Impact of Fiscal and Monetary Policies on Economic Growth

This report analyzes the roles of fiscal and monetary policies within a global business environment. It begins by defining fiscal policy as government actions affecting taxation and spending to influence economic activity, and monetary policy as actions taken to control inflation and promote growth, often through interest rates. The report explores the tools used in each policy area, such as tax adjustments and interest rate changes, and their impact on economic variables like aggregate demand, inflation, and unemployment. Examples are provided, including how the UK government utilizes these policies to manage economic downturns and control inflation. The conclusion emphasizes the importance of these policies in maintaining economic stability and growth. The report references academic sources to support its findings.

Global Business
Environment

Contents
Topic 3 Fiscal and monetary policy used by Government..............................................................3
Introduction............................................................................................................................3
Main Body..............................................................................................................................3
Conclusion..............................................................................................................................4
REFERENCES................................................................................................................................5

Topic 3 Fiscal and monetary policy used by Government
Introduction
Fiscal and monetary policies both play an essential role in shaping the country's
economy. Fiscal policy comprises with an attempt that focus on influencing the present level of
economic activity by introducing changes in taxation and spending of government. They are the
main toll of these policies that have a direct impact upon budget deficit. On the other hand, the
monetary policy aims at controlling inflation and contributing towards growth.
Main Body
The main tools of the Fiscal and monetary policies of any nation are found to be the
interest rates that have a direct impact upon the cost of borrowings. In order to influence the
economic activity the government changes the level of taxation. The aim of fiscal policy is to
maximise growth in the recession period while keeping the inflation low and aiming at
stabilising the economy by ignoring boom. For instance: The automatic fiscal stabilisers tend to
work through economic waver which is on the government budget and it does not require short
term decision by the policy makers. The factors such as size of tax collection transfer payment
have a direct relation to the alternate point of the economy and this assists in stabilising
aggregate demand and income of the private sector (Botha, Kourie and Snyman, 2014). In order
to deal with the inflation issue, the UK government can increase tax rates and cut the overall
spending of people. This swill assists in reducing budget deficit and will further reduce the
inflationary pressure and demand as well. Whereas in the recession period the government will
increase the aggregate demand that will result in increase in government spending and tax
reduction. Reducing tax will result in increase in disposable income which will maximise
economic growth and help in minimising the unemployment.
Monetary policy consists of interest rates and other adequate and relevant monetary tools
with a view to influence the existing levels of consumer spending and aggregate demand. It
strives to ensure stable economic growth along with low inflation rates. For instance: The
monetary policy within United Kingdom is set by the Monetary Policy Committee (MPC) of the
Bank of England (Kasemsap, 2014). The monetary policy includes a number of stabilisation
policies. Within UK, issues such as unemployment, inflation prevail. In this regard, the major
aim of monetary policy is to control the supply of money within the economy and interest rates.

In case of rescission, UK government cut interest rates as lower interest rates tends to maximise
economic growth which implies reduced borrowing cost. This enhances the disposable income of
consumers, thereby, resulting in increased spending and vice-versa.
Conclusion
On the basis of above discussion, it can be concluded that government set different types
of boundaries to different countries so to avoid any factor which could affect smooth running of
country. The major function of government is to modify their fiscal and monetary policy so that
they support their economy to grow high.

REFERENCES
Books and Journals
Botha, A., Kourie, D. and Snyman, R., 2014.Coping with continuous change in the business
environment: Knowledge management and knowledge management technology.
Elsevier.
Kasemsap, K., 2014. The role of social networking in global business environments. In Impact of
emerging digital technologies on leadership in global business(pp. 183-201). IGI
Global.