Impact of Fiscal Policy and Economic Factors on Business Growth

This report provides a comprehensive analysis of the business environment, focusing on fiscal policies, economic growth, unemployment, and economic cycles. It examines the role of fiscal policies in balancing economic transactions and promoting growth, while also discussing the importance of GDP as a key indicator of economic progress. The report further explores the impact of interest rates and monetary policies on controlling money supply and stabilizing the economy. Different types of unemployment, including cyclical, structural, seasonal, frictional, and voluntary unemployment, are also discussed. The report also analyzes the stages of an economic cycle, from expansion to trough, and provides an overview of the UK's economic recession during the COVID-19 pandemic, highlighting the varying impacts on different sectors. Finally, it examines methods for increasing sustainable economic growth, emphasizing the importance of sustainable business measures and infrastructure development.

BUSINESS
ENVIRONMENT

Table of Contents
SECTION – A.................................................................................................................................................3
Question 2...............................................................................................................................................3
Question 3...............................................................................................................................................3
Question 5...............................................................................................................................................3
Question 8...............................................................................................................................................4
Question 9...............................................................................................................................................4
SECTION – B.................................................................................................................................................5
Question 1...............................................................................................................................................5
Question 3...............................................................................................................................................6
REFERENCES................................................................................................................................................7

SECTION – A
Question 2
Fiscal policies as the name suggests relates to the expenditures and earnings of any
economy in the world. These are one of the most important policies that the government has to
formulate, implement and monitor so as to keep the economy’s expenditures and receipts under
check. Thus, it can be very effectively said that these fiscal policies balances the transactions
resulting into inflow of resources or money in the economy and also resulting into outflow of
resources or money out of the economy so as to avoid the situation of imbalance which may lead
to facing of deficits (Śliwa, Kerr and Robinson, 2021). This situation of deficit means that the
economy is paying out more than it is receiving. Therefore, it is very necessary that these
policies are formulated, implemented and monitored very effectively to keep the economy up on
its toes and moving forward. Government utilizes fiscal policies to control the spending, rates of
interest and taxes which are the major source of influence on the economy. These activities also
results into reduction of poverty and stimulation of growth in the economy. Thus, it can be very
confidently said that an effective and well – devised fiscal policy will keep the economy moving
and prevent its collapse during any kind of crisis.
Question 3
Growth of any economy is the most primary intention or objective of any government in
place for a nation. Therefore, it needs to follow such specific steps, formulate such required
policies, procedures & strategies and be very wise in its working so as to achieve this economic
growth in the country. The most important measurement to monitor this economic growth is
measuring the gross domestic product (GDP) of the country i.e., an increment in the gross
domestic product will result in the economic growth of the nation as well (Vissak, 2021). This
concept of GDP can be explained as aggregate value of all of the goods and services which are
being manufactured in a nation in a particular year. GDP is an annual measurement of the
economic growth. But it is also true that not only GDP but many other forces are there which
also has affect on the economic growth of the nation. Therefore, it is well understood now that
there is no one singular force that generates the ideal rate of economic growth that a economy
may be needing in a given situation. This economic growth is also largely affected by the level of
spending done by the consumers and investments done by the businesses.
Question 5
Improvement of the economic situation of any economy whether large or small,
developed, developing or even under – developed is a tedious task which requires managing and
steering various factors of the economy to bring the much needed stability to the economy. One
of these factors which need to be monitored and steered is interest rates. This monitoring and
steering of interest rates comes under the purview of the monetary policies for any economy
(Savina and Barbashova, 2019). Ultimate intention behind this changing of interest rates is

controlling the supply of money in the market so that the combination of stabilization of output
and inflation can be achieved. But, it shall be noted that this change in the rates of interest can
have both positive as well as negative impact on the economy. Thus, the appropriate authority
responds to the present situation of the market appropriately. In the times when economy is
showing overly strong behavior, interest rates are risen and when the economy seems to be down
or bit sluggish then the rates are lowered to increase the flow of money in the economy.
Conclusively, lowering the rates will result into cheaper borrowing of the money and encourages
spending by the consumers and investments by the businesses while also leading to the situation
of inflation and liquidity traps.
Question 8
Different types of unemployment prevalent in an economy are discussed as follows:
 Cyclical unemployment – Such a type of unemployment arises when the situation of
declination in the aggregate demand arises in the market. If such situation continues to
prevail for long – term then it is called as deficient general or Keynesian unemployment.
 Structural unemployment – Such a type of unemployment arises due to long term
modifications or variations in the conditions of the market (Wronka, 2021). Best example of
this type of unemployment is Globalization which is the cause of structural unemployment in
various economies.
 Seasonal unemployment – Such a type of unemployment arises in the industries which are
based on certain produces which only occur in a particular season in a year. Example of such
industries includes farming, construction and tourism.
 Frictional unemployment – Such a type of unemployment arises when the worker loses his
current employment and in the search of another one. There is not much that can be done to
reduce this kind of unemployment other than providing better information to them to reduce
the time taken to search for a new job.
 Voluntary unemployment – Such a type of unemployment arises when a worker or a person
chooses not work in the current situation or in the prevailing wage rate. Thus, he voluntarily
decides not to be employed thus the name voluntary unemployment.
Question 9
The cycle of an economy which it operates and thrives through is called as economic
cycle. It includes those fluctuations that the economy has to go through from experiencing the
expansion or growth to suffering of contraction or recession. Stages of economic cycle are
described as follows:
 Expansion – During this stage of economic cycle, rapid growth is experienced by the
economy, rates of interest are also low, rapid increase in the production can be observed and
the pressures leading to inflation can be observed to be building up.

