Business Environment Report: Supply Side and Fiscal Policies Analysis

This report provides a comprehensive overview of the business environment, focusing on macroeconomic policies relevant to the UK. It begins by defining the business environment and then delves into supply-side policies, such as privatization, deregulation, and tax cuts, analyzing their impact on economic growth, inflation, and unemployment. The report further explores how governments utilize fiscal and monetary policies to manage the economy, including tools like interest rate adjustments and government spending. It examines the advantages and disadvantages of these policies, supported by examples from the UK economy. The report also covers the effects of these policies on various economic indicators, such as inflation, unemployment, trade, and entrepreneurship, along with potential drawbacks like implementation challenges and equity concerns. Overall, the report aims to provide a clear understanding of the business environment and the economic tools used to shape it.

BUSINESS ENVIRONMENT

Table of Contents
INTRODUCTION...........................................................................................................................3
Q1. Supply side policies..............................................................................................................3
Q2. Governments can use fiscal and monetary policy:..............................................................6
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Business environment is termed as the total of entire internal as well external
environment or factors which are in relation with the business or an organization. It should
always be taken into consideration by business that internal as well as external factors affect each
other and work altogether to affect enterprise (Trkman, 2010). This report is based on the topic
of Business environment which will assist in giving understanding regarding various elements of
macro-economics. A complete explanation in regards with the meaning of supply policies will
also be determined in this report. Apart from this, determination of monetary and fiscal policy
and the use of such tools for encouraging growth of economy will also be analysed. The current
report will be helpful in giving clear and proper understanding of the different problems and
issues which will be in relation environment of business. Explanation of the such kind of issues
will be supportive for the effective working of business.
Q1. Supply side policies
These policies are a part of supply side economics. This type of economics explains that
how can productivity on any economy be improved. These policies are used to overcome the
failure that is a market facing. This is an alternative strategy that is used for improving economic
growth. It not only increases productivity but also the efficiency of economy (Reed and et,
2013).
Following are some supply side economies used by UK government:
 privatisation: when some assets those are owned by government and public
sector are handed over to the private sector then this is called privatisation. This is
a great policy because if work is given to private sectors they can manage that
more efficiently because they run a business for profits and they focus on
lowering costs and providing best satisfaction to their customers. For example
privatisation of London bus services was done by UK government. It was a
process of transferring London buses from public to the private sector. In 1989,
water privatisation was also made in context of regional water authorities in
England and Wales by selling the assets.
 Deregulation: it means removing restrictions for new entrant companies in
market. It will surely increase competition in market and then there will be

competition that who will have more customers. For that they will sell better
products on reasonable rates. For example in 1997, government developed a
programme called “better regulation” which included general programme for
government authorities to review and abolishing or removing different regulations
(Pingali and Roger, 2012).
 Reducing income taxes: it is generally observed that if taxes are low then people
start to work more hard because the money they made by doing hard work will be
retained and utilised by them and they will not have to pay a large amount of their
profits as a tax to government and it will help in increasing productivity in
economy. Government made rate cuts in income tax in April 2013 from 50
percent to 40 percentage. This rate cut enhanced attractiveness to international
mobile executives.
 Increasing training and education: if good education and training programmes
are conducted by government then it will help employees as well as individuals in
grooming their personal skills and it will help them to do their jobs and operations
more effectively and appropriately.
 Reducing power of trade union: by reducing powers and rights of trade unions
there will be less chances of strikes and more time will be utilised in
manufacturing products. It will surely help in increasing efficiency of enterprises
and it will reduce a main problem of any economy that is unemployment. In
1970's it was found that in UK economy there were poor relations between
industries because of that nation has to suffered. After reducing the power of trade
unions, labour productivity can be increased.
 Improving transportation and infrastructures: because of market failures it is
necessary that UK government should pay attention towards transportation
facilities as well as infrastructure because further it will help in reducing the cost
of firms and operations and they will be able to making more profits. Cost
incurred in UK for road maintenance was £1.63 billion in 2011 and 2012.
 Deregulate labour market: this policy is about making easy regulations for entry
and exit of workers easily in firms. It will increase competitiveness and
opportunities to right persons will also be given.

