BM413 Global Business Environment: Fiscal & Monetary Policies Report

This report delves into the intricacies of fiscal and monetary policies, essential tools employed by governments to manage and stimulate economies. The introduction establishes the definitions of fiscal policy, which involves government spending and taxation, and monetary policy, which focuses on controlling the money supply and interest rates. The main body explores how governments utilize these policies to address economic challenges, such as unemployment, budget deficits, and inflation, specifically referencing the current economic issues faced by the UK. The report discusses fiscal policy's influence on public spending and taxation, highlighting its impact on different segments of the population. It then examines monetary policy, focusing on interest rate adjustments and reserve requirements, and their role in encouraging borrowing and investment. The report also touches upon the theory of trickle-down economics and its potential benefits and drawbacks. In conclusion, the report emphasizes the importance of both fiscal and monetary policies in stabilizing economies and achieving economic growth, with a particular focus on the UK's economic landscape. The report references academic sources to support its arguments and provides a comprehensive overview of the subject matter.

Fiscal and monetary policies

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
MAIN BODY.............................................................................................................................3
Government use fiscal and monetary policies to stimulate the economy..............................3
CONCLUSION..........................................................................................................................4
REFERENCES...........................................................................................................................5

INTRODUCTION
Fiscal policy refers to the economic policy in which government monitors and adjusts
the spending level and as a result influences the economy. Monetary policy is the decision
that is taken by the government with regards to the money supply and the interest rates. Both
these policies are used by the government in stabilizing the economy.
MAIN BODY
Government use fiscal and monetary policies to stimulate the economy
Fiscal policy defines how government uses budget with respect to resources
allocation, managing economic activities and distribution of income. The government uses it
to provide direction to the economic goals (Fuss and Palacios, 2019). This fiscal policy
theory states that the government can influence the productivity level of the whole economy
by increasing or decreasing the tax levels which will influence the public spending. The
impact of t will not be same for all people in the economy, for instance, a tax cut will only
affect middle class and business class people. The major purpose of fiscal policy is to reduce
the inflation, budget deficit, managing the economic growth of the country and balancing the
economic cycle. Currently, UK is facing the problem of unemployment, huge budget deficit
and inflation which is the major economic problem (Brendon and Corsetti, 2017). By fiscal
policy, UK government can increase the tax rate which will lead to reduction in spending for
facing the inflation problem and it will also help in reducing the budget deficit and reduce
inflation as well.
Monetary policy is the means to manage money supply in the economy. It is
maintained by taking steps such as increasing interest rates, amount of money required to be
placed as reserve in the bank. All these is done by central bank but the interest rate is set by
Chancellor. In case of deflation, like economic decline, the monetary policy can be used to
reduce the interest rate which will encourage people and businesses to borrow more and visa
versa in case of inflation (Rochon, 2017). UK is currently facing the problem of recession so
government can try to use this policy by cutting the interest rate which will help in
stimulating the economic activities. As it is increase disposable income and encourage
spending.
Trickledown economics is the theory which states that tax breaks and benefits to the
corporations and wealthy will help in stimulating the economic growth (Cianetti, 2018). It
assumes investors and company owners are the main drivers of growth and will use extra

cash from the tax cuts for business expansion. Thus, the benefits from it will trickle down to
everyone else. But there is failure associated with it. If the businesses do not invest in the
business expansion it will lead to downfall in the revenue of the country which will
drastically affect the economic growth of the country.
CONCLUSION
It can be concluded that monetary and fiscal policy both are important for stabilising
the economy along with achieving the growth like monetary policy is helpful in slowing
down the economy. But many prefers fiscal because it brings low taxes and interest rate and
trickle theory can be used for economic growth.

REFERENCES
Books and Journals
Brendon, C. and Corsetti, G., 2017. 10 Fiscal and Monetary Policies after the
Crises. Economics without Borders. p.409.
Cianetti, L., 2018. Trickle‐Down Social Inclusion: The EU Minorities Agenda in Times of
Crisis. JCMS: Journal of Common Market Studies. 56(4). pp.785-801.
Fuss, J. and Palacios, M., 2019. Fiscal Policy and Recessions: A Primer on Automatic
Stabilizers. Fraser Institute.
Rochon, L. P., 2017. Rethinking monetary policy. In A Modern Guide to Rethinking
Economics. Edward Elgar Publishing.