T2.

1
When the Economy wanted to satisfy all human wants and needs, then questions
becomes

What to produce
How to produce
For who to produce

Economics revolves the below methods

fundamental economic problems.

and

possibilities

of

solving

this

The free market economy

The free market economy is a system where all economic decisions are made by
individuals and companies. Under this system the forces of supply and demand
are used to solve the problems on what to produce, how to produce etc. this
system
ensures
effective
resource
allocation.
Command Economy
The Command economy or centrally planned economy is where all economic
decisions are made by the government. The government owns all factors of
production and decides that is what to produce, how to produce and for whom to
produce. Firms are not very efficient as they do not earn profits.
Command Economy
The mixed-economy is basically and combination of the above two. its where
markets are used to solve the economic problem to an extent and then the
government intervenes when the market does not produce the desired results.
Most countries follow this economy system.

UK Economy
The United Kingdom comprises four countries: England, Scotland, Wales and
Northern Ireland. The UK is one of the world's great trading powers and financial
centers, and its essentially capitalistic economy ranks among the four largest in
Western Europe. The UK has large coal, natural gas, and oil reserves, primary
energy production accounts, one of the highest shares of any industrial nation. UK
is Fifth largest economy in the world in terms of market exchange rates, the sixth
largest by purchasing power parity (PPP) and the second largest economy in
Europe after Germany.

Private and public investments available in UK

a.

Established Industries
Food and drink
Aerospace
Pharmaceuticals
Electronics
Automotive

b.

New Industries
Low carbon
Industrial biotechnology
Nanotechnology
Digital and advanced materials such as Composites Fiber and resins,
woven and pre-preg materials

UKs Population and Labour Force

The population for the UK in 2012 was 63.244 million. Out of this
population, 17.3 percent are aged below fifteen, 65.4 percent are between
the ages of fifteen and sixty four, while 17.3 percent are aged sixty-five and
above. The age groups are not evenly distributed around the country, with
some areas having many young adults and children and some areas having
large numbers of older people.

The UK has the 20th largest labour force in the world, with 31.9 million
workers. However, unemployment remains high in the UK at 8.02 percent,
and is likely to remain so in the wake of the UKs austerity plans. The UK
government has warned that nearly half a million jobs could be lost in the
public sector alone as the government continues its cut on public spending.

Currently, 1.4 percent of the labour forces are employed in agriculture, 18.2
percent in industries and 80.4 percent in services. However, agriculture
may soon face a labour crisis due to an aging labour force and a general
lack of interest for agricultural jobs.

UKs Labour Force by Occupation

Main problems faced by the UK Economy

UKs Economy Growth

The latest graph for economic growth shows the UK in a double dip recession.
There are signs that the UK may recover soon, but since 2008 growth has been
way below the long run trend rate of growth, leading to a significant loss in
potential output.

Unemployment

Unemployment is close to double figures (8.5%) 2.5 million. The official figures
also hide some disguised unemployment, (such as enforced part-time work / early
retirement) but, unemployment is still a significant problem.

Government Debt

In the short term, government debt is less pressing than the government has
claimed. Since 2010, they have given indication that reducing debt levels are the
most pressing economic problem. Because of debt, the government has pursued
austerity leading to lower growth. I feel the government unnecessarily panicked
over debt. Nevertheless, long term spending commitments and long-term debt
forecasts are a problem. With an ageing population and perhaps lower growth
rates, it could be difficult to finance long-term spending commitments from
current tax levels. Debt is a long-term problem rather than short-term.
Inflation

Inflation is currently a relatively minor problem because it has fallen to be within

the governments target. However, with rising energy prices, it could resume its
upward trend in the coming months. This cost-push inflation is a problem because
with low nominal wage growth, many could see a fall in living standards (causing
an increase in fuel poverty). Also, savers may be adversely affected because
interest rates are low.

Current Account Deficit

The deterioration in the UK current account is a cause for some concern because
it is occurring in a recession. Usually a recession leads to lower imports and an
improvement in the current account. This deterioration in the current account
suggests the UK could have declining international competitiveness, though it
may also be a temporary situation related to Eurozone crisis.
Lack of Infrastructure Investment

The recession has seen a fall in public sector investment. This threatens longterm productivity issues, such as transport bottlenecks. As well as infrastructure
problems, there are also concerns over other supply side problems, such as
inflexible labour markets and lack of vocational skills.

Poor Labour Productivity growth

Some of this poor labour productivity growth can be attributed to the recession.
But, if this trend of low productivity growth continues, it will harm the capacity for
long-term economic growth.
T 2.2
Government uses policies to regulate economy. UK using Fiscal and Monetary
policies to regulate the economy.

Fiscal policy
Fiscal policy is the use of government spending and revenue collections to
influence the economy.
Monetary policy is the process by which the government, central bank, or
monetary authority of a country controls supply and availability of money. The
two main tools of fiscal policy are taxes and spending.
Types of fiscal policy
There are two types of fiscal policy, discretionary and automatic.

Discretionary policy refers to policies which are decided, and implemented,

by one-off policy changes.

Automatic stabilization, where the economy can be stabilized by processes

called

Impacts of Fiscal Policy in a business organization.

Can have an important impact on the economy.

Can discriminate which differentiate the regions & consumption hibits to
grow the economy.
It makes the distribution of income through taxes & benefits.
Can have effects on other areas which are not originally planned.
Lot of time waste on fiscal policy.
Some policies specially high taxes discourage to work.

Monetary Policy
Monetary Policy is basically the government's way of controlling the economy by
using INTEREST RATES and the MONEY SUPPLY

The impact of monetary policy on a business organization

It has a price stability.

Encourage to the economic development in a short time period.
Promote the external economic development.
Need to limit during the deflation.
Sometimes Lags will affect the policy.
Velocity of money will change.

How economy can be regulated through these policies?

By following the policy

When they give more importance to the policy.
By following the ethics

By following the rules & regulations.

How organizations can be affected when government changes these

policies

The demand of the organization will become down.

The planned decesions has to re-decide again.
The schedule of the organization will affect.
Must follow the policies.
No freedom to prevent this.

T 2.3
UK Competition Policy
Government policies to prevent and reduce the abuse of monopoly power. Abuse
of monopoly power can lead to market failure and be against the public interest.
Therefore Governments are concerned to intervene and protect the interests of
the consumers. 1998 Competition Act sought to bring the UK into line with EU
competition policy