Following are uses of these policies to facilitate economic growth of UK:
 lower inflation: if inflation rates will be lowered then it will also decrease prices
of products. By making the economy efficient supply side policies, these will help
in cutting inflation rates. Economy of UK will be more developed and stable.
 Reduction in unemployment: these supply side policies help in training and
qualifying people of nation and it will surely increase employment rate of
country. It is a sign of growth and development of economy.
 Improvement of trades and businesses: these policies help in increasing
productivity of any business and enterprises. This will help in improvement of
businesses and attaining organisational goals of generating more profits.
Increasing productivity of whole nation: these policies made by government of UK will
increase productivity and help in contributing more toward gross domestic product of nation.
This will help in achieving significant growth in economy of nation.
Increasing export rates: if production of any country will be increased then it will help in
introducing these products over the boundaries of nation. Products and commodities will be
supplied to overseas and foreign currency will come to the nation. Hence it will help in
increasing exports also (Pikka, Iskanius and Page, 2011).
Encouraging entrepreneurship: one of best effect of these policies on economy is to
encouraging the entrepreneurship because these supply side policies will help in lowering tax
rates and these lowered rates will motivate businessmen to make more profits because a large
portion of these revenue can be utilised by themselves.
There are not only advantages but to some extent they also have some disadvantages to
nation and those are following:
 these supply side policies take a very long time in executing and providing benefits to the
economy. For example, it can be seen that improving quality of humans through training
and development programmes and providing them training can not be happen in a small
amount of time. These benefits can be taken after a very long time.
 Benefits arising through deregulations can only be achieved when new firms are willing
to enter in market and it depends on time and situation that when should these firms enter
in economy.

 These policies are really very costly to implement in any nation. As an example, if
training and educational programmes are to be conducted then will have need a large
amount of investments. These programmes are generally very much expensive and time
consuming.
 Some of the policies are not accepted by people and some groups of individuals. For
example if there is reduction in trade union powers then these workers will resist these
policies and be threatened by these labour market reforms. Profits of other enterprises and
businesses will also be effected because of increased competition in market. These
enterprises can be against of such policies and will be demotivated (Moutinho, 2011).
 Equity is also a issue arose out of such policies. These supply side policies have a
negative impact of distribution of the income in short term. Here example can be taken of
lowered tax rates privatisation and reduced power of trade unions will increase a gap
between riches and poor.
Following are some UK examples giving support to above mentioned discussion of
facilitation in economic growth of supply side policies:
Q2. Governments can use fiscal and monetary policy:
monetary policies are used to maintain price stability in UK economy. Pricing stability is
the main objective of central bank that is specified by a quantitative meaning, it provides
economic agents a guide regarding what is expected from a monetary policy. It contribute to the
anchoring of long term as well as medium inflation expectations in UK.
Stable expectations of inflation reduces macroeconomic instability. By insuring the price
stability, this policy contributes towards the macroeconomic stability. Monetary policy is a very
important and effective tool for the influence of economic activities. To increase aggregate
demand, central bank or central government has authority to cut the interest rates. Lower rates of
interest are used in reducing cost of borrowing, encouraging customers to spend and initiates
investments. These rate also help in reducing and lowering mortgage interest payments and
increasing income that is disposable for people (Palo and Tähtinen, 2011).
It is not exactly like that lower interest rates always help in increasing consumer
spending. Lower interest rates may not increase spending because of paying back the debts. For
example in 2009, UK rates or interest were decreased with 0.5 percentage and still it could not

increase spending. At that time banks were not willing to lend monies because there was no
liquidity. That is why, it was cheaper to borrow and was hard to create credit ( Lee, Olson and
Trimi, 2012).
Monetary policy is decision made by government regarding money supply in market and
interest rates. This is a primary tool that is used for decreasing and increasing supply of money in
any economy. There are 2 types of policies first is expansionary and second is contractionary.
Expansionary policy is being used for increasing money supply in reference to lower the
unemployment and increasing borrowing power of private sector, as well as consumer spending.
On another hand contractionary monetary policy is used in slow the growth rate of money
supply and decreasing supply just to control inflation.
There are 6 major tools of monetary policy. First one is reserve requirement, this explains
that how much money is needed in reserves every night with banks. All people who invest
money with banks normally do not need all the money they have each day so banks can lend
these amount to some others.
Fed funds rate is another thing that is used to manage bank reserves. This is the rate
which banks charge each other to keep their excess cash over the night. These rates leaves
impact on all other rates of interests that includes bank rates as well as mortgage rates
third tool of this policy is discount rate. Fourth tool is called as discount window and
these both are interrelated to each other (Klapper and Parker, 2011).
Fifth tool is open market operations which is used to buy ans sell treasures from its bank
members. It changes the whole reserve amount that banks are holding. Sixth tool is clled as
inflation targeting.
 Fiscal policy: this policy is made by government. These decisions are regarding
spending as well as taxing. If UK government wants to stimulate the growth of
economy it will surely spend more over goods as well as economy. It will help in
increasing demand for products and services. As demand goes up it is necessary
for every economy to increase its production also. Once production is needed on
higher level then there will also be a need of new and more employees. It will
increase employment rate of nation and people who were not employed because
will now have jobs and they will be able to spend money on products and
services.

