2021/22 Business Environment Exam: BSC (Hons) Business Management

This document presents comprehensive answers to a Business Environment exam from the BSC (Hons) Business Management program. It delves into critical macroeconomic concepts, including the Monetary Policy Committee's impact on inflation and the effectiveness of fiscal policy in economics. The assignment explores government strategies to promote economic growth, using examples to illustrate points. It also analyzes the effects of decreasing interest rates on the economy and the extent to which governments can improve economic situations through interest rate adjustments. Furthermore, the document examines the macroeconomic effects of the COVID-19 lockdown on the UK economy, discussing the impact of Brexit on consumers and businesses engaged in international trade. The answers provided offer detailed explanations and real-world examples to support the analysis of these complex economic issues.

BSC (Hons) BUSINESS MANAGEMENT
SEMESTER 2, EXAMINATION 2021/22
BUSINESS ENVIRONMENT
MODULE NO: BMP4003
Exam Paper Release Date & Time: Saturday 17 September 2022 at 10:00am
Submission Cut-off Date & Time: Monday 19 September 2022 at 10:00am
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ANSWER BOOKLET
All the pages of the answer booklet should be submitted including blank ones.
Please type your answers in the spaces provided.
Insert additional pages where required.
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Section A
1) Briefly describe and explain how the Monetary Policy Committee (MPC) impact the inflation
rate?
The monetary policy committee directly have impact on the inflation rate, as this committee
under take advantage of various tools for controlling the inflation such as repo rate, reverse repo
rate, liquidity adjustment facility, marginal standing facility, bank rate, cash reserve ratio, open
market operations and market stabilisation scheme. With the help of these tools Monetary Policy
Committee as an authority undertake control of inflation with the help of multiple monetary
policies to maintain the economic balance (Friedman, 2017). This committee is playing crucial
role to control the inflation as it provide vital balance on various aspects of the economy. This
committee is holding responsibility of fixing the benchmark interest rate.
With the help of monthly meeting and undertaking choices and consideration, Monetary
Policy Committee determines the policy repo rate which is needed to achieve the inflation target.
This committee fixes the benchmark interest rate. The main objective of this committee is to
bring more accountability as well as transparency while sustaining the price stability while
maintaining predictable exchange rates with foreign currencies.
2) Explain the effectiveness of the fiscal policy in economics.
Government undertakes use of taxing and spending power duly promotes stability as well as
sustainable growth. In context to fiscal policy, it is the use of government taxation and spending
to influence the economy. The use of fiscal policy is being typically undertaken by government
to reduce poverty by promoting growth and sustainable growth. The main objective of fiscal
policy gained wide prominence during the time period of recent global economic crisis in which
the government significantly mitigate the impact of crisis on vulnerable groups by stepping into
to support to financial system. In addition to this during the time period of 2008 global financial
crisis physical policy effectiveness has been re-highlighted which is duly driven by various
elements such as employment in the economy, the consumption of government expenditure, the
transparency of government and even the government size. According to Maddison, 2014 the
main objective of fiscal policy is to solve the real cause such as to provide employment to every
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individual. The main role of modern physical policy is to stabilise income investment
consumption.
Fiscal policy involve increase in spending or purchasing by lowering tax. In this people
have more disposable income which automatically lead towards increase in demand for services
and goods. It helps in expanding profitability in an effective way. From the analysis it has been
stated that the effectiveness of fiscal policy in economics has been greatly highlighting during
the time period of global recession, as this policy worked as a fuel for financial development and
played important role for government to promote sustainable as well as strong growth.
3) What can a government do to promote economic growth? Use examples to illustrate your
points
Government plays important or crucial role in promoting economic growth as they provide the
legal as well as social framework which incorporates the economic operation. Government also
offers public goods and services and maintain competition in the marketplace. With the
enforcement of fair laws and practices government also take certain actions to stabilise the
economy and redistributes income with the help of strategic immigration reform, cutting
healthcare cost, removing unnecessary and unclear laws and promoting economic growth
through innovation government can promote economic growth in an effective manner. Along
with this tax cuts and tax rebates is also an effective way through which economic growth can be
achieved. Along with this by providing entrepreneurship and incentives and subsidies is also a
significant measures that will help world leaders and governments to maintain the ideal
economic growth. Infrastructure spending designed to create construction job will help in
enhancing productivity by enabling organization to operate more efficiently (Iamsiraroj, 2016).
Along with this a wave of digitalization can also plays an important role in which with the help
of leading digital asset financial services government can increase economic growth offering,
basic level of education and infrastructure for high growth rate also offers a way through which
economic growth can be stimulated.
4) Identify and briefly explain the main effects of decreasing interest rate on the economy?
A decrease in interest rate usually lead consumers to have less interest on their savings. It
also creates an unattractive market for foreign investments as well as reduce the currency relative
value. In addition to this the main effect of decreasing interest rate on economy can also affects
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business as it make organization take out loan cheaper and encourage consumers to spend more
money on both essentials as well as non essential items. Low interest rate lead income oriented
investors reduction in federal funds which states a decreased personality to make money from
interest. It also causes lower unemployment rate it has been analyse that the primary effects of
decreasing interest rate on the economy is inclusive of reduction in incentives to save, cheaper
borrowing cost, lower mortgage interest payment, increase in asset price and depreciation in the
exchange value. It has been evaluated that in the year 2009 UK interest rates were cut in order to
enhance economic growth after the recession.
5) To what extent can the government improve economic situation by changing the interest rate?
