BMP4003 Business Environment: Fiscal Policy & Economic Growth

This assignment provides a comprehensive analysis of the business environment, focusing on key macroeconomic concepts and their practical implications. It begins by examining the role of the Monetary Policy Committee (MPC) in managing inflation, detailing its structure and mechanisms. The effectiveness of fiscal policy is then explored, highlighting its influence on economic growth and stability through government spending and taxation. The assignment further investigates the effects of decreasing interest rates on the economy, including their impact on borrowing, investment, and GDP growth. Different types of unemployment and methods for measuring them are also discussed, alongside an explanation of the four stages of the economic cycle. Finally, the assignment delves into the macroeconomic effects of the Covid-19 lockdown on the UK economy, analyzing its impact on GDP, employment, and inflation rates, and explores strategies for achieving sustainable economic growth, including methods for measuring economic growth and recovery.

Business Environment

TABLE OF CONTENTS
SECTION A.....................................................................................................................................3
1. Briefly describe and explain how the Monetary Policy Committee (MPC) impact the
inflation rate?...............................................................................................................................3
2. Explain the effectiveness of the fiscal policy in economics....................................................3
4. Identify and briefly explain the main effects of decreasing interest rate on the economy......4
8. Briefly explain the different types of unemployment and the different methods used to
measure them...............................................................................................................................4
9. Identify and describe the four stages of the ‘Economic Cycle’...............................................5
SECTION B.....................................................................................................................................6
Q. 1. Discussing and explaining the macroeconomic effects ‘Covid-19 lockdown’ had on the
UK economy:...............................................................................................................................6
Q.3 Explain how an economy can achieve sustainable economic growth and analyse the
different methods of measuring economic growth?.....................................................................9
REFERENCES..............................................................................................................................12

SECTION A
1. Briefly describe and explain how the Monetary Policy Committee (MPC) impact the inflation
rate?
The Monetary Policy Committee (MPC) is generally made up of the 9 members that is
the Governor, there must be three Deputy Governors for the Financial Stability, Monetary Policy
and also Markets and Banking, the Chief Economist as well as four external members
particularly appointed directly by Chancellor. The Monetary Policy Committee is generally a
committee of the bank of England, which particular meets for the three and a half days, and
eight times a year, particularly to decide the formal rate in the United Kingdom (Martin and
Milas, 2018). MPC basically decides what are the monetary policy actin that to be taken. The
Monetary Policy Committee before make any decision or decide what action to be taken, they
generally hold the various meeting to look how an economic is mainly working. One of the bank
of England are responsible, as the central bank of United Kingdom. Inflation is occurs when the
price rise in the economy, decrease the purchasing power of the money. The three main causes
of the inflation are demand pull inflation, build in inflation and cost push inflation. The
Monetary Policy Committee is determines the policy that is repo rate that is required or need to
be achieved the inflation target. Monetary policy generally affects as how many prices are
particular rising is called rate of inflation. If the central bank increase short term interest rates
then it will increase inflation and economy is mostly overheating and lower, basically it is in
presence of the economic slack.
2. Explain the effectiveness of the fiscal policy in economics
Fiscal policy objective is to make sure the sustainable public finance, value for money
particular for taxpayer, economic growth as well as stability, intergenerational fairness and
strong balance sheet. In other words, the fiscal policy is generally use of the government
spending as well as taxation particular to influence the economy. So the government usually use
the fiscal policy to not only promote the strong growth but also for sustainable growth and also
reduce poverty. The fiscal policy Is mainly considers with good range of the literature but
effectiveness of this policy is generally seen its impact on growth of economy as well as long
term sustainable development (Romer, 2021.). The fiscal policy can used for influence both
contraction and expansion of the GDP thus it measures the economic growth. It is a tool that is
used by the government mainly to influence economy. So to stimulate the growth, they can make