This process will further increase needs and demand of commodities and then it will
require more production. This cycle of growth will continuously move around. As a result,
government spending will also speed up the growth of economy.
If government is thinking about overheating of economy or it is growing too much fast
then government authorities can also decrease spending on products. If there will be spending by
government then overall demand of economy will also be decreased.
Production of goods will be lowered and because of this profits will also be decreased
that will result to less recruitment and investment in business. Reduction in government spending
will also effect all businesses ad there will be less amount of money with people and they will
not be able to spend more amount on goods.
Other side of fiscal policy is about taxes. If taxes are decreased then it will help in
economic growth(Kian Chong, Shafaghi and Leing Tan, 2011). If the tax rates go down people
will have more money in their pockets and they will be able to spend more money or saving
money. This saved money can be used by them in investing and these investments will provide a
decent return to them and increasing their revenues. If a person spends money then it will need
more production in economy and then same cycle will be repeated.
If government does not have enough profits to support the spending then it will have need
to borrow money. If government authorities want to slow down the economy then they will have
to raise tax rates. Then people have to pay a large portion of their income to government and
then they will not be able to spend money on goods and services. It will slow down the economy.
There are two powerful tools of government that is Fiscal and monetary policies that is used to
steer our economy in right direction. When used properly then they can have many similarities
which results in stimulating our economy and slowing down as it gets heated up.
Fiscal policy is when government uses it total spendings and taxing power to have an impact
on the economy. Combination and interaction of government expenditures and revenue
collection is delicate as requiring of good timing is little tough for government.
Monetary policy is the one policy that can be used to influenced both expansion and
contraction of GDP as measure of economic growth. When government tries to exercise its
power through lowering the taxations and increasing their expenditure while practising for their
expansionary fiscal policy. While on surface, expansionary efforts may seems to be leading some
positive effective effects by stimulating the economy. There can also be a domino effect which is

much broader in reaching. Government is spending at any one pace which would be faster than
tax revenue needs to be collected by the government. It can accumulate excess debt as it needs to
have some issues interest bearing bonds to finance the spending. Thus all this leading to increase
in the national debt.
 Quantitative easing: Quantitative Easing draws liquidity into the economy
through the buy of government and corporate securities (Harrison, 2011). As of
late QE has turned into a more typical arrangement for National Banks, Japan
being one of the first. QE produces results in a large number of courses, of which
they should now talk about. We profit and money related resources are flawed
substitutes. In this manner when there is an expansion in the cash supply through
quantitative facilitating firms will endeavour to rebalance their portfolios, which
thus raise the cost of benefits and brings down yields, animating the economy.
The two Keynesians concur with this view and the procedure. A moment
conceivable change for quantitative facilitating is the monetary channel. It expect
that in the event that the Central Bank infuses enough cash into the economy it
will mitigate the administration's monetary strain, empowering them to decrease
charges or increment government use without expanding general society
possessions of government obligation. Some economists infer that financial help
can effectsly affect enhancing welfare (Haidar, 2012). Be that as it may, they
noted 'Dug in value desires definitely are a boundary to approach achievement in
Japan'. The hidden factor deciding the adequacy of the financial channel is the
believability of the Central Bank. On the off chance that organizations trust the
lessening in charges is just brief and will be reimbursed in future expense builds
at that point the firm arrangement will turn out to be a great deal more wasteful.
The two focuses brought up in this paper feature the significance of open desires
and the validity of the Central Bank (Christopher and Holweg, 2011).
CONCLUSION
From the above prepared report, it can be concluded that the factors of business
environment is the vital part of an organization as these factors assist in maintaining activities
which are carried in relation with business. In this report, explanation regarding supply of side
policies by government of UK in order to enhance growth of economy is explained. These kind

of policies are very supportive for the overall development of an economy. Government of UK
also make use monetary and fiscal policies so as to do temporary stimulation of economies. For
the explanation of such things analysis of AD and AS is being done which will help in
understanding role of these policies in economy. Monetary policy support authority of monetary
in controlling money supply which generally targets interest and inflation rate. On the other
hand, Fiscal policy is the tool with the help of which tax rates and spending levels are adjusted so
as to influence and monitor economy of country.

REFERENCES
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