How Economic Factors Affect Business Activities and Challenges in a Global Economy

This article discusses the impact of economic factors on business activities and the challenges faced in a global economy. It covers topics such as monetary and fiscal policy, economic growth, economic cycles, and supply-side policies. Additionally, it analyzes the macroeconomic effects of the COVID-19 lockdown on the UK economy and explores ways to achieve sustainable economic growth and measure economic growth.

How economic factors can affect business activities and
challenges facing business in a global economy

Table of Contents
MAIN BODY...................................................................................................................................3
PART A...........................................................................................................................................3
Q.1. Defining Monetary Policy Committee (MPC) impact the inflation rate.............................3
Q.2. Impact of fiscal policy in economic growth........................................................................3
Q.3. Explaining ways to promote economic growth...................................................................4
Q.4. Economic cycle ...................................................................................................................4
Q.5. Supply side policy...............................................................................................................5
PART-B...........................................................................................................................................6
1) Discuss and explain the macroeconomic effects ‘Covid-19 lockdown’ has had on the UK
economy.......................................................................................................................................6
3) Explain how an economy can achieve sustainable economic growth and analyse the
different methods of measuring economic growth? ....................................................................7
REFERENCES................................................................................................................................1

MAIN BODY
PART A
Q.1. Defining Monetary Policy Committee (MPC) impact the inflation rate
Monetary policy is known as action that a country's central bank or government use of
influence money in the economic and cost to borrow. UK central bank have two main monetary
policy tools. Firstly interest rate is set that can be charge from banks to borrow money and it is
known as bank rate. Secondly, individual can buy bonds to lower the interest rates on saving
loans. Monetary policy effect the pricing and it is known as rate of inflation and it has been set
to achieve the government target of keeping inflation rate by 2% (Wen, Lee and Zhou, 2022).
Also, low and stable inflation rate is good for the UK's economy and it is the main aim of
monetary policy. Moreover, monetary policy impact on the inflation rate if it is too high then
tightening monetary policy will help in bringing inflation back towards the target and it will also
reduce economic growth. Also, because of exchange rate channel exports are reduced and it
become more expensive on the other hand import rate become more cheaper. Thus, it leads in
decreasing GDP growth of country. In short run if price and wages are nit adjusted change in
the supply of money will impact on the production of goods and services . This is the reason
monetary policy is conducted by central banks of UK and it is one of the meaningful policy tool
for gaining both growth objective and inflation. Along with this, monetary policy play
important role in big countries in controlling and managing economic activities. However,
foreign exchange and credit markets in such countries do affect important channels which may
affect monetary policy.
Q.2. Impact of fiscal policy in economic growth
In economy fiscal policy has been defined as source of guiding which help the
government in analysing as well a deciding amount of money it should spend to support the
economic growth. Along with this, it helps government in deciding how much money it should
invest regarding economic activity so to run it smoothly (Chugunov and Pasichnyi, 2018).
Moreover, it is important for the country now days to achieve economic growth across the world
and attaining rapid growth is one of the key objective of fiscal policy as well as it play crucial
role in managing a country economy. In addition to this, to meet the additional expenditures'
government has to borrow money from overseas and it can also make use of foreign exchange
reserves. For instance, during poor economic growth government have to open new building

project as well as business incentives which aims to make more money available to people so
that it can spend and encourage development of business. At the same time government should
decide to increase tax of company instead of people income in order to earn lesser revenue.
Q.3. Explaining ways to promote economic growth
Economic growth can be define as increase in gross domestic products which is known
as combines value of all goods and services produce by country within a year. There are several
factors which contribute in economic growth such and it needs to be in perfect amount so that
there is continuous increase in GDP rate. For example in order to enhance economic growth
government should increase public and private investment as it is one of the best ways to
increase the rate of productivity (Yilanci and Pata, 2022). Some countries do not invest in
quality eduction and skill development programme and this is one of the reason for poor
economic condition as citizens have no good quality to offer government. Second, government
should collaborate with employers and workers of big companies in order to upgrade national
rules related to work. As it will influence the quantity and distribution of job opportunists as well
as level of purchasing will also be very high which will contribute in good economic condition.
Also, collaboration of workers and employers will help in promoting government policies and
ensure citizens regarding public good. Thirdly, country can increase private and public
investment in labour-intensive economic sectors which will give wider benefits to country and
it should include sustainable water, digital and transport infrastructure as well as education
facilities.
Q.4. Economic cycle
Economic cycle is known as fluctuation of the economy between growth and rescission it
includes factors like gross domestic products, total employment and consumer spending cycle
to analyse the current stage of economic cycle (Furman and Summers, 2020). It is also known as
business cycle and it is circular movement of an economy as move from expansion to
contraction and back again.
Expansion: This first stage and it is basically used in during expansion the economy
experiences is basically increased rapid ally, interest rate is low, inflationary pressure and
production increase in this stage.
Peak: It is reached when growth reach its maximum rate and it creates imbalances in the
economy.

