Business – 6.1 External influences – Economic | e-Consult
6.1 External influences – Economic (1 questions)
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The decision to expand depends on the interplay between economic growth and fiscal policy. A growing economy typically offers a favourable environment for expansion, especially when supported by expansionary fiscal measures. Conversely, low growth combined with contractionary fiscal policy creates a challenging context.
| Scenario | High GDP Growth (>3% p.a.) | Low GDP Growth ( |
| Consumer demand | Rising demand encourages higher sales volumes. | Stagnant demand limits revenue growth. |
| Fiscal policy | Expansionary (tax cuts, increased spending) boosts confidence and reduces financing costs. | Contractionary (tax hikes, spending cuts) raises costs and may tighten credit. |
| Business investment decision | Firms are more likely to invest in new facilities, hire staff, and increase capacity. | Firms may postpone or scale back expansion plans, focusing on efficiency. |
In summary, high GDP growth combined with expansionary fiscal policy creates a supportive environment for domestic expansion, whereas low growth paired with contractionary fiscal measures discourages such investment.