Impact of Monetary and Fiscal Policy on Business

This presentation studies the different factors that affect the business of an organization, including the impact of monetary and fiscal policy, global factors, and regional trends. It discusses the advantages and disadvantages of these policies and their effects on business activities.

Introduction To Business
Environment

TABLE OF CONTENTS
 INTRODUCTION
 MAIN BODY
 Monetary Policy and Their Impact On Business
 Fiscal Policy and Their Impact On Business
 Global Factors and Their Impact On Business
 Region Factors And Their Impact On Business
 CONCLUSION
 REFERENCES

INTRODUCTION
 Business environment is a study of all internal and external factors which can affect or
influence the business.
 This presentation explains, how the different policies of government can affect the
performance of a business.
 This presentation explains about monetary policy of a nation which can affect the
business of an organization by controlling the interest rates of short term loans and
money flow in the market.
 The effect of Fiscal policy on the business of an organization is explained. This report
also gives a brief about the global and regional factor and their impact on the business
activities of an organization.

Government main policy objectives
 In managing the national economy governments attempt to achieve three Major
objectives
 1. Maintaining employment
 2. Control of Inflation
 3. Economic growth

Effects on economic growth
Increase in GDP leads to full employment and the risk of skill shortages
It can lead to excessive demand relative to supply.
Businesses respond to regulate demand by increasing prices leading to inflation

Effects of full employment
It leads to increase in GDP resulting in economic growth
It can lead to rise in wages as a result of the bargaining power of employees
Businesses respond by increasing prices to cope with rise in wages leading to inflation

Effects of control of inflation
Control prices deter investment
It leads to low economic growth
It reduces employment opportunities

Monetary Policy and Their Impact On Business
 Monetary Policy is a policy which is prepared and implement by central bank with the
consultation of central government.
 Purpose behind this policy is to control monetary movement in the economy which is
arisen due to some situations like Inflation, consumption, growth and liquidity.
There are two types of monetary policy -
 EXPANSIONARY MONETARY POLICY
 CONTRACTION MONETARY POLICY

Impact of Monetary Policy on the Business Activities of
organization within UK
 UK government and central bank uses monetary policy for the purpose of control the
level of inflation by using interest rates.
 Central bank do change in its interest rate which impact the rate of commercial bank.

CONTINUE…..
Impact of Monetary Policy On Investment
 When central bank increases its rates, this lead commercial banks to increase its bank
rates.
 This will make borrowing costlier and promote saving.
 This will lead to low investments.
 On the flip side, when central bank decreases its rates, this lead commercial banks to
decrease its bank rates. This will make borrowing cheaper and de-promote saving. This
will lead to more investments.

CONTINUE…..
Advantages of Monetary Policy -
 Encourage higher levels of economic activity
 Promotes transparency

CONTINUE…..
Disadvantages of Monetary Policy -
 Not guarantee economy recovery
 Take time to implement

Approach to fiscal policy
 The fiscal policy reflects the tax regime and public expenditure of a government
 Imposing higher income tax reduces available income to purchase goods and services
 This reduces demand and profit for businesses.
 Increase in public expenditure leads to increase in demand for goods and services
through the multiplier effect

Fiscal Policy and Their Impact On Business
 Fiscal Policy is a governmental tool to influenced the nation economy by its income
(tax) and expenditure.
 This policy is used as a sister policy of monetary policy to directs the nation's economy.
 The purpose behind the fiscal policy is to create growth of the nation's economy.
There are two types of fiscal policy -
 EXPANSIONARY FISCAL POLICY
 CONTRACTION FISCAL POLICY

CONTINUE…..
 Impact of Fiscal Policy on the Business Activities of organization within UK
 UK government use Expansionary Fiscal Policy to reduce tax rates and increase
expenditures in order to provide money to the UK consumers and businesses.
Impact of Fiscal Policy are as follows -
 Tax Policies
 Government Spending
 Unemployment

CONTINUE…..
Government Spending –
 UK government spending may affect the businesses directly or indirectly. Government spending
means expenses on the public welfare and business welfare which can boost the economy.
 When, there is increase in government spending this lead to increase in tax rate which means
purchasing power of customers decreases. This will lead to low sale of goods and services
produced by company. This impact the profitability of companies and industries of UK.
 During the financial crisis, increasing in government spending plays an important role in the
development of businesses so that businesses cannot immerse. Government spending means
focusing on infrastructure of UK which create employment of people which means they will get
incomes.
 By these incomes, they will get foods, goods and services which increases the sale and
profitability of companies and industries which give them national and international recognition.