Contraction: This stage occurs because of period of contraction when there is slow growth,
downfall in employment and price stagnate.
Trough: This stage is reached when economy is at very low point and it tries to recover growth
rate.
Q.5. Supply side policy
In order to reduce unemployment government can make use of supply side policies like better
training and education or it can try new market policy for increasing better labour market
flexibility.
Better education and training: This will provide skills which help in long term and it will reduce
the chances of unemployment and allow citizens to find better jobs and cope up wit changing
labour market. It will also contribute in reducing structural unemployment as it solve the skill
gap.
Better job information: In order to reduce unemployment rate government should provide
better job availability so that citizens can be aware about the job which suits their skill sets. This
type of policy will help in reducing frictional employment (Hansen, 2018).
Free trade market: It will help in reducing unemployment in long term as market helps in
creating employment opportunity in short term.

PART-B
1) Discuss and explain the macroeconomic effects ‘Covid-19 lockdown’ has had on the UK
economy.
Answer= It is seen that in the duration of the pandemics the nation has experienced drastic
impact in term of its economy. There has been range of such factors which brought severe
repercussions to it. There were such macroeconomic aspects which not only thrilled but lashed
out it to the hyper extent.
Inflation must be taken as the biggest jeopardy since the economy has seen its rapid topple in this
way. In the years 2015 and 2016 it has been 0.37% and 1.01% but due to pandemics it turned to
2.29% and 1.74%. In this duration the market has experienced severe changes and the rate of
inflation turned higher. Which ultimately led to poor performance of different segments (Wang
and Su, 2020)
At the same time, employment has been another aspect to contemplate over. Since before
pandemics the national employment rate was going in favourable direction which got shuffled
due to Covid-19. As in the year 2018 the labour market rate has been 4.77 million. The drastic
impact which somehow led the labour market to gloomy side were driven by pandemic itself.
International trade has been one of the most mammoth dynamic. Since the national economy is
hugely inclined to generate revenues by exports. Which got befitted in the pandemic. There were
range of reasons but the biggest or the most affluent one was broken or destabilized supply
chain. Earlier the Supply chain was made ready as per the suitability of the nation but it went
against and turned losses to the economy. Lock down should be considered the biggest driver
behind this fall (Bahrini and Qaffas, 2019)
It would not be unfair argument to made since in the year 2017 the economic
performance was going in favourable manner. It took a sharp adverse direction in the preceding
years when Covid-19 hit the economy. This micro factor cannot be ignored due to rigid
repercussions it brought to the nation. Entire world has faced issue of Supply chain brake down
but the national economy got affected intensively due to its nature and dependency on global
trade.
The flow of capital, labour and other resources was also impacted due to covid-19 and
Lockdown imposed. Since in the nation there is strong need to have higher mobility of resources
but in such predicament it became out of control. Which not only impacted the economy but also

