetary arrangement prepares assets for
financing ventures (Langille, 2016). The focal subject of monetary approach incorporates
advancement exercises like use on railroads, framework, and so forth. Non-improvement
exercises remember spending for sponsorships, compensations, annuities, and so on. It offers
motivating forces to the private segment to grow its exercises. Monetary approach plans to limit
pay and riches imbalances. Annual assessment is charged on every salaried individual
straightforwardly proportioned to their salary. Likely circuitous expenses are additionally more
on account of semi-extravagance and extravagance things than that of vital consumable things.
Along these lines, the administration creates a decent measure of income and that likewise
prompts a decrease in riches disparities. A judicious financial approach settles cost and helps
control expansion. Financial strategy arranging gives the bigger piece of assets for provincial
turn of events to accomplish a reasonable territorial turn of events. It means to decrease the
shortfall to be decided of instalment (Oliver, 2019).
It is clear from the above description that the fluctuations in taxation aspect depends over
economy situation and further impacts the aspect of macro economy such as social security
contribution, pensions, and benefits. The higher rate of taxation helps to provide more benefits to
other sections of society.
Public expenditure deficits: Public expenditure introduces to the governmental
budgetary expenditure that is the sum of non-planned and planned expenses or total sum of
capital as well as revenue expenditure. For example: public expenditure and fiscal deficit has
direct proportional, in relation that a raise in the former leads to proportional raise in the latter if
it is greater than fiscal revenue.
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Sustainability of public debt: Public debt refers as a basic instrument or aspect for most
favourably distributing public policies in excess of time. Via public indebtedness, public goods
provision can be temporally disassociated as of the taxation procedure necessary to fund it. On
behalf of debt instrument to complete its responsibility, debt holders have to think that policies
are such that agreement will be accomplished. This needs fiscal policy to be sustainable (Onyiah
and et. al., 2016).
Discussion on the role of various primary and secondary capital markets such as stock markets
and bond markets in raising money for investment along with other options like
crowdfunding and cryptocurrencies
Fund and money is the optimum requirement for any kind of business to sustain in market.
This not only help in further investment for growth but important for the day to day running of
the activities. All the organisations irrespective to the nature must focus over the aspect of
arranging sufficient amount of funds from the different sources so able to continually operate the
business functions in market. This will be used by the organisations as further investment in
business expansion along with maintaining working capital. The both aspects help the
organisations to grow in market and ascertaining competitive edge where they can easily attain
sustainability in business environment after facing the impact of external factors. There are
numerous number of sources from which funds can be raised by an organisation such as bank
loan, overdraft facility, capital market, cryptocurrencies, crowdfunding etc. All these have their
own level of different features that have to fulfil by an organisation to avail the benefits
(Spolander, Engelbrecht and Pullen Sansfaçon, 2016). Further, all different options are
associated with specific conditions where detailed description of these along with their role in
providing money to organisations is defined below:
Capital market is known as the part of financial system. This provides the opportunity
regarding the raising of capital from issuance of bonds, shares and other investments. All the
new stocks and bonds are created and sold to investors in the primary capital market whereas,
other investors trade the securities on the secondary capital market. Both are different from each
and other. The further difference between these will be presented with help of describing roles
and other associated features.
Primary capital market: This is the market which generally uses by the organisations for
selling their stocks and bonds for first time at marketplace. Further, this market is also known as
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new issues market. In many case, this takes the form of IPO which is known as initial public
offering. Here, organisations hire the underwriting firm for the purpose of reviewing and creation
of prospectus that outlining the price and some other details of the securities to be issued by an
organisation market. All the issues which are done in this market and subject to strict regulation.
All the organisations needed to first file the statement and can go public after its approval
(Stiglitz, 2018). The companies who issues the securities through the primary capital market may
hire the investment bankers for the purpose of ascertaining commitment from large institutional
investors regarding purchase of securities when first offered in market. At this time, small
investors are not able to buy the securities because the companies made the arrangements with
the investment bankers to sell all available securities within short period of time for meeting the
limit of required volume. Here, the main purpose is only about the selling of large number of
securities at once to large investors.
Secondary capital market: This is the market where securities are traded after the company
has sold its offering on the primary market. Further, this is also known as stock market. The
some which are operating as secondary trading platform where securities related to different
organisations are trade including London Stock Exchange, New York Stock Exchange and
Nasdaq. It is one of the effective platform for the small investors to trade in the shares of
organisation because they didn’t get the chance to part in IPO activities. Here, on the secondary
market anyone is able to purchase the securities as long as they all are having the will to pay the
asking price of per share. In the secondary market, prices are fluctuating on the basis of market
conditions. Brokers are also working in this market where they make transactions on the behalf
of their clients. In this particular situation, investor has to pay the commission to broker for trade.
The volume of securities traded is changing every day according to the fluctuations happen in
their supply and demand. This is the major factor due to which price of securities also fluctuates
(Thompson, 2016).
Here, majorly the two platforms have by the organisations to raise capital from public.
These are known as stock market and bind market. In stock market dealings are related to equity
where shareholders are considered as owners. On the other hand, in bond market dealings are
related to debt funds where an organisation raises the amount in the form of loan from public.