taxes low as well as spending increase. So by simply adjusting the level of tax revenue and
spending the government affect the outcomes of economy by either decreasing or increasing the
economic activity. The main objective of fiscal policy is to make full employment in the country.
It generally reduces the poverty in the country and also if the employment increase then it will
give positive impact on the economic growth, which is good. So the fiscal policy play an
important role in economic growth.
4. Identify and briefly explain the main effects of decreasing interest rate on the economy
Generally high interest rate attract foreign investment and increase demand for as well as
value of home country currency. Whereas low interest rates means to unattractive for the
investments from the foreign and also decrease current relative value. The main effects of
decreasing interest rate on the economy is it generally encourage business, government and
customers to borrow as well as spend money freely (Ha, Kose, and Ohnsorge eds., 2019). This
will generally result in the higher demand by the customers as well as investments by the
corporations, even leading higher GDP growth as well as job creation. But low interest rate can
also lead to issue or problem like liquidity traps and inflation which generally undermine
effectiveness of low rates. So decrease in interest rate generally causes increase in the quantity
demanded. It is also depended on the inflation, if there is too low inflation then the government
usually decrease the interest rates for stimulate economy. Even, if the interest rate is low so the
customers think that they have to pay less interest, so they spend more money that create effect
of the increasing more spending throughout the economy. It generally encourages customers to
make big purchase such as cars and house which will improve economy. Even the businesses
also get benefits such as it encourage them to male their large equipment purchase because low
cost of the borrowing. So this also creates situation when the productivity and output increase.
8. Briefly explain the different types of unemployment and the different methods used to
measure them.
There are many types of unemployment such as follows:
Frictional unemployment:
This is generally occurs when the individual are between the jobs. It can also called search
unemployment. It will also occur when the individual are generally switching between the jobs
that is because they have made redundant or even looking for new job (Carrere, Grujovic, and
Robert-Nicoud, 2020).

Structural unemployment:
This is due to geographical or occupational immobilities. The structure unemployment is
generally caused by the mismatches of the knowledge or skills between the available jobs and
unemployed. The structure unemployed is generally caused by the change in economy like De-
industrialisation.
Technological unemployment:
This is also related to the structure unemployment. This type of unemployment is generally arise
because of introduction of new technology (Kapeliushnikov, 2019).
Methods used to measure them
The Labour Force Survey is generally use in UK. It is survey of the households that living at
their private addresses in UK. Its main purpose is to provide the accurate information on the UK
labour market which can be used to develop, evaluate, manage as well as report on the labour
market policies. By the use of this they can easily identify the unemployment in the country. In
UK measure unemployment rate for generally those aged of 16 and over. The rate is calculated
with the international guidelines, thus the numbers of the unemployed individual divided by
economically active population.
9. Identify and describe the four stages of the ‘Economic Cycle’
The economic cycle is generally characterized by the alternative periods of contraction and
expansion in the economic activity. The economic cycle is has four stages. Each and every stage
of the economic cycle is very important because it particular serves as starting points mainly
from top to down financial analysis (Burlutskyi, and et.al, 2019). This cycle is generally affected
by many factors such as interest rate, investments, production costs and trade etc. These four
stages of the economic cycle are Expansion, Peak, Trough and starts.
Expansion:
It generally means to increase in the economic factors like supply, demand and income. In this
stage, there is increase in the consumer confidence. It generally leads that people spend more as
well as pay their debts comfortably. Many businesses grow in this stage. So in this stage
economic is improving.
Peak:
In this stage follows the expansion in the economic cycle. The peak stage is instance right before
economic indicators start to fall. So p[articular at this time the prices are normally at their highest