The government have tendency to make improvement in economic situation by changing
the interest rate. In this with the help of contractionary monetary policy which is among one of
the popular method government can control the inflation. It has been analysed that the primary
objective of contract dictionary policy is to make significant reduction in the money supply
within an economy by enhancing the interest rate. This significantly plays important role in
slowing economic growth by making credit more expensive that further help in reducing
consumers and business spending. With the help of federal fund rates open market operation and
discount rates government has various ways to stop or control the inflation. Keynesian monetary
theories depend on the conviction that proactive activities from our administration are the best
way to direct the economy (Doran, McCarthy and O’Connor, 2018). This suggests that the public
authority ought to utilize its powers to increment total interest by expanding spending and
establishing a pain free income climate which ought to invigorate the economy by making
position and eventually expanding flourishing. The Keynesian scholar development recommends
that money related strategy all alone has its impediments in settling monetary emergencies,
consequently making the Keynesian versus the Monetarists debate. In addition to this with the
help of reducing the unnecessary laws as well as taxation government can create an economic
variable that will help to control the inflation. Furthermore it has been underlined that with the
help of taking advantage of two powerful tool such as the federal reserve and monetary policy
government can stimulate the inflation price. By taking advantage of fiscal policy government
can use it spending and taxing powers to have an impact on economy. With the help of
interaction combination of fiscal and monetary policy government can have a control over
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inflation rate. Furthermore government can put a cap on the price and with the help of
contractionary monetary policy government can control inflation in a well defined and effective
manner.
Section B
1. Discuss and explain the macroeconomic effects ‘Covid-19 lockdown’ has had on the UK
economy.
Due to the outbreak of Covid- 19 United Kingdom economy is among the worst hit economies
around the world. In this the macroeconomic impacts of COVID-19 and the lock down on the
UK economy is inclusive of decrease in the GDP, in the second quarter of 2020 which
significantly fell down by 19%. In addition to this it has been underlined that the largest
quarterly decrease in the UK GDP has also on records the investments , as well as consumption
in this quarter, also reduce down which directly result in a large decrease in the overall GDP.
Along with this the unemployment rate also remained low (Mao, Ntontis and Drury, 2021). The
dramatic impact of Covid-19 and restrictions not only impact on the country’s economic growth
but also create challenges in front of trade off between economic and health outcomes. It also
restricts consumer spending and reduce the employment lead level at a greater extent.
Furthermore it has been analysed that the microeconomics effect of Covid-19 lockdown also
affected the UK economy in terms of reducing down the individual level of income which
dramatically created challenges in front of the government of the country.
Furthermore, has been underline that during the first lock down the overall GDP of United
Kingdom was 25% lower in April 2020 as compared to the earlier in February. In addition to this
it has been underlined that the overall decrease in the GDP by 9.7% in 2020 has also been
measured. It affected each and every industries such as cancellations of bookings in hospitality
sector which directly affects the employment level in the country (UK, 2020). From the above
analysis it has been analysed that the outbreak of Covid-19 and lockdown created an adverse
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impact on the overall UK economy which dramatically affected the countries in various aspects.
It not only reduce the GDP level but also affects the employment rate as well as ability of income
of earning.
2. UK officially left the EU as of 31st December 2020 to ‘trade internationally’. Discuss the
impact upon consumers and businesses of trading internationally.
The official exit of United Kingdom from the EU as of 31st December 2020 to trade
international has many direct and indirect impact on consumers as well as businesses of trading
internationally. New Brexit rule caused major shock to UK EU trade, in this it has been analysed
that new post Brexit trading rules created many challenges such as this lead import from the EU
fell by 25% relatively from those somewhere else in 2021 (Breckenridge and Feldschreiber,
2019). The new Brexit rules also caused number of United Kingdom organization to stop
exporting to the trade bloc. Irrespective of the government assured as well as measures to support
the trade need with European Union, the EU consumers and businesses simply stop selling a lot
of products and services to smaller countries in the EU. In addition to this it has been underlined
that the export relationship with the EU has been drastically fell down in the year 2021. Lower
value relationship affected the UK exporters and EU importers due to official exit of UK. This
impacted on consumers in terms of having low bargaining power and increases challenges in
front of business organization to export services and products which not only increases the cost
of business operating but also created labour threat in front of them.
Furthermore it has been analysed that the total variety of goods sold has also been
declined by overall 30% due to cost of extra administration (Brown, 2019). This affected
organization on smaller business skills to conduct their operations international. Small exporters
and consumers failed to have new opportunities. In addition to this it has been analysed that UK
official exit from EU also created threat in front of increase in tariff trade and put taxes on
various goods and services which created many economic challenges.
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Reference List
Breckenridge, A. and Feldschreiber, P., 2019. Impact of Brexit on UK and EU drug regulation
and patient access. Clinical Pharmacology & Therapeutics, 105(4), pp.923-925.
Brown, S.A., 2019. Brexit, the UK and Europe: Why, how and what next?. Journal of European
Integration, 41(1), pp.123-129.
Doran, J., McCarthy, N. and O’Connor, M., 2018. The role of entrepreneurship in stimulating
economic growth in developed and developing countries. Cogent Economics & Finance, 6(1), p.1442093.
Friedman, B.M., 2017. The moral consequences of economic growth. In Markets, morals &
religion (pp. 29-42). Routledge.
Iamsiraroj, S., 2016. The foreign direct investment–economic growth nexus. International
Review of Economics & Finance, 42, pp.116-133.
Maddison, A., 2014. Economic growth in the West: Comparative experience in Europe and
North America. Routledge.
Mao, G., Fernandes-Jesus, M., Ntontis, E. and Drury, J., 2021. What have we learned about
COVID-19 volunteering in the UK? A rapid review of the literature. BMC Public
Health, 21(1), pp.1-15.
UK, G., 2020. Coronavirus (COVID-19) in the UK.
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