Here, public are known as creditors and organisation as debtor. Public gets the benefit from an
organisation in the form of fixed interest which is less that the rate of equity because there is no
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involvement of risk. Stock market is the platform that provides the opportunity to a listed
organisation about issuance of the shares to general public for holding the sum of amount
regarding further investment in business activities or expansion of business in market. The
person who hold the shares get the benefits from the market condition where an organisation
does good then price of share also improves. The shareholders can trade these shares at
secondary market where they can easily them to get the payment of their amount in their bank
account (Wilson and Wilson, 2017). This platform provides the ownership to shareholders who
are considered as owners and have similar kind of interest in business activities as the other holds
which are associated with main business activities. They also have the right to provide their view
over the functionalities of an organisation because their profit and loss is totally depending over
organisational activities and image in market. While talking about the bond market, then is
totally different from the one known as stock market. Here, the risk related to market is not
involved. This about the issuance of debentures and bonds by an organisation for fixed period of
time to borrow the funds from public. Here, they paid the fixed amount of interest to public and
further using the fund for the purpose business expansion activities. There are two other methods
from which an organisation raises the funds i.e. crowdfunding and cryptocurrency. The detailed
description related to these is provided below:
Crowdfunding: Crowdfunding is the utilization of limited quantities of capital from an
enormous number of people to fund another undertaking. Crowdfunding utilizes the simple
availability of immense systems of individuals through online life and crowdfunding sites to
unite speculators and business people, with the possibility to build enterprise by growing the
pool of financial specialists past the conventional hover of proprietors, family members and
investors.
Cryptocurrency: This is a framework that take into account the protected online
instalments which are named as far as virtual "tokens," which are spoken to by record passages
inward to the framework. "Crypto" alludes to the different encryption calculations and
cryptographic procedures that shield these passages, for example, circular bend encryption, open
private key matches, and hashing capacities (Wood, Bylund and Bradley, 2016).
CONCLUSION
It has been concluded from the above report that there is huge role of economic situation and
government economic policies over the effective management of business organisations in
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external business environment. The favourable presence of these provides an opportunity to grab
the benefits from situations where easy to expand business in market. The role of monetary and
fiscal policies is also optimum towards selection of the right direction for an organisation. There
are large number of mediums are present in front of an organisation to raise money but the some
main which are commonly used includes primary and secondary capital market, bank loans,
crowdfunding and cryptocurrency.
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REFERENCES
Books and Journals
Demir, E. and Ersan, O., 2018. The impact of economic policy uncertainty on stock returns of
Turkish tourism companies. Current Issues in Tourism. 21(8). pp.847-855.
Đuričin, D. and Herceg, I. V., 2018, June. Industry 4.0 and paradigm change in economics and
business management. In International Conference on the Industry 4.0 model for
Advanced Manufacturing (pp. 37-56). Springer, Cham.
Grant, W., 2017. Economic policy in Britain. Macmillan International Higher Education.
Gudgin, G., Coutts, K., Gibson, N. and Buchanan, J., 2018. The macro-economic impact of
Brexit: using the CBR macro-economic model of the UK economy
(UKMOD). Journal of Self-Governance and Management Economics. 6(2). pp.7-49.
Haririan, M., 2019. State-owned enterprises in a mixed economy: micro versus macro economic
objectives. Routledge.
Harrigan, J., 2018. From dictatorship to democracy: economic policy in Malawi 1964-2000.
Routledge.
Jonung, L., 2018. Demand for money: an analysis of the long-run behavior of the velocity of
circulation. Routledge.
Langille, D., 2016. Follow the money: how business and politics define our health. Social
determinants of health: Canadian perspectives, pp.470-490.
Oliver, M. J., 2019. Whatever Happened to Monetarism?: Economic Policy Making and Social
Learning in the United Kingdom Since 1979. Routledge.
Onyiah, I. A., Ezeamama, N. C., Ugwu, J. N. and Mgbodile, C. C., 2016. Nigerian Budget
Implementation and Control Reforms: Tool for Macro Economic Growth. Journal of
Economics, Management and Trade. pp.1-13.
Spolander, G., Engelbrecht, L. and Pullen Sansfaçon, A., 2016. Social work and macro-
economic neoliberalism: Beyond the social justice rhetoric. European Journal of
Social Work. 19(5). pp.634-649.
Stiglitz, J. E., 2018. Lessons from the Financial Crisis and their Implications for Global
Economic Policy. In The 10 Years After: The End of the Familiar… Reflections on
the Great Economic Crisis (pp. 227-238).
Thompson, N., 2016. Portfolio theory and the demand for money. Springer.
Wilson, C. and Wilson, P., 2017. Make poverty business: increase profits and reduce risks by
engaging with the poor. Routledge.
Wood, M.S., Bylund, P. and Bradley, S., 2016. The influence of tax and regulatory policies on
entrepreneurs’ opportunity evaluation decisions. Management Decision.
Online
Demand and Supply of Money. 2020. [Online]. Available through:<
https://financetrain.com/demand-and-supply-of-money/>
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