Fiscal Policy | Economics Assignment

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student
Name of the University
Author Note

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Table of Contents
Answer to question C.i....................................................................................................................2
Answer to question C.ii...................................................................................................................3
Answer to question C.iii..................................................................................................................5
Reference list...................................................................................................................................6

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Answer to question C.i
Prospects of fiscal policy: According to data, the UK economy has been experiencing a
downward trend in the RGDP growth. Within last on year, the RGDP growth has been slashed
down to 1.24% from 1.39%. Looking forward, the economy is expecting further deterioration in
the country’s total output level in the upcoming years. In order to overcome this sluggish
economic progress, the UK government must emphasize on the fiscal policy which deals with
public expenditure and tax system. Most of the government expenditure in UK has been reported
to allocate for the unproductive activity including defense spending as well as governmental aid
to other nations. As a result of that, the growing fiscal expenditure has aggravated the fiscal
deficit condition instead of improving the economic condition of the UK. In this regard, the
expansionary fiscal policy is expected to yield most effective outcome for the ailing UK
economy (Bhattarai, Haughton and Tuerck 2015). The expansionary fiscal policy calls for the
enhancement in the government expenditure in terms of welfare subsidy or monetary assistance
to the general public. The beneficial impact of this policy will be consumed by all people staying
in the UK economy. Most importantly, it accelerates the structural development process which
can lead the country to gain a sustainable economic growth.
Prospects of monetary policy: The UK economy has been observing dwindling economic
performance due to the cumulative effect of global economy, uncertainty in the Brexit agreement
and impoverished structural development of the national economy. An appropriate economic
policy needs to be implemented in order to boost the aggregate demand of the UK economy. The
improvement in the cumulative demand will likely to bring immediate impact on the country’s
aggregate output level (Bhattarai and Trzeciakiewicz 2017). In respect of UK economy, the
expansionary monetary policy should be incorporated to augment the purchasing power of the

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average number of people. This sort of monetary policy increases money supply in terms of
printing currency note or reducing interest rate. The cut in interest rate will reduce loan cost,
which in turn, will encourage the investors to invest in the production process. Consequently, the
economy will gain an advanced output level owing to sharp improvement in the cumulative
demand.
Growth prospects of the UK economy: The employment growth exhibiting steady trend during
the last couple of years. This accelerating growth indicates the UK economy holds a considerable
amount of growth prospects in future. The employment rate has been recorded at 74.7% in the
last year. Moreover, the country’s impressive performance with respect to the Global
Competitive Index denotes macroeconomic stability in the UK economy. This remarkable
outcome will encourage the foreign investors to invest more in the UK. Subsequently, this
assures enough growth in the infrastructure as well as financial system. Moreover, the country’s
strong supremacy in the science and research field is expected to accelerate the pace of economic
growth.
Answer to question C.ii
Post-Brexit impacts on Britain’s economy: Uncertainty related to the Brexit deal is the
emerging concern for the economy. Brexit stands for the withdrawal of the British government
from the European Union. Though the concerned government formally declared this withdrawal
in 2017, the deal has not been finalized yet (Dhingra et al. 2016). The impact of Brexit depends
on the degree of association of the UK economy with the European Union. It has been observed
that the EU has been playing an influential role in accelerating the growth of the UK economy.
Therefore, the researchers assert that the UK economy will receive detrimental impacts in terms
of the per capita income. Brexit will increase restriction on the immigration from the European

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Economic Area. This results in the decrease in the student enrollment in the education sector as
well as a smaller number of skilled workers in the in the domestic workforce. Subsequently, this
triggers a serious challenge for the UK economy as lack of skilled workforce has reduced the
development process in the production sector (Martin et al. 2016). In addition to that, the growth
of the education sector will face hindrance in terms of financial assistance for the research and
development program. The employability across the economy will be lowering down as a result
of long-term effect. As a consequence of that, the UK economy will be operating below its
potential level as the real output level moves towards downward trend (Uspenskaya and Alieva
2016). Apart from that, the tourism industry is considered as another important sector which will
receive declining impact after Brexit. As per the scholars, the tourist will have to bear a large
amount of expenditure whenever the tourists will visit the UK (Jensen and Snaith 2016). This
causes complexity in the travel budget for average number of tourists. Hence, a large number of
tourists from the European Union will resist themselves from incurring travel cost associated
with the UK.
Potential on international trade and exchange rate: Post-Brexit poses a serious threat to the
trade sector of the UK economy. In terms of the OECD quality, the concerned has slipped in to
the 31st position as compared to the earlier position at 16th place. The deteriorating position in the
OECD quality refers to the country’s decreasing competitiveness with respect to other developed
countries. This further denotes that quality of the export goods get aggravated as a result of lack
of research and development work (Van Reenen, 2016). The uncertainty in the policy making
decision is considered as the key cause of concern for the slow pace in the economic growth.
Meanwhile, the falling export earnings will aggravate the country’s balance-of trade condition
(Gudgin et al. 2018). Import expenditure will continue to increase with respect to the sharp