as well as economic can be overheated that means the organization in the economy can no longer
satisfy their consumer demand.
Contraction:
A correction is generally occurs by a period of contraction when employment falls, growth slows
and prices stagnate.
Trough:
the trough stage of the cycle is generally reached when economy mainly hits low points as well
as growth to recover.
SECTION B
Q. 1. Discussing and explaining the macroeconomic effects ‘Covid-19 lockdown’ had on the UK
economy:
Since 2019, the global pandemic is the most serious global health issue and crisis that
made humankind rely on such aspects of which they never have heard of before. The whole
world experienced a downfall in their economical as well as the financial stability. It is because
everything about the pandemic was unusual and uncertain that was not predicted by anyone at
anytime (Verschuur. Koks. and Hall. 2021). This was the major concern and issue that was faced
by all the economies across the world. Talking about the UK economy in specific, the nation
experienced a low demand in its macro economic factors that hit the economy largely and many
of its constituents were adversely affected. To be very clear about the macro economic factors, it
has to be understood that they deal with the GDP, unemployment rates, and inflation rates of
a nation.
IN UK, due to the Covid 19 pandemic situations, the economy faced loss and challenges
in the form of economic outputs, employment and inflation rates, as all of these tend to increase
and economic outputs were constantly decreasing. In relation with the GDP rates, it was in an
increasing nature till December 2019 within the range of 1%, but as the effects of pandemic
increased with the time being, the levels began to fall down by February 2020. In the early
months of the year 2020, the services sector also experienced hike in their operations but these
also started to fall down with the reduction in production rates (Mihailov 2020). In construction
sector of service, the rate fell by 2.9% along with the manufacturing rates being falling by 0.3 %
respectively. Because of the rising ups and downs in the UK economy, it faced low employment
rates and high inflation rates due to low employability opportunities in the economy. Although it

was hard for the economy to grow in such circumstances but the services sector remained
moderate and helped the businesses to relax in terms of financial stability. This was possible due
to the business restrictions that were imposed in the very beginning to tighten the activities of the
business sector to further control the contingency. The restrictions did have a positive impact on
the service sector but also affected the manufacturing and construction industries as these
experienced downfalls. It was not like each and every service providing sectors benefited but
only those providing daily necessities were allowed to operate on the daily basis such as
accommodation, food and beverages, transport facilities, etc. These services are of daily
nature and that is why permitted to operate as usual. These sectors keep growing because these
have political and legal support to avail their profits to provide the citizens with their daily
amenities.
From the above statistics, it can be evaluated that the service sectors that provided daily
amenities to the nation experienced hike in their operational activities due their necessities
proved. Having an important role in the survival of people in this pandemic, the support given to
these sectors were high as compared to the others.

For inflation rates and unemployment situations, the employment levels rose in the
service sector because their was a need of people in the sector to provide more people with goods
and services that they daily require (Pedauga. Sáez. and Delgado-Márquez. 2022). But for the
other sectors of the economy, significant job roles were falling down and the consequences were
high rate of unemployment during the pandemic. This resulted in the high inflation rates because
many people lost their jobs and due to the scarcity of available resources, as well as the
increasing demands and decreasing supply situations, the prices rose and inflation went higher
than ever in the UK economy.

From the above data, it can be clearly seen that the employment rates in the necessary
service sectors were moderate as compared to the other service providers because of the
necessities that were needed to be reached to the netizens in the course of Covid 19. It can also
be seen that the jobs at risk is continuously increasing with the increasing numbers which
indicates that the pandemic majorly hit the profit making industries hard as compared to the
others all depending on the necessity of a product or a service. It can even be concluded that the
sustainable business environment was affected with the pandemic in the UK economy because of
low GDP, high inflation and service sectors that are the harmful effects of sustainability.
Q.3 Explain how an economy can achieve sustainable economic growth and analyse the different
methods of measuring economic growth?
Sustainable economy growth simply means the rate of growth that need to maintained
without creating economic problems for the future generations. This can be said as the clear trade
of between the rapid growth of today and of the future. It is needed to ensure that future
generations do not face problem by the investments that are being done by the consumer. The
most common example of sustainable economy growth is organic farming and the social
economic enterprises (Giampietro, 2019). The sustainable growth has become important practice
in order to help climate changes that are being faced by the all over the world today. The
economy growth occurs when all the real output of the country increases with the time. The
output is measured in the terms of the constant prices. Following given are the techniques that
will help country to increase sustainable growth in the market-
1. The extraction and the depletion of all the natural resources must be considered to make
sure that it does not degrade natural resources to its last.
2. The levels of pollution and the changes happening because of pollution must be reviewed
by the counties on time to time, so that harm to future generations can be least.
3. The human activities that act as a hurdle between the developing sustainable economic
development must be taken into consideration and should be stopped to the extent that
countries can do.

