Evaluate the likely impact on UBH of the changes the government made to its economic policies in response to the recession.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2022). The mark or mark type is shown in brackets.

1. [1] (Knowledge) Recession - two successive quarters in which output is falling.
2. [1] (Knowledge) Understanding of government fiscal and monetary policies.
3. [1] (Knowledge) Fiscal - government spending and taxation.
4. [1] (Knowledge) Monetary - interest rates and money supply and exchange rates.
5. [1] (Application) Expansionary fiscal policy – investment in infrastructure, postponing taxation, cutting income tax.
6. [1] (Application) Expansionary monetary policy – reducing interest rates.
7. [1] (Application) Delaying payment of business taxes will have improved UBH cashflow.
8. [1] (Application) Capacity utilisation fell to 50% during the recession.
9. [1] (Application) High fixed costs of UBH makes capacity utilisation important.
10. [1] (Application) High cost of real estate in country W.
11. [1] (Application) Liquidity problems of UBH illustrated by CR in 2020 of 0.18:1 (0.8 / 4.5) and negative working capital of -$3.7m.
12. [1] (Application) Loss of $3m in 2020.
13. [1] (Application) Recession resulted in 10% decrease in GDP putting many of UBH's small business customers out of business.
14. [1] (Application) For many of UBH's customers the government intervention was too late to save them.
15. [1] (Analysis) Linking specific policies to impact on UBH.
16. [1] (Analysis) Postponement of business and property taxes will reduce cash outflows. Gives UBH a breathing space to allow survival.
17. [1] (Analysis) Expansionary fiscal policy will boost spending in the economy and provide better conditions for business start-ups whilst also protecting recently formed businesses. This will result in higher demand from businesses for co-working space and therefore boost revenue and potentially profit.
18. [1] (Analysis) Cut in borrowing costs could reduce costs of UBH servicing its debt and this will increase profit for the year.
19. [1] (Analysis) Lower interest rates will encourage greater consumer spending and business investment. His will benefit UBH sales.
20. [1] (Analysis) Lower interest rates will reduce the cost of expansion making opening the three new Beehives in 2022 more viable.
21. [1] (Evaluation) Most important policy. Deferral of property and business taxes would have immediate impact on UBH cash outflows.
22. [1] (Evaluation) Time lags of policies – infrastructure spending takes time to have full impact on aggregate demand.
23. [1] (Evaluation) Deferral of business tax is postponing payment of the tax but the debt still exists which could still cause business failure.
24. [1] (Evaluation) Policies may only be temporary so UBH's survival depends on how well it takes advantage of the opportunities presented e.g. UBH will still need to control costs to survive.
25. [1] (Evaluation) Other factors may have been important in survival.