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decline in the export earnings. This will invariably create huge pressure in the foreign exchange
reserve. On this account, the apex monetary authority will decide to cut down the interest rate in
order to enhance the purchasing power of the national citizens. However, this will lower the
currency value of pound at the international rate, which in turn, makes export goods costlier for
the overseas consumers and turns the import commodities more expensive for the domestic
buyers.
Answer to question C.iii
Challenge 1 - Threat from competitors: Rolls Royce is a renowned performer in the UK’s
aerospace industry. The marker structure for this certain company seems like an oligopoly
market. Due to stringent government policy, new entry into the aerospace industry is restricted.
The company competes with a limited number of competitors, such that, General Electric
(Baines and Shi 2015). Due to lack of potential number of producers, the buyers of the aerospace
industry hold significant buying power which implies that the buyer can shift their choices to
other company whenever they will not feel satisfied with the service quality of Rolls Royce.
Considering the fact, the Rolls Royce authority is expecting a deteriorating sales revenue as
negative impact of the Brexit.
In order to overcome this challenge, the company should develop a market strategy which
will effectively hold the customer strength for the company. Innovative technology is the key
point to draw the customer attention for its aerospace products.
Challenge 2 – Dearth of skilled workers: A considerable number of people are expected to be
jobless owing to the uncertainty related to the Brexit deal. Further, restriction on the work visa
for the overseas workers may call for deficiency in the skilled workforce. This will inevitably

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reduce the company’s profit inducing the production cost (McLeay, Radia and Thomas 2014).
The production cost of this sort of industry is huge. As per the company’s latest annual report,
the company had incurred total adjusted cost of 276 million. It has been reported that the
concerned company has devoted 100 million pound due to no-deal Brexit.
Considering this challenge, the company should bring introduce flexibility in its
employee policy so that no employees need to lose job after the Brexit agreement. In this way.
the abrupt growth in the production cost will also be managed and crisis for skilled workers will
be countered.

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Reference list
Baines, T. and Shi, V.G., 2015. A Delphi study to explore the adoption of servitization in UK
companies. Production Planning & Control, 26(14-15), pp.1171-1187.
Bhattarai, K. and Trzeciakiewicz, D., 2017. Macroeconomic impacts of fiscal policy shocks in
the UK: A DSGE analysis. Economic Modelling, 61, pp.321-338.
Bhattarai, K., Haughton, J. and Tuerck, D.G., 2015. Fiscal policy, growth and income
distribution in the UK. Applied Economics and Finance, 2(3), pp.20-36.
Dhingra, S., Ottaviano, G.I., Sampson, T. and Reenen, J.V., 2016. The consequences of Brexit
for UK trade and living standards.
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.
Jensen, M.D. and Snaith, H., 2016. When politics prevails: the political economy of a
Brexit. Journal of European Public Policy, 23(9), pp.1302-1310.
Martin, R., Pike, A., Tyler, P. and Gardiner, B., 2016. Spatially rebalancing the UK economy:
towards a new policy model?. Regional Studies, 50(2), pp.342-357.
McLeay, M., Radia, A. and Thomas, R., 2014. Money creation in the modern economy. Bank of
England Quarterly Bulletin, p.Q1.
Uspenskaya, L.I. and Alieva, B.R., 2016. BRITISH MULTINATIONAL CORPORATIONS AT
THE PRESENT STAGE. РОССИЙСКОГО ЭКОНОМИЧЕСКОГО УНИВЕРСИТЕТА имени
ГВ Плеханова, p.2.

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Van Reenen, J., 2016. Brexit’s long-run effects on the UK economy. Brookings papers on
economic activity, pp.367-383.