brought some long term impacts over it. As many thinkers believe lockdown has been biggest
catastrophe to the national economy.
3) Explain how an economy can achieve sustainable economic growth and analyse the different
methods of measuring economic growth?
Answer-
Over the time it is realised that for an economy it is quaint essential to achieve the aim of
sustainable economic growth. Which denotes to the growth which is going flawlessly and do not
get disrupted due to any reason. For this sake, the idea of sustainable economic growth becomes
highly needed. These are some ways which paves the route to attain the sustainable economic
growth (Ma and Cai, 2019)
Use of smart technology would be the first choice as it is known that there are range of
such modern technologies which can be imparted by an organization in order to achieve its pick
in term of performance. This is a must need, since even at present the less productive
methodologies are being used which are somehow reducing the overall productivity so this may
be taken as the best alternative to go with.
Looking up for new alternatives in form of business. Because still the economy is mainly
depended on some pre-intended realms to perform which not only topples its capabilities but
somehow make it over depended. Which is not a suitable thing and in present scenario the
markets are quite dynamic where the need to expand the area of operations is rigours needed
(Atalan, 2020)
Hiking different markets. As it is seen over the time, the economies which are expanding
the area of working are those who have secured their great sustainability but it does not seem to
be achieved to the fullest extent. If an economy wants to be highly productive and sustained for
longer then it must explore some new markets and open up different kinds of demands so can
deploy its resources to that realms in order to achieve the apex level outcomes. The modern
economies are also using some better managerial methods so can ensure fostering performance
for longer and can keep the costs factor lower.
So by abiding with the above refereed ideas an economy may attain its supreme form and
will be able to make the economy sustainable in term of growth and development.
These are some key methods which can be used to measure the economic growth in a
nation-

GDP= This stands for Gross Domestic Product. This is the method which helps in
assessing the gross productivity which has been made by an entire economy. There are several
methods which are used under it such as Income method, Expenditure method, Value addition
method etc.
NDP= It stands for National Domestic product. This method is also used for such measurement
since this gives more insights of GDP. This is supposed to be superior for many uses (Ke, and
Hsiao, 2022)
Growth rate= This is the foremost method when it comes to relative measurement since
always cannot rely on just absolute methods. By applying this method, a proper rate of growth
can be identified which paves the way for better articulation and can also transmit some drastic
judgements.
CPI= Over the time, there are so many think tanks who believes that CPI method is
supposed to be the best one since it is not always needed to have idea of economic growth but
there is ned to known the prevailing situation of consumers which gives closer insights.
So all the above stated methods can be used to measure the growth and development of
an economy with reliable manner.

REFERENCES
Books and journals
Atalan, A., 2020. Is the lockdown important to prevent the COVID-19 pandemic? Effects on
psychology, environment and economy-perspective. Annals of medicine and
surgery, 56, pp.38-42.
Bahrini, R. and Qaffas, A. A., 2019. Impact of information and communication technology on
economic growth: Evidence from developing countries. Economies, 7(1), p.21.
Chugunov, I.Y. and Pasichnyi, M.D., 2018. Fiscal policy for economic development. Науковий
вісник Полісся, 1(1 (13)), pp.54-61.
Furman, J. and Summers, L., 2020. A reconsideration of fiscal policy in the era of low interest
rates. Unpublished manuscript, Harvard University and Peterson Institute for
International Economics.
Hansen, A.H., 2018. Monetary theory and fiscal policy. Pickle Partners Publishing.
Ke, X. and Hsiao, C., 2022. Economic impact of the most drastic lockdown during COVID‐19
pandemic—The experience of Hubei, China. Journal of Applied Econometrics, 37(1),
pp.187-209.
Ma, M. and Cai, W., 2019. Do commercial building sector-derived carbon emissions decouple
from the economic growth in Tertiary Industry? A case study of four municipalities in
China. Science of the Total Environment, 650, pp.822-834.
Wang, Q. and Su, M., 2020. Drivers of decoupling economic growth from carbon emission–an
empirical analysis of 192 countries using decoupling model and decomposition
method. Environmental Impact Assessment Review, 81, p.106356.
Wen, H., Lee, C.C. and Zhou, F., 2022. How does fiscal policy uncertainty affect corporate
innovation investment? Evidence from China's new energy industry. Energy
Economics, 105, p.105767.
Yilanci, V. and Pata, U.K., 2022. On the interaction between fiscal policy and CO2 emissions in
G7 countries: 1875–2016. Journal of Environmental Economics and Policy, 11(2),
pp.196-217.
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