 Peak – During this stage of economic cycle, a particular economy is at its peak or has hit the
maximum rate of growth (Butt, Jones and Fuertes, 2021). This way, there are certain
imbalances which can be seen to be building up and which need to be corrected.
 Contraction – During this stage of economic cycle, the above required correction happens
when the growth slows down, rate of employment reduces and also prices are stagnated.
 Trough – During this stage of economic cycle, the economy has hit the low point and it
again beings to experience some growth.
SECTION – B
Question 1
The pandemic unfortunately led to a situation of severe recession in the economy of the
UK. This was due to collective drastic effect on the economy of restrictions related to the
lockdown which led to discontinuation of various businesses, restrictions related to the social
distancing, restrictions on the mobility of the people, etc. The level of recession faced by this
economy in the times of Covid – 19 is unimaginable and unprecedented in today’s times. In the
year 2020, the gross domestic product (GDP) dropped by 9.7%. This excruciating drop in the
GDP is the lowest drop experienced by the economy since 1948 in which consistent records
began to be maintained. More importantly, this drop in the GDP is equal to the decline
experienced in 1921 as per the available unofficial estimates.
During the period when the first lockdown was in effect i.e., in April 2020, GDP of the
UK fell by 25% of what it was in the month of February 2020 i.e., only two months before. As
the lockdown began to cease in the spring and summers of 2020, the economy of the UK showed
signs of revival from the drop it just took as it was slowly opening up (Alsaifi, Elnahass and
Salama, 2020). Then again, the Covid – 19 cases began to rise during the period of autumn and
winters which again led to downfall in the economic activities and ultimately the economy as a
whole. But this fall was fortunately less drastic or severe that it was in the first lockdown during
which fall in 25% GDP was experienced. Reason being, adaptability and ability to tackle this
heavy situation of the people, consumers and the businesses increased over the last year.
GDP rebounded majorly in the springs of 2021 but the growth rate again slowed in the
summer and autumns. In the month of October 2021 the economy was still below by 0.5% i.e., it
was at -0.5% when compared to the times pre – pandemic. Now, observing the economy sector
wise it has been seen that some of the sector took more severe hit when compared to other
sectors. Like, hospitality industry and entertainment industry including hotels, restaurants, bars,
inns, resorts, movie halls, gaming zones, shopping malls, etc. were more severely hit as they
were made to be completely shut down being non – essential to the human survival in the times
of global pandemic. But some sectors like financial services came out relatively better than any
other sectors. This was due to the drastically increased requirements of the business and

individuals of finances to start their businesses again or keep the businesses going in the effect of
cash shortages due to shut downs in the lockdown.
Question 3
Different methods are developed by various economists which are helpful for increasing
the sustainable economic growth of nations. It is essential for countries to give share emphasis on
increasing sustainable business measures in their economy which provides better assistance in
producing higher quality of output (Mewes and Broekel, 2020). Effective changes can be made in
the policies and procedures of the business environment which call proverb appropriate support
to the company's for achieving their goals successfully. With the help of these changes
governments are able to regulate the inappropriate practices which are conducted by
organizations. These practices may have a negative impact on the overall environmental
conditions of the nation which needs to be measured for better results. Development of new
structures and strategies for businesses to follow may have a positive impact on their management
of the organizational footprint in the environment.
Another effective sustainable practice is to invest in the development of infrastructure
around the business environment for increasing the convenience for businesses in the industry.
This can help the government to establish better opportunities for the organizations that are
operating in the system by providing them with the appropriate resources and platforms to
express themselves. This can increase the sustainability of these organizations in the dynamic
business environment. It is helpful for these organizations to enhance their overall opportunities
to grow and achieve higher quality of output in comparison to another business. This has a
collaborative impact on the overall sustainable development of the nation which is necessary for
economic growth. Controlling the release of pollutants in the environment is important for
ensuring a better future for the organization which will help them to grow and conduct their
business practices appropriately. This will reduce the pressure of different factors which have a
negative impact on the sustainability of the overall industry.
Various measures are designed for understanding the real economic growth in a country which is
essential to find the different reasons for changes in economic stability. Gross Domestic Product is
an effective measure to evaluate the economic development which is achieved by a country. The
contribution of a nation for producing goods and services in a particular year is considered as
gross domestic product which helps in identifying the annual growth which has been achieved by
a country over a time period. It is a standard measure which simplifies the growth and
development which is achieved by the country significantly (Urbano, Aparicio and Audretsch,
2019). Changes in the unemployment rate of the country is another such effective measure which
is helpful for evaluating economic growth. It explains the overall number of people who are
unemployed in a nation at a point of time. The condition of people which are unable to find
stability in their economic condition due to unavailability of jobs may have a serious impact on the
overall sustainable development of a country. These measures are effective for understanding the

actual economic growth which has been achieved by a country with the help of various strategies
and changes that are initiated by the government.

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