4. Destroying the natural environment of the country ultimately will destroy the human
lives. That's why all the activities that are disrupting natural environment must be
stopped.
Methods to move to sustainable development of the countries-
The different methods that must be adopted in order to improve the sustainable
development of countries is as follows-
Choose Alternatives-
Countries should start using products that does not harm the wildlife and the environment around
the country. This can be started by taking small steps like the step of using cloth bag at the time
of buying vegetables. Country can make such rules and regulations that automatically stop
harming environment by alternatives and reusable products and services (Visvizi, A., Lytras,
M.D. and Daniela, L., 2018).
Reducing waste-
There is no doubt that UK is among top 10 countries that produce the highest waste. The
sustainable economic growth demands that country should shift towards using those items that
reduces waster in the country. Not using plastic is one such thing to avoid waste. Recycling and
reusable containers can be something that a country can start with.
Growing own produce-
Growing own produce must be encouraged as it ensures that all the produce is pesticides free.
Further, it also reduces the need of water and pollution in the air. Gardening in balconies and
terraces must be initiated by giving heavy subsidies to the individuals that are interested in such
process. Further, the food wastage can also be reduced by producing food.
The above mentioned points can work in the favour of the company for creating
sustainable growth that simply says not to impact the need of the future generation. Government
plays important role in it by as they are the ones that ultimately initiates program for such
process and help an individual to shift from the traditional base that creates pollution to the
techniques that are environment friendly.

REFERENCES
Books and Journals
Burlutskyi, S., and et.al, 2019. The relationship between short-term fluctuations and stages of
economic cycle: The case of Ukraine.
Carrere, C., Grujovic, A. and Robert-Nicoud, F., 2020. Trade and frictional unemployment in the
global economy. Journal of the European Economic Association. 18(6). pp.2869-2921.
Giampietro, M., 2019. On the circular bioeconomy and decoupling: implications for sustainable
growth. Ecological economics .162. pp.143-156.
Ha, J., Kose, M.A. and Ohnsorge, F. eds., 2019. Inflation in emerging and developing
economies: Evolution, drivers, and policies. World Bank Publications.
Kapeliushnikov, R., 2019. The phantom of technological unemployment. Russian Journal of
Economics. 5(1). pp.88-116.
Martin, C. and Milas, C., 2018. The sub-prime crisis and UK monetary policy. 22nd issue
(September 2010) of the International Journal of Central Banking.
Mihailov, A., 2020. Quantifying the Macroeconomic Effects of the COVID 19 Lockdown:
Comparative Simulations of the Estimated Galí Smets Wouters Model. Univ. Read.
Discuss. Pap, 7, pp.1-32.
Pedauga, L., Sáez, F. and Delgado-Márquez, B. L., 2022. Macroeconomic lockdown and SMEs:
the impact of the COVID-19 pandemic in Spain. Small Business Economics, 58(2),
pp.665-688.
Romer, C.D., 2021. The fiscal policy response to the pandemic. Brookings Papers on Economic
Activity. pp.89-110.
Verschuur, J., Koks, E. E. and Hall, J. W., 2021. Global economic impacts of COVID-19
lockdown measures stand out in high-frequency shipping data. PloS one, 16(4),
p.e0248818.
Visvizi, A., Lytras, M.D. and Daniela, L., 2018. Education, innovation and the prospect of
sustainable growth and development. In The future of innovation and technology in
education: Policies and practices for teaching and learning excellence. Emerald Publishing
Limited.