Business environment of UK Essay Example | Topics and Well Written Essays - 1500 words

Business environment of UK - Essay Example Price is the key mechanism in this system. Changes in prices change the production and consumption patters and this system is dominated by private individuals and firms. On the other extreme, we have command economy system (John Sloman, 2002). This system is dominated by government's rules and regulations and government decide where to allocate resources, what to produce, how to produce and ration the produced resources accordingly. If we look at the economic system that is being followed in our Country (i-e England), we can clearly see that we follow a system that is a mixture of both private ownership and government control. This system is known as mixed economy and it combines the positives of both free-market and command economy. Like us, all the major countries like USA, Canada and France use this system. This system is considered as an ideal system for the businesses to thrive and government control establishes stability in the system. Macro-Economics concerns the working of an economy as whole. It provides various aims to the economy to work towards. Generally, these macro-economic aims include: Low inflation, Low unemployment, price stability and keeping balancing of payment. However, more often than not, economy moves away from these aims. To bridge this gap the government takes certain measures and actions. These actions are also known as instruments of macro-economics aims. England uses the following instruments to fulfill the macroeconomic aims. (McConnell and Brue, 2000) Monetary policy is deliberate manipulation of interest rates and money supply in the economy to fulfill the desired macroeconomic targets. Whenever there is inflation, it means that demand for good is higher than supply. In this case government usually raises the interest rate and reduces the money supply in the economy. This is known as deflationary monetary policy. When government uses this policy, less money is pumped into the economy and people now have less money in their hands to spend. Similarly, higher interest rates discourage them from borrowing from banks and this curtails their spending. When demand goes down, prices come down and inflation is taken care of. This policy also affects the business in adverse way. When government follows this policy, the businesses experience fall in their sales and some businesses might close down due to plummeting demand that this policy may lead to. On the other hand, when England is going through a period of recession, government helps b y starting an inflation fiscal policy to increase the aggregate demand in the economy. They lower interest rates and increase money supply in the economy. As a result of this policy people have more money to spend and businesses flourish as a result of high demand which is brought about by more supply of money in the hands of people and their ability to borrow money increases due to lower interest rates. This is how England's government uses the monetary policy to stimulate the aggregate demand. (Lipsey, 2003) Another instrument used by the government of England is fiscal policy. This includes varying tax rates and changing government expenditures in the economy to achieve desired targets. The Government of England usually increases taxes rates and lowers expenditure when faced with inflation. It again reduces the money that people have. As a