CONTINUE…..
Advantages of Fiscal Policy -
 Reduction in Unemployment
 Boost Economic Growth

CONTINUE…..
Disadvantages of Fiscal Policy -
Budget Deficits –
 When government increase its spending and decreases its revenue by cutting tax rates.
 This lead to imbalance between income and expenses which creates deficit impact on
the economy and create financial crisis for the country.

Approach to monetary policy
 The monetary policy is used by government to regulate the flow of money in the
economy.
 The objective is to reduce demand for goods and services
 This is achieved by raising interest rates or restricting availability of credit
 This discourages businesses from borrowing money to invest in producing more.

Global Factors and Their Impact On Business
 Globalisation
 Technological development
 Global warming
 Emerging economies

Cont..
INTERNATIONAL MONETARY FUND –
 It is an international organization whose main objective is to boost the economic
growth of all the member nation of the world.
Objectives of IMF are as follows -
 To promote international businesses.
 To decrease the unemployment rate of member’s countries.
 To stabilised the economic conditions of members’ countries.

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INTERNATIONAL TRADE AGREEMENTS
 It is an agreement between two or more nations for the purpose of trading with each
other’s.
 The trade agreement can be related to the taxation or particular goods and services or
investments or tariffs etc.

CONTINUE…..
INTERNATIONAL TRADE AGREEMENTS –
 It is an agreement between two or more nations for the purpose of trading with each
other’s.
 The trade agreement can be related to the taxation or particular goods and services or
investments or tariffs etc.

CONTINUE…..
INTERNATIONAL FINANCIAL DEVELOPMENT –
 It is an international institution that provides the funds to the nation for the purpose of
investments and loans and gives advisory services regarding development of economic
conditions.

CONTINUE…..
INTERNATIONAL CAPITAL MOVEMENTS –
 It refers to the lending and borrowing funds between two or more nations.
 These capital movements are recorded in the capital account of the Balance of
Payments (BOPs) of the nations.

CONTINUE…..
ECONOMIC GLOBALIZATION –
 It refers to the interaction of various economies of nations for the purpose of cross
countries trade.
 It involves the movements of goods, capital, services, technology and information
between various nations.

CONTINUE…..
 FOREIGN EXCHANGE – It is a market where different currencies are traded between
various countries. It determines the exchange rates of various currencies.

Region Factors And Their Impact On
Business
 The business excellency and operational efficiency of the business greatly depends
upon the regional parameters.
 The success of business mainly depends upon the factors such as human resources and
other vital assets which are required to perform the functional activities of the business.
 There have been several factors and development trends which are changing the current
business scenario in UK.

CONTINUE…..
Some of the most important regional aspects are as follows:
 Skilled labours
 Cultural factors
 Brexit
 Economic Decline of certain European countries

CONCLUSION
 This presentation studies the different factors that affects the business of an organisation.
 This presentation gives the information about the policies which are used to control the
money flow and the interest rate of short term loan and their effect on the business of an
organisation and advantages and disadvantages of the monetary policy.
 Further the presentation is explaining the effect of the tools used by the government to
control or influence the economy of country by income tax.
 The advantages and disadvantage of the fiscal policy. The effect of the global factor on
the business of an organisation are explained in the study.
 The effect of the regional supply chain and regional trends on the business is also
explained in the report.

REFERENCES
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1654.
 Galí, J., 2015. Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian
framework and its applications. Princeton University Press.
 Gertler, M. and Karadi, P., 2015. Monetary policy surprises, credit costs, and economic activity. American
Economic Journal: Macroeconomics. 7(1). pp.44-76.
 Rendahl, P., 2016. Fiscal policy in an unemployment crisis. The Review of Economic Studies. 83(3). pp.1189-
1224.
 Fazzari, S.M., Morley, J. and Panovska, I., 2015. State-dependent effects of fiscal policy. Studies in Nonlinear
Dynamics & Econometrics. 19(3). pp.285-315.
 Neubauer, F. and Lank, A.G., 2016. The family business: Its governance for sustainability. Springer.
 Shaw, W.H. and Barry, V., 2015. Moral issues in business. Cengage Learning.