Unit 38 Business and Economic Environment

Topics: Macroeconomics, Economics, Policy Pages: 20 (4803 words) Published: June 20, 2013
Unit 38:
Unit code: QCF Level 3: Credit value:

Business and the Economic Environment
T/502/5500 BTEC National 10

Guided learning hours: 60
Aim and purpose
The aim of this unit is to introduce learners to the interaction between the general economic environment and business activity and how the interactions generate national wellbeing. Learners will study how government activities regulate and influence business activities and how business activities influence government action and policy.

Unit introduction
Businesses operate in an environment shaped by the government. Government seeks to control the general level of prices (inflation), employment levels, economic growth and the balance of payments. A range of techniques is used to influence these variables but changes made by the government have a direct impact on individual businesses. Raising interest rates may reduce demand as it becomes more expensive for consumers to borrow. This means that businesses will have to reduce output and possibly make staff redundant. The cost of borrowing to pay for new investment goes up so implementing newer technologies might be delayed, reducing an organisation’s competitiveness. Changes in the business environment will impact on individual organisations. Government spending has a significant impact on business as it is such a high proportion of the gross domestic product. Spending on infrastructure projects such as upgrading the west coast main railway line or building new sports facilities for the Olympic Games have a multiplier effect at both the national and local level. Suppliers of related goods and services prosper. In recession, the government uses spending as a means of stimulating economic activity. Fiscal and monetary policies are two of the main tools available to government for regulating most economic activity. Fiscal policy uses taxation and spending to influence the economy. The annual spending review and budget identify spending plans and how they will be financed from the public purse. Fiscal policy aims not only to raise revenue for spending but it is also used to re-distribute income. Deflation and reflation are controlled through monetary policy and the supply of money using interest rates. Monetary policy provides the means for ensuring macroeconomic stability. In the UK, government and business have to operate within the legal and regulatory framework established by both UK, Government and the European Union (EU) and other trans-national institutions. Harmonising legislation and regulations has ensured the adoption of the working time directive limiting how many hours employees can work. In many parts of the economy there are employees who have migrated to the UK to work, one of the most obvious impacts of belonging to the EU and something which benefits many employers who have needed to fill vacancies in boom times.

Edexcel BTEC Level 3 Nationals specification in Business – Issue 1 – January 2010 © Edexcel Limited 2009

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Learning outcomes
On completion of this unit a learner should:

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Understand the impact on businesses of changes in the economic environment Know how government spending impacts on businesses Understand fiscal and monetary policies and the effects on spending Know how the international economy affects UK businesses and competition.

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Edexcel BTEC Level 3 Nationals specification in Business – Issue 1 – January 2010 © Edexcel Limited 2009

Unit content
1 Understand the impact on businesses of changes in the economic environment Economic environment: business cycle (growth, recession); indicators, eg changes in gross domestic product (GDP), rates of inflation and deflation, employment rates, trade surpluses/deficits; balance of payments; conflicting objectives; ‘ripple effects’ of downturns in particular industries eg housing, construction and manufacturing; structural adjustments; welfare considerations Government policy: economic policy